10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended April 1, 2005

Commission File Number 0-23832

PSS WORLD MEDICAL, INC.

(Exact name of Registrant as specified in its charter)

FLORIDA	59-2280364
(State of incorporation)	(I.R.S. Employer Identification No.)
4345 Southpoint Boulevard Jacksonville, Florida	32216
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (904) 332-3000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  þ    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes  þ    No  ¨

The aggregate market value of common stock held by nonaffiliates, computed by reference to the closing price as reported on the NASDAQ, as of October 1, 2004 was approximately $612,267,000.

The number of shares of Common Stock, $0.01 par value, of the Registrant outstanding at June 10, 2005, was 65,210,191.

Document Incorporated by Reference

Portions of the Registrant’s Definitive Proxy Statement for the 2005 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission not later than 120 days after April 1, 2005, are incorporated by reference into Part III of this Annual Report on Form 10-K.

TABLE OF CONTENTS

Item		Page
	Cautionary Statements—Forward-Looking Statements	3
	Part I
1.	Business	6
2.	Properties	15
3.	Legal Proceedings	16
4.	Submission of Matters to a Vote of Security Holders	16
	Part II
5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
6.	Selected Financial Data	19
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
7A.	Quantitative and Qualitative Disclosures About Market Risk	62
8.	Financial Statements and Supplementary Data	F-1
9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	64
9A.	Controls and Procedures	64
9B.	Other Information	66
	Part III
10.	Directors and Executive Officers of the Registrant	66
11.	Executive Compensation	66
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	67
13.	Certain Relationships and Related Transactions	67
14.	Principal Accountant Fees and Services	67
	Part IV
15.	Exhibits and Financial Statement Schedules	67
	Signatures	73

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CAUTIONARY STATEMENTS

Forward-Looking Statements

Management may from time-to-time make written or oral forward-looking statements with respect to the Company’s annual or long-term goals, including statements contained in this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Reports on Form 8-K, reports to shareholders, press releases, and other communications. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical earnings and those currently anticipated or projected. Management cautions readers not to place undue reliance on any of the Company’s forward-looking statements, which speak only as of the date made.

Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “could,” and similar expressions identify forward-looking statements. Forward-looking statements contained in this Annual Report on Form 10-K that involve risks and uncertainties include, without limitation:

• management’s belief that the elder care market is expected to continue benefiting from the increasing growth rate of the elderly U.S. population and the expansion of provider care into the patient’s home;

• management’s belief that the physician market is expected to continue benefiting from the shift of procedures and diagnostic testing in hospitals to alternate sites, particularly physician offices;

• management’s belief that the additional funding under the Medicare and Medicaid programs during 2000 through 2004, or “add-on” reimbursement payments for providers of skilled nursing and long-term care services, have positively impacted the financial strength of companies providing these services;

• management’s belief that the recent changes to Medicare and Medicaid reimbursement rates and the introduction of the Medicare/Medicaid prescription drug program that became effective in October 2003 has positively impacted, and will continue to positively impact, the financial condition of elder care providers and the financial strength of the elder care industry;

• management’s belief that its Global Sourcing team is developing adequate controls, procedures, and infrastructure to import products without supply interruptions, legal infringement issues, governmental compliance issues, and product quality deficiencies;

• management’s expectation that the implementation of the JDE XE customer service module at the Elder Care Business will be successfully completed during the fiscal year 2006;

• management’s belief that the healthcare services industry will continue to be subject to extensive regulation at the Federal, state, and local levels and the Company has adequate compliance programs and controls to ensure compliance with the laws and regulations;

• management’s belief that the PSS World Medical, Physician Sales & Service, and Gulf South Medical Supply names are well recognized in the medical supply industry and by healthcare providers and, therefore, are valuable assets of the Company;

• management’s belief that relations with employees are good and the Company’s long-term success depends on good relations with its employees, including its sales professionals;

• the Company’s intent to vigorously defend the proceedings resulting from the securities class action lawsuit which is described in Item 3, Legal Proceedings, and Note 16, Commitments and Contingencies;

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• management’s belief that the outcome of proceedings or claims which are pending or known to be threatened will not have a material adverse effect on the Company’s consolidated financial position, liquidity, or results of operations;

• management’s anticipation that no cash dividends will be declared in the foreseeable future;

• management’s belief that nursing home divestitures may continue to impact net sales during fiscal year 2006 as large, national chain customers may continue to divest facilities located in states with high malpractice claims, high insurance costs, and litigation exposure;

• management’s belief that voluntary or involuntary changes in control of national chain customers may impact net sales in future periods where the acquirer of an existing customer may not have a previous relationship with the Company;

• management’s belief that its strategy of centralizing the procurement and disbursements functions has resulted, and will continue to result, in efficiencies and savings that will partially offset pricing declines;

• management’s expectation that gross profit as a percentage of net sales may decrease in future periods due to an expected increased sales volume of pharmaceutical products and diagnostic equipment in the Physician Business;

• management’s belief that its global sourcing strategy is expected to improve its cost competitiveness and significantly increase the Physician and Elder Care Businesses’ gross margins on certain products;

• management’s expectation that gross profit as a percentage of net sales may increase in future periods as a result of growth in ancillary billing services in the Elder Care Business;

• management’s anticipation that rising fuel costs may continue to negatively impact both the Physician Business’ and the Elder Care Business’ cost to deliver or expected improvements in cost to deliver during fiscal year 2006;

• management’s belief that the Congressional Joint Committee on Taxation will approve the agreed-upon settlement with the Appeals Office of the Internal Revenue Service (December 2004);

• management’s expectation that the results of the Internal Revenue Service audit of the Federal income tax returns for fiscal years 2002 and 2003 will not have a material impact on the financial condition or consolidated results of operations of the Company;

• management’s expectation that the overall growth in the business will be funded through a combination of cash flows from operating activities, borrowings under the revolving line of credit, capital markets, and/or other financing arrangements;

• management’s belief that the Company may seek to retire its outstanding equity through cash purchases and/or reduce its debt;

• management’s belief that the Company may seek to issue additional debt or equity to meet its future liquidity requirements;

• management’s belief that the transaction-based and performance-based vendor rebate contracts will continue to be renewed in future periods with terms consistent with the Company’s expected revenue growth rates;

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• management’s expectations that the effect of adopting Emerging Issues Task Force Issue No. 04-08, The Effect of Contingently Convertible Debt on Diluted Earnings Per Share, and Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment, did not or will not have a material impact on the Company’s financial condition or results of operations;

• management’s belief that the Company may elect to settle the principal amount of its 2.25% convertible senior notes in cash;

• management’s belief that the deferred tax assets, net of the valuation allowance, as of April 1, 2005 will be realizable to offset the projected future taxable income;

• management’s expectation of fully utilizing the Federal net operating loss carryforward as well as a portion of the remaining state net operating loss carryforwards during fiscal year 2006;

• management’s belief that future quarterly operating results may fluctuate depending on a number of factors, including the timing of business acquisitions and changes in customer’s buying patterns of supplies, equipment, and pharmaceuticals; and

• the Company’s belief that the Competitive Bidding Program for home care providers to be Beta tested in 2007 by the U.S. government will provide opportunities for the Company to expand its Elder Care Business.

In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, management is identifying important factors that could affect the Company’s financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements about the Company’s goals or expectations. The Company’s future results could be adversely affected by a variety of factors, including those discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading “Risk Factors”. In addition, all forward-looking statements are qualified by and should be read in conjunction with the risks described or referred to in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading “Risk Factors”.

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PART I

ITEM 1. BUSINESS

THE COMPANY

PSS World Medical, Inc. (the “Company” or “PSSI”), a Florida corporation which began operations in 1983, is a specialty marketer and distributor of medical products, equipment, and pharmaceutical related products to alternate-site healthcare providers including physician offices, long-term care facilities, and home care providers through 43 full-service distribution centers, which serve all 50 states throughout the United States. PSSI is a leader in the two market segments it serves as a result of value-added, solution-based marketing programs; a customer differentiated distribution and service model; a consultative sales force with extensive product, disease state, reimbursement, and supply chain knowledge; unique arrangements with product manufacturers; innovative information systems and marketing programs; and a culture of performance. The Company is focused on improving business operations and management processes, maximizing its core distribution capability and efficiency, and developing and implementing innovative marketing strategies. In addition, the Company has recently made several acquisitions to broaden its reach and leverage its infrastructure and may continue to make acquisitions in the future.

The Company currently conducts business through two operating segments, the Physician Business and the Elder Care Business. These strategic segments serve a diverse customer base. Historically, the Company conducted business under a third operating segment, the Imaging Business or the Diagnostic Imaging, Inc. subsidiary (“DI”), a distributor of medical diagnostic imaging supplies, chemicals, equipment, and services to the acute and alternate-care markets in the United States. On November 18, 2002, the Company completed the sale of the Imaging Business. As a result, DI’s results of operations for fiscal year 2003 have been classified as discontinued operations. Refer to Note 17, Discontinued Operations, in the accompanying financial statements for a further discussion.

THE INDUSTRY

According to industry estimates, the market size of the medical supply and equipment, home care and office-administered pharmaceutical segments of the United States (“U.S.”) healthcare industry is approximately $45 billion. These market segments consist of medical products, medical equipment, and pharmaceutical products administered in an out-patient setting, which are distributed to alternate-site healthcare providers, including physician offices, long-term care and assisted living facilities, home healthcare providers and agencies, dental offices, and other alternate-site providers, such as outpatient surgery centers, podiatrists, and veterinarians. The Company’s primary focus is a sub-segment of this larger market, which is a $26.5 billion market, including the distribution of medical products, medical equipment, and office-administered pharmaceutical products to physician offices, long-term care and assisted living facilities, and home healthcare providers and equipment dealers.

The medical products distribution industry continues to experience growth due to the aging population, increased healthcare awareness, the proliferation of medical technology and testing, new pharmacology treatments, and expanded third-party insurance coverage. The elder care market is expected to continue benefiting from the increasing growth rate of the elderly U.S. population and the expansion of provider care into the patient’s home. For example, the January 2000 U.S. Bureau of the Census estimated that the elderly population in the U.S. will more than double by the year 2040. In 2000, four million Americans age 85 years and older represented the segment of the population that is in the greatest need of long-term and elder care services and this segment is projected to more than triple to over 14 million by the year 2040. The segment of the population who is age 65 to 84 years is projected to more than double in the same time period. The physician market is expected to continue benefiting from the shift of procedures and diagnostic testing in hospitals to alternate sites, particularly physician offices. Furthermore, as the cosmetic surgery and elective procedure markets continue to grow, physicians are increasingly performing these procedures in their offices. Currently, estimated growth rates for the physician and elder care markets is approximately 4.0% and 1.5%, respectively. The nursing home and homecare segments of the elder care market are growing at rates ranging from 1% to 2% and 5% to 7%, respectively. As a result of these market dynamics, annual expenditures for healthcare services continue to increase in the United States. As cited in The Centers for Medicaid and Medicare Services (“CMS”), Office of the Actuary, National Health Statistics Group 2002 study, Trends and Indicators in the Changing Health Care Marketplace, total national health care spending reached $1.3 trillion in

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2000, or 13.2% of the nation’s gross domestic product, and it is expected to have reached $1.8 trillion in 2004. Health care spending is projected to reach $3.4 trillion in 2013, or 18.4% of the estimated gross domestic product. These statistics are generally released approximately 18 months subsequent to the measurement period in reports issued by CMS and the Office of the Actuary.

The healthcare industry is subject to extensive government regulation, licensure, and operating compliance procedures. National healthcare reform has been the subject of a number of legislative initiatives by Congress. Additionally, government and private insurance programs fund a significant portion of medical care costs in the United States. In recent years, Federal and state-imposed limits on reimbursement to hospitals, long-term care and assisted living facilities, home healthcare and other healthcare providers have affected spending budgets in certain markets within the medical products industry. The nursing home and home healthcare industries have been impacted by these changes, and shifts in operations and business strategies, facility divestitures of elder care providers as well as overall general economic conditions over the last few years.

However, management believes that the additional funding under the Medicare and Medicaid programs during 2000 through 2004, or “add-on” reimbursement payments for providers of skilled nursing and long-term care services, have positively impacted the financial strength of companies providing these services. The “add-on” reimbursement payments were scheduled to expire in September 2005, concurrently with the expected refinement of the Resource Utilization Groups (“RUGs”) during October 2005. The RUGs, which commenced as part of the Balanced Budget Act of 1997 and were further refined under the Balanced Budget Refinement Act of 1999, are used by CMS to classify skilled nursing facility residents into Medicare payment groups. In May 2005, the U.S. House of Representatives and Senate voted to delay the October 2005 expiration of the RUGs and “add on” reimbursement payments in phases beginning in January 2006 and extending through October 2006. In May 2005, CMS also issued its recommendation to refine the RUGs and expand the number of RUGs from 44 to 53, which included a overall reduction in reimbursements for elder care providers beginning in October 2005. Additionally, CMS recommended a 3% market basket increase (inflationary-related increase that is recommended by CMS and modified, approved or not approved by Congress annually) for all services administered by skilled nursing and other elder care service providers. The net effect of these changes in reimbursement as recommended by CMS, and if approved by Congress, is estimated to be essentially neutral or possibly no change in the effective reimbursement rates for fiscal year 2006 (beginning October 1, 2005). The final acceptance of CMS’ recommendations is due in August 2005. Management cannot yet determine the effects, if any, these changes may have on the financial strength of its customers and/or the elder care services industry. However, management believes the recent changes to the Medicare and Medicaid reimbursement rates along with the introduction of the Medicare/Medicaid prescription drug program that became effective October 2003 has positively impacted, and will continue to positively impact, the financial condition of elder care providers and the financial strength of the elder care industry.

The 2006 Federal budget presented for approval to Congress includes a cut in funding for Medicaid by $10 billion over five years, commencing in 2007. Congress also established a Medicaid commission to recommend changes to modernize the Medicaid program to ensure the cut in funding will be achieved over fiscal years 2007 through 2011. President Bush stated in his State of the Union address, which has subsequently been supported in speeches by members of Congress, that the majority of the $10 billion in savings is expected to come from prescription drug pricing, with indications that the primary source would be realized under the Medicare/Medicaid prescription drug program.

THE PHYSICIAN BUSINESS

The Physician Business, or the Physician Sales & Service division, is the leading distributor of medical supplies, diagnostic equipment, and pharmaceutical related products to primary care office-based physicians in the United States based on revenues, number of physician-office customers, number and quality of sales representatives, diagnostic equipment and reagent revenues, and number of products distributed under exclusive or unique arrangements. The Physician Business has approximately 700 sales professionals.

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Distribution Infrastructure

The Physician Business services customers throughout the United States through a distribution network consisting of 29 full-service distribution centers, 23 break-freight locations, 2 redistribution facilities, and 435 delivery vehicles at April 1, 2005. The operations of a full-service distribution center include sales support and certain administrative functions, such as customer billing, collections, cash application, and customer service, as well as general warehousing functions, such as inventory management, warehouse management, and product delivery directly to customers on a daily basis. The procurement of inventory is centralized in Jacksonville, Florida. Full-service distribution centers receive inventory directly from manufacturers and distribute product to customers and break-freight locations. The operations of the break-freight locations include local sales support and product delivery. Break-freight locations receive inventory from full-service distribution centers and distribute product directly to customers on a daily basis. In order to meet the rapid delivery requirements of customers, most products are delivered using the Company’s fleet of leased delivery vehicles. The distribution network is complemented by myPSS.com, a customer Internet ordering portal, and Instant Customer Order Network (“ICON”), a laptop-based sales force automation tool which has enabled the Physician Business to extend customer-specific services with local market product and pricing flexibility.

During fiscal year 2003, the conversion to the JD Edwards XE^® operating system and centralization of the purchasing function to the corporate office located in Jacksonville, Florida were completed. As a result, during fiscal years 2004 and 2005, the Physician Business focused on operational efficiencies and improvements to customer service.

Products

The Physician Business distributes over 75,000 products consisting of medical-surgical disposable supplies, pharmaceuticals, diagnostic equipment, and non-diagnostic equipment.

Medical-Surgical Disposable Supplies. This product category includes a broad range of medical supplies, including various types and sizes of paper goods, needles and syringes, gauze and wound dressings, surgical instruments, sutures, latex gloves, orthopedic soft goods and casting products, tongue blades and applicators, sterilization and intravenous solutions, specimen containers, diagnostic equipment reagents, and diagnostic rapid test kits for pregnancy, strep, mononucleosis, HIV, Chlamydia, and H-pylori. The Physician Business offers a broad array of branded products from numerous medical product manufacturers as well as its own private-label product line. The Physician Business is currently in the process of re-branding its private label product line from PSS Select to Select Medical Products in connection with the Company’s focus on leveraging its global sourcing channels to drive enhanced profitability and implementing a private-label branding strategy across its business segments.

Pharmaceuticals. This product category includes various vaccines, injectables, inhalants, topicals, opthalmic ointments and solutions, otic solutions and oral analgesics, antacids and antibiotics, which are administered in the physician’s office.

Diagnostic Equipment. This product category includes various equipment lines such as blood chemistry analyzers, automated cell and differential counters, immunoassay analyzers, bone densitometers, electrocardiograph monitors and defibrillators, cardiac stress systems, cardiac and OB/GYN ultrasound, holter monitors, flexible sigmoidoscopy scopes, hyfrecators, spirometers, pulse oximeters, tympanometers, and microscopes. Sales of certain diagnostic equipment entail the ongoing reordering of disposable diagnostic reagents. Demand for diagnostic equipment has increased due to technological advances that enable increasingly sophisticated diagnostic tests to be performed in the physician’s office.

Non-Diagnostic Equipment. This product category includes all other equipment used in a medical practice such as aesthetic lasers, autoclaves, examination tables, medical scales, and furniture.

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Customers

The Physician Business primarily distributes products to office-based physicians who specialize in internal medicine, family practice, primary care, pediatrics, OB/GYN, and general practice. The Physician Business’ target market consists of approximately 520,000 physicians practicing at over 230,000 sites.

Customer pricing for each product is either negotiated directly with the physician or contracted through group purchasing organizations (“GPOs”). GPOs negotiate directly with medical product manufacturers and distributors on behalf of their members, establishing exclusive or multi-supplier relationships. Approximately 63%, 55%, and 52% of the Physician Business’ net sales during fiscal years 2005, 2004, and 2003, respectively, were sales to members of GPOs.

Competition

The Physician Business operates in a highly competitive industry where products sold and certain services rendered are readily available to customers from a number of different manufacturers, distributors, and suppliers. Competitors of the Physician Business are large, multinational, full-line distributors as well as many smaller regional and local distributors. The Physician Business’ principal competitors are national distributors including the General Medical operating division of McKesson Corporation, the Caligor operating division of Henry Schein, Inc., and the Allegiance operating division of Cardinal Health, Inc.

THE ELDER CARE BUSINESS

The Elder Care Business, or the Gulf South Medical Supply, Inc. subsidiary, is a leading national distributor of medical supplies and related products to the long-term and elder care industry in the United States based on revenues, number of nursing home and national chain customers, number of sales representatives, and number of customer service agents. The Elder Care Business also provides Medicare Part B reimbursable products and billing services, either on a fee-for-service or a full assignment basis. The Elder Care Business primarily serves the nursing home and homecare industries with limited penetration into the assisted living market segment. The nursing home industry refers to customers that operate skilled nursing facilities in the United States and can be divided into three segments: national chains, regional groups, and independent operators. The homecare industry refers to providers (companies, agencies, and care givers) of medical services, medical supplies, and equipment to patients in a home or residence setting.

Distribution Infrastructure

The Elder Care Business services customers throughout the United States through a distribution network consisting of 14 full-service distribution centers, 5 break-freight locations, 2 ancillary billing service centers, and 100 delivery vehicles at April 1, 2005. The operations of a full-service distribution center include sales support and general warehousing functions such as inventory management, warehouse management, and product delivery directly to customers on a daily basis. Accounts receivable collections, cash application, and procurement of inventory are centralized in Jacksonville, Florida and customer order processing, customer billing, and customer service is centralized in Ridgeland, Mississippi. Full-service distribution centers receive inventory directly from manufacturers and distribute product to customers and break-freight locations. The operations of the break-freight locations include sales support and product delivery. Break-freight locations receive inventory from full-service distribution centers and distribute product directly to customers on a daily basis. In order to meet the rapid delivery requirements of our customers, product is delivered using either the Company’s fleet of leased delivery vehicles or third party common carriers. Coupled with a team of approximately 140 sales professionals and GSOnline, an automated customer Internet platform, the Elder Care Business provides consistent and reliable service to customers ranging from independent nursing homes to large national chains, as well as providers of home healthcare, sub-acute, rehabilitation, and transitional care.

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Products

The Elder Care Business distributes over 22,000 medical and related products consisting of medical supplies, incontinent supplies and personal care items, enteral feeding supplies, home medical equipment, and other supplies required by the long-term care patient.

Medical Supplies. This product category includes wound care supplies, needles and syringes, gauze, sutures, various types of examination gloves, urological supplies, and blood and urine testing supplies and test kits. The Elder Care Business offers a broad array of branded products from numerous manufacturers as well as its own private-label product line. The Elder Care Business is also currently in the process of re-branding its private label product line from GS Select to Select Medical Products.

Incontinent Supplies and Personal Care Items. This product category includes adult diapers and underpads, as well as soaps and shampoos, personal hygiene items, various other paper products, and bedside utensils.

Enteral Feeding Supplies. This product category includes nutritional supplements, pump sets, and intravenous tubing and solutions.

Home Medical Equipment. This product category includes hospital beds, patient-lifts, wheel chairs, oxygen-concentrators, walkers, patient aids, and bath safety products.

Other. This product category includes medical instruments, oxygen supplies, tracheotomy, housekeeping supplies, medical instruments, respiratory and ostomy supplies, and over-the-counter pharmaceuticals.

Services

The Elder Care Business provides Medicare Part B billing services, either on a fee for service or a full assignment basis.

Customers

The Elder Care Business distributes to independent, regional, and national nursing home facilities, home health agencies, assisted living centers, hospices, and home medical equipment dealers. The Elder Care Business has a number of large, national chain customers, which have experienced significant financial pressure since the advent of the Prospective Payment System in 1998. Approximately 21%, 24%, and 30% of the Elder Care Business’ net sales for fiscal years 2005, 2004, and 2003, respectively, represent sales to its largest five customers.

Competition

The Elder Care Business operates in a highly competitive industry where products sold and certain services rendered are readily available to customers from a number of different manufacturers, distributors, and suppliers. Competitors of the Elder Care Business are large, national, or multinational distributors as well as many smaller national, regional, and local distributors. The Elder Care Business’ principal competitors are national distributors including the Redline operating division of McKesson Corporation; Medline, a national independent distributor; the Allegiance operating division of Cardinal Health, Inc.; and many independent, local, and regional distributors.

CORPORATE SHARED SERVICES

The Company continues to expand and enhance the use of a shared services model to drive productivity gains and cost savings. Corporate Shared Services is a concentration of Company resources performing functions across the organization with a common goal of providing lower operating costs and higher service levels. Corporate Shared Services includes: accounting and finance; information technology development, infrastructure, and support; operations management; global sourcing; regulatory compliance; human resources and payroll administration; Center for Career Development; and procurement of inventory and non-inventory products and services. Corporate Shared Services developed a comprehensive three-year strategic plan focused on maximizing the effectiveness and

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efficiency of the functional processes supporting the two operating segments. Costs incurred by Corporate Shared Services are allocated to the two operating segments.

VENDOR RELATIONSHIPS

The Company pursues the opportunity to market and sell medical equipment and supplies through unique and exclusive marketing arrangements. Manufacturers of medical diagnostic equipment and supplies typically offer distribution rights only to a select group of distributors and seek to optimize the number of distributors selling their products to end users in an effort to reduce the cost associated with marketing and field sales support. The Company has been successful in obtaining unique or exclusive arrangements to sell certain products.

Vendor relationships are an integral part of the Company’s businesses. Marketing sales support, performance incentives, product literature, samples, demonstration units, training, marketing intelligence, distributor discounts and rebates, and new products are important strategies in developing and enhancing vendor relationships.

The Company improves profitability by purchasing certain medical supplies, pharmaceutical products, and equipment at the lowest available price through volume discounts, rebates, and product line consolidation. Vendor contracted pricing and terms are negotiated by the Company’s vendor relations group.

The Company pursues opportunities to improve margins through increasing sales of private label products, leveraging the buying power of products common to the Physician Business and Elder Care Business, and implementing process improvements with vendor partners. The Company continues to seek enhancements for its sourcing and vendor relationships to improve its market position.

GLOBAL SOURCING

During fiscal year 2005, the Company began implementing its global sourcing strategy, which will provide the necessary resources for managing the global product sourcing process, quality assurance and controls, and product availability in alignment with the operating segments and customer standards. During fiscal year 2005, a multi-disciplined Global Sourcing team was created, consisting of several functional experts in areas such as global sourcing, logistics, supply chain design and management, vendor relations, product management, and business analysis. In addition, relationships with manufacturers in China were established, regulatory and quality assurance processes were established, and the United States distribution infrastructure and logistics processes were built. During the fourth quarter of fiscal year 2005, the Company entered into a sourcing services agreement in which the Company has agreed to purchase certain medical and other products from Chinese suppliers and manufacturers. Management believes that its Global Sourcing team is developing adequate controls, procedures, and infrastructure to import products without supply interruptions, legal infringement issues, governmental compliance issues, and product quality deficiencies.

INFORMATION SYSTEMS

Core Enterprise Resource Planning Applications – JD Edwards XE®

The Company has invested in the development of state-of-the-art distribution platforms to improve its distribution capability, opportunities, and efficiencies. The Company is currently leveraging these platforms to capture additional benefits and return on its investment. The Physician and Elder Care Businesses operate the JD Edwards XE® platform (“JDE XE”) at all distribution centers. During fiscal year 2005, the Elder Care Business successfully implemented the advanced warehouse distribution module of JDE XE at 9 of its 14 distribution centers. During the first quarter of fiscal year 2006, the Elder Care Business successfully completed this implementation at the remaining distribution centers. The Elder Care Business will begin implementing the customer service module of JDE XE during fiscal year 2006. Management anticipates that the implementation of this module will be successfully completed during the fiscal year 2006.

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Supply Chain Management – i2 Demand Planner, Replenishment Planner, Demand Fulfillment

I2 Supply Chain Management (“SCM”) enables PSSI to strategize, plan, and execute the Company’s buy, move, store, fulfill, and service business processes across multiple locations to increase profitability. Specifically, i2 SCM assists the Company to (i) understand, predict, and manage customer demand collaboratively with channels and customers, (ii) profitably optimize supply to meet demand across multiple locations, (iii) communicate order delivery timing accurately to customers, and (iv) deliver customer orders at the lowest cost of fulfillment. Since the implementation of several i2 SCM products, the Company has been able to reduce inventory stocking levels, improve fill rates, increase inventory turnover, and increase cash provided by operating activities in distribution centers that were not involved in implementing the advanced warehouse module of JDE XE.

Customer/Sales Force Automation Systems

The Company’s Customer Relationship Management (“CRM”) systems create a seamless connection between customers, company distribution services, and vendor resources. Each of the operating segments of PSSI is developing and providing sales representatives and customers with the latest technology in CRM solutions.

The Physician Business’ laptop-based sales-force automation application, known as ICON, carries one year of customer buying history and accounts receivable detail, prices against complex GPO contracts, and transmits orders over a wireless network. The Physician Business’ internet portal, myPSS.com, launched during fiscal year 2001, provides its customers with a year of sales history, provides accounts receivable detail, and supports a number of purchasing methods. Approximately 82% of all orders in the Physician Business are electronic orders.

The Elder Care Business’ CRM systems include RepNet, GSOnline, AccuSCAN, FAST, and Budget Manager. These systems have significantly improved the availability of supply chain information analysis, speed, and consistency of service, allowing the Company to grow at more than two times the market growth rate. The Elder Care Business has been highly successful with these tools both with its sales force and its customer base. The Elder Care Business is the industry leader in eCommerce transactions with GSOnline and its business partnership with Direct Supply Systems, Inc. (“DSSI”). The DSSI network is the largest eBusiness network in the long-term care and assisted living industry. Approximately 69% of all orders in the Elder Care Business are electronic orders.

The Company is currently in the process of enhancing myPSS.com and GSOnline to a standardized, shared platform that will improve functionality and security without disruption to business operations. Management anticipates the implementation of this additional functionality will be completed during fiscal year 2006.

REGULATORY MATTERS

General

Federal, state, and local government agencies extensively regulate the distribution of medical devices and supplies and over-the-counter pharmaceutical products, as well as the distribution of prescription pharmaceutical products. Applicable Federal and state statutes and regulations require the Company to meet various standards relating to, among other things, licensure, personnel, maintenance of proper records, privacy of health information, maintenance and repair of equipment, and quality assurance programs.

The costs to the Company associated with complying with the various applicable Federal and state statutes and regulations, as they now exist and as they may be modified, could be material. Many Federal and state laws applicable to the Company are broadly worded and have not been interpreted by courts. They may be interpreted or applied by governmental authorities in a manner that differs from the Company’s interpretation and that could require the Company to make changes in its operating procedures. Allegations by a state or the Federal government that the Company has not complied with these laws could have a material adverse impact on the Company. If it is determined that the Company has not complied with these laws, or if the Company enters into settlement agreements to resolve allegations of non-compliance, the Company could be required to make settlement payments or be subject to civil and criminal penalties, including fines and the loss of licenses or its ability to participate in Medicare, Medicaid and other Federal and state healthcare programs. Any of the foregoing could have a material negative impact on the Company. The Company believes that the healthcare services industry will continue to be subject to

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extensive regulation at the Federal, state, and local levels and the Company has adequate compliance programs and controls to ensure compliance with the laws and regulations.

The Food, Drug and Cosmetic Act, Prescription Drug Marketing Act of 1987, Safe Medical Devices Act of 1990, Controlled Substances Act and Various State Regulations

The Company’s business is subject to regulation under the Federal Food, Drug and Cosmetic Act, the Prescription Drug Marketing Act of 1987, the Safe Medical Devices Act of 1990, and state laws applicable to the manufacture, importation and distribution of medical devices and over-the-counter pharmaceutical products, as well as the distribution of prescription pharmaceutical products. In addition, the Company is subject to regulations issued by the Food and Drug Administration, the Drug Enforcement Administration, and comparable state agencies.

The Federal Food, Drug, and Cosmetic Act generally regulates the manufacture and importation of drugs and medical devices shipped via interstate commerce, including such matters as labeling, packaging, storage, and handling of such products. The Prescription Drug Marketing Act of 1987, which amended the Federal Food, Drug and Cosmetic Act, establishes certain requirements applicable to the wholesale distribution of prescription drugs, including the requirement that wholesale drug distributors be registered with the Secretary of Health and Human Services or be licensed in each state in which business is conducted in accordance with federally established guidelines on storage, handling, and records maintenance. The Safe Medical Devices Act of 1990 imposes certain reporting requirements on distributors in the event of an incident involving serious illness, injury, or death caused by a medical device. The Company is also required to maintain licenses and permits for the distribution of pharmaceutical products and medical devices under the laws of the states in which it operates.

The Anti-Kickback Statute

Under Medicare, Medicaid, and other government-funded healthcare programs, Federal and state governments enforce a Federal law called the Anti-Kickback Statute. The Anti-Kickback Statute prohibits any person from offering, paying, soliciting or receiving anything of value to or from another person to induce the referral of business, including the sale or purchase of items or services covered by Medicare, Medicaid, or other federally subsidized programs. Many states also have similar anti-kickback statutes.

The Health Insurance Portability and Accountability Act of 1996

The Health Insurance Portability and Accountability Act of 1996 and its implementing regulations (collectively, “HIPAA”) establishes (1) national standards for some types of electronic health information transactions and the data elements used in those transactions, (2) standards to protect the privacy of individually identifiable health information, and (3) security standards to ensure the integrity and confidentiality of health information. Health plans, health care clearinghouses and most health care providers, including the Company, are Covered Entities subject to HIPAA.

Other Laws

The Company is subject to various additional Federal, state and local laws, regulations, and recommendations in the United States, relating to the safe working conditions and the sales, use and disposal of hazardous or potentially hazardous substances. In addition, U.S. and international import and export laws and regulations require that the Company abide by certain standards relating to the importation and exportation of finished goods, raw materials, and supplies. Furthermore, the Department of Transportation regulates the conveyance of regulated materials, both in Company-leased delivery vehicles and via common carrier.

Impact of Changes in Healthcare Legislation

Federal, state and foreign laws and regulations regarding the sale and distribution of medical devices and supplies, over-the-counter and prescription pharmaceutical products by the Company are subject to change. The Company cannot predict what impact, if any, such changes might have on its business. Any new legislation or regulations, or new interpretations of existing statutes and regulations, governing the manner in which the Company conducts its business could have a material adverse impact on the Company and could adversely affect its profitability.

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The extensive Federal and state laws and regulations described above apply not only to the Company, but also to the manufacturers which supply the products distributed by the Company and the Company’s physician and other healthcare customers. For instance, medical product and device manufacturers are subject to design, manufacturing, labeling, promotion and advertising standards imposed on, as well as registration and reporting requirements regarding, their facilities and products. Likewise, pharmaceutical manufacturers are subject to development, manufacturing and distribution regulation by the Food and Drug Administration, the Drug Enforcement Administration and other Federal, state and local authorities. Failure of a manufacturer to comply with these requirements, or changes in such requirements, could result in recalls, seizures, manufacturing suspensions or other interruptions in the production, supply, and sale of its products. Such interruptions may result in a material adverse impact on the Company’s business. Similarly, changes in the extensive regulations, or in their interpretation or enforcement, applicable to the Company’s customers could adversely impact the Company’s business in ways which are difficult for the Company to predict.

PROPRIETARY RIGHTS

The Company has registered with the United States Patent and Trademark Office the marks PSS WORLD MEDICAL (and Design), PSS, ANSWERS, and NIGHTINGALE, among others, and has applied to register the mark SELECT MEDICAL PRODUCTS (and Design). The Company believes that the PSS World Medical, Physician Sales & Service, and Gulf South Medical Supply names are well recognized in the medical supply industry and by healthcare providers and, therefore, are valuable assets of the Company.

EMPLOYEES

As of April 1, 2005, the Company employed 3,116 full-time and 53 part-time employees. The Company believes that ongoing employee training is critical to its success and, accordingly, invests significant resources in recruiting, training, and continuing professional development. The Company’s Online Source for Career Advancement and Retention (“OSCAR”) is an innovative, Internet-based, enterprise-wide learning management system that is designed to provide a comprehensive learning environment and in-depth training for every employee. OSCAR enables employees to gain product, regulatory, career advancement, industry, and distribution-process knowledge and training within a consistent and reliable educational forum. At April 1, 2005, there were over 100 online classes available to employees and since inception, employees have completed over 53,000 classes online. Management believes that relations with employees are good and the Company’s long-term success depends on good relations with its employees, including its sales professionals.

AVAILABLE INFORMATION

The Company files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). Any documents that have been filed with the SEC may be read and copied, at prescribed rates, at its Public Reference Room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. These documents are also filed with the SEC electronically and are accessible on the SEC’s Internet website found at www.sec.gov. Copies of materials we file with the SEC may also be obtained from our Internet website found at www.pssworldmedical.com.

The Company also provides public access to its Code of Ethics, the Audit Committee charter, and the Corporate Governance Committee charter. The Code of Ethics and Corporate Governance Committee charter may be viewed free of charge on the Company’s web site www.pssworldmedical.com. The Audit Committee charter is an exhibit to the Company’s definitive proxy Statement and may be obtained by writing to: PSS World Medical, Inc., Investor Relations, 4345 Southpoint Blvd., Jacksonville, Florida 32216.

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ITEM 2. PROPERTIES

Physician Business

At April 1, 2005, the Physician Business maintained 29 full-service distribution centers, 23 break-freight locations, and 2 redistribution facilities providing service to all 50 states. The Company leases all locations. The following tables identify the full-service distribution center and break-freight locations.

Full-Service Distribution Center Locations
Charlotte, NC	Kennesaw, GA	Phoenix, AZ	St. Louis, MO
Chicago, IL	Lenexa, KS	Plymouth, MN	St. Petersburg, FL
Denver, CO	Los Angeles, CA	Pittsburgh, PA	Tulsa, OK
Fairfield, NJ	Louisville, KY	Richmond, VA	Wareham, MA
Grand Prairie, TX	Lubbock, TX	Rochester, NY	West Sacramento, CA
Honolulu, HI	Memphis, TN	Salt Lake City, UT
Houston, TX	New Orleans, LA	San Antonio, TX
Jacksonville, FL	Orlando, FL	Seattle, WA
Break Freight Locations
Albany, NY	Columbia, SC	Nashville, TN	Roanoke, VA
Big Bend, WI	Hanover, MD	Omaha, NE	San Diego, CA
Blue Ash, OH	Knoxville, TN	Pelham, AL	Tallahassee, FL
Chattanooga, TN	Lafayette, LA	Pompano Beach, FL	Troy, MI
Chesapeake, VA	Las Vegas, NV	Portland, OR	Tyler, TX
Cleveland, OH	Little Rock, AR	Raleigh, NC

Elder Care Business

At April 1, 2005, the Elder Care Business maintained 14 full-service distribution centers, 5 break-freight locations, and 2 ancillary billing service centers providing service to all 50 states. The Company leases all locations. The following tables identify the full-service distribution center and break freight locations.

Full-Service Distribution Center Locations
Austell, GA	Mesquite, TX	Ontario, CA	Sacramento, CA
Gahanna, OH	Middletown, PA	Orlando, FL	Windsor, WI
Indianapolis, IN	Morrisville, NC	Portland, OR
Londonderry, NH	Omaha, NE	Ridgeland, MS
Break Freight Locations
Eau Claire, WI	Indianapolis, IN	Menomonee Falls, WI	San Antonio, TX
Houston, TX

In the aggregate, the Company’s service center locations consist of approximately 2.3 million square feet of leased space. The lease agreements have expiration dates ranging from April 2005 to August 2011 and facilities ranging in size from approximately 1,000 square feet to 113,200 square feet.

The Company’s corporate office consists of approximately 103,000 square feet of leased office space located at 4345 Southpoint Boulevard, Jacksonville, Florida 32216. This lease expires in March 2014.

As of April 1, 2005, the Company’s facilities provided adequate space for the Company’s operations. Throughout the Company’s history of growth, the Company has been able to secure adequate facilities to meet its operating requirements.

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ITEM 3. LEGAL PROCEEDINGS

The Company and certain of its current and former officers and directors are named as defendants in a securities class action lawsuit entitled Jack Hirsch v. PSS World Medical, Inc., et al., Civil Action No. 3:98-CV 502-J-32TEM. The action, which was filed in May 1998, is pending in the United States District Court for the Middle District of Florida, Jacksonville Division. The plaintiff initially alleged, for himself and for a purported class of similarly situated stockholders who purchased the Company’s stock between December 23, 1997 and May 8, 1998 that the defendants engaged in violations of certain provisions of the Securities Exchange Act, and Rule 10b-5 promulgated thereunder. The allegations reference a decline in the Company’s stock price following an announcement by the Company in May 1998 regarding the Gulf South Medical Supply, Inc. merger, which resulted in earnings below analysts’ expectations. In December 2002, the Court granted the Company’s motion to dismiss the plaintiff’s second amended complaint with prejudice with respect to the Section 10(b) claims. The plaintiffs filed their third amended complaint in January 2003 alleging claims under Sections 14(a) and 20(a) of the Exchange Act on behalf of a putative class of all persons who were shareholders of the Company as of March 26, 1998. In May 2003, the Court denied the defendants’ motion to dismiss. By order dated February 18, 2004, the Court granted plaintiffs’ motion for class certification. Court ordered mediation occurred on June 10, 2004 and April 6, 2005, during which the parties were not able to resolve their dispute. The parties all served motions for summary judgment and motions in limine to strike the opposing experts on May 11, 2005. These motions are currently pending. The case is set for trial in November 2005. The Company intends to vigorously defend the proceedings; however, there can be no assurance that this litigation will be ultimately resolved on terms that are favorable to the Company. An estimate of the potential range of loss is $1.0 million to $3.5 million.

On February 8, 2005, the Company settled a lawsuit pursuant to which the opposing parties agreed to pay the Company $2.6 million to resolve all claims and counterclaims. The settlement agreement received court approval. Accordingly, during fiscal year 2005, the Company recorded a $2.6 million gain, which was offset by approximately $1.9 million of legal and professional fees and expenses incurred during this same period. The Company previously recorded approximately $0.4 million in legal and professional fees and expenses from the inception of the case in July 2003 through April 2, 2004.

The Company is also a party to various other legal and administrative proceedings and claims arising in the normal course of business. While any litigation contains an element of uncertainty, the Company, after consultation with outside legal counsel, believes that the outcome of such other proceedings or claims which are pending or known to be threatened will not have a material adverse effect on the Company’s consolidated financial position, liquidity, or results of operations.

The Company has various insurance policies, including product liability insurance, covering risks and in amounts it considers adequate. In many cases in which the Company has been sued in connection with products manufactured by others, the Company is provided indemnification by the manufacturer. There can be no assurance that the insurance coverage maintained by the Company is sufficient or will be available in adequate amounts or at a reasonable cost, or that indemnification agreements will provide adequate protection for the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of shareholders during the quarter ended April 1, 2005.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Shares of the Company’s common stock are quoted on Nasdaq Stock Market, Inc.’s National Market (“NASDAQ”) under the ticker symbol “PSSI.” The following table presents, for the periods indicated, the range of high and low sale prices per share of the Company’s common stock as reported on NASDAQ.

Quarter Ended	High		Low
Fiscal Year Ended April 2, 2004:
June 30, 2003	$	6.70	$	5.16
October 3, 2003	$	10.09	$	5.50
December 31, 2003	$	12.86	$	8.75
April 2, 2004	$	13.55	$	10.65
Fiscal Year Ended April 1, 2005:
June 30, 2004	$	13.00	$	8.92
October 1, 2004	$	11.60	$	8.60
December 31, 2004	$	13.05	$	9.06
April 1, 2005	$	13.11	$	11.00

Holders of Common Stock

As of June 13, 2005, there were approximately 1,601 holders of record of the Company’s common stock.

Cash Dividends

Since inception, the Company has neither declared nor paid cash dividends and intends to continue to retain earnings for the growth and development of the Company’s business. Accordingly, the Company does not anticipate that any cash dividends will be declared in the foreseeable future. The Company’s revolving line of credit agreement contains certain covenants that limit the amount of cash dividends that can be declared by the Company.

Rights Agreement

Pursuant to a Rights Agreement adopted in 1998, each outstanding share of the Company’s common stock carries with it a right to purchase one additional share at a price of $115 (subject to anti-dilution adjustments). The rights become exercisable (and separate from the shares) when certain specified events occur, including the acquisition of 15% or more of the common stock by a person or group (an “Acquiring Person”) or the commencement of a tender or exchange offer for 15% or more of the common stock.

In the event that an Acquiring Person acquires 15% or more of the common stock or commences a tender or exchange offer for 15% or more of the common stock, each right entitles the holder to purchase for the then current exercise price that number of shares of common stock having a market value of two times the exercise price, subject to certain exceptions. Similarly, if the Company is acquired in a merger or other business combination or 50% of more of the Company’s assets or earning power is sold, each right entitles the holder to purchase at the then current exercise price that number of shares of common stock of the surviving corporation having a market value of two times the exercise price. The rights, which do not entitle the holder thereof to vote or to receive dividends, expire on April 20, 2008 and may be terminated by the Company under certain circumstances.

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Equity Compensation Plan Information

The Company maintains several stock incentive plans (the “Plans”) for the benefit of employees, officers, and directors. The following table summarizes the potential dilution that could occur from past and future equity grants for all Plans.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)		(c)
Equity compensation plans approved by security holders	5,280,000	$	10.52	651,000	(2)
Equity compensation plan not approved by security holders(1)	1,304,000	$	7.41	249,000	(3)
Total	6,584,000	$	9.90	900,000

(1) The 1999 Broad-Based Employee Stock Plan is the only equity compensation plan that is not approved by shareholders. Under this plan, 2,600,000 shares of the Company’s common stock are reserved for issuance to employees and consultants. The Compensation Committee of the Board of Directors has discretion to make grants under this plan in the form of nonqualified stock options, restricted stock, or unrestricted stock awards. The exercise price of options granted shall be at least the fair market value of the Company’s common stock on the date of grant. Unless otherwise specified by the Compensation Committee, options become fully vested and exercisable three years from the date of grant. Restricted stock awards, which generally vest ratably over a three-year period, may not be sold or transferred until the completion of such periods of service or achievement of such conditions as specified by the Compensation Committee. Upon a change in control of the Company, all stock awards shall become fully vested and exercisable, and all restrictions on restricted stock awards shall lapse.

(2) All of these shares are available for issuance pursuant to awards of restricted stock, unrestricted stock, or performance awards.

(3) All of these shares are available for issuance pursuant to awards of restricted stock or unrestricted stock. The plan provides that no more than 33% of the total shares authorized under the plan may be granted as awards of restricted stock or unrestricted stock.

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ITEM 6. SELECTED FINANCIAL DATA

The selected financial data for fiscal years 2001 through 2005 have been derived from the Company’s consolidated financial statements, which give retroactive effect to the restatement of the Imaging Business as discontinued operations. The selected financial data below should be read in conjunction with the Company’s financial statements and the notes thereto and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	Fiscal Year Ended
	2005			2004			2003			2002			2001
	(Dollars in thousands, except per share data)
Statement of Operations Data:
Net sales	$	1,473,769		$	1,349,917		$	1,177,893		$	1,104,145		$	1,076,898
Income (loss) from continuing operations		39,384			28,703			8,814			11,400			(30,855	)
Total loss from discontinued operations		(412	)		(1,164	)		(63,577	)		(92,597	)		(5,206	)
Net income (loss)	$	38,972		$	27,539		$	(54,763	)	$	(81,197	)	$	(36,061	)
Earnings (loss) per share - Basic:
Income (loss) from continuing operations	$	0.61		$	0.43		$	0.12		$	0.16		$	(0.43	)
Total loss from discontinued operations		(0.01	)		(0.02	)		(0.91	)		(1.30	)		(0.08	)
Net income (loss)	$	0.60		$	0.41		$	(0.79	)	$	(1.14	)	$	(0.51	)
Earnings (loss) per share - Diluted:
Income (loss) from continuing operations	$	0.60		$	0.42		$	0.12		$	0.16		$	(0.43	)
Total loss from discontinued operations		(0.01	)		(0.02	)		(0.90	)		(1.29	)		(0.08	)
Net income (loss)	$	0.59		$	0.40		$	(0.78	)	$	(1.13	)	$	(0.51	)
Weighted average shares outstanding:
Basic		64,547			67,074			69,680			71,184			71,187
Diluted		65,607			67,990			70,374			71,953			71,309
Ratio of earnings to fixed charges(a)		3.7			4.2			1.6			1.7			(0.5	)
Balance Sheet Data:
Working capital(b)	$	228,583		$	222,856		$	91,591		$	188,007		$	205,983
Total assets		646,358			586,846			471,863			663,408			776,598
Long-term liabilities	$	180,310		$	171,290		$	18,607		$	141,495		$	201,179

(a) For the purpose of calculating the ratio of earnings to fixed charges, earnings consist of income (loss) from continuing operations before provision for income taxes, plus fixed charges, less capitalized interest. Fixed charges consist of interest, whether expensed or capitalized, amortization of debt issuance costs, and the portion of rental expense estimated by management to be attributable to interest.

(b) Assets and liabilities of discontinued operations for fiscal years 2004, 2003, 2002, and 2001 have been excluded from this calculation.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE COMPANY’S STRATEGY

The Company’s objective is to be the leading distributor and marketer of medical products and services to select medical market segments in the United States of America, with a goal to grow at twice the market growth rate in new and existing markets. The key components of the Company’s strategy include:

Develop and implement innovative customer solutions. The Company develops programs that focus on identified needs of its customers, including increasing practice cash flows, providing cost containment or reduction opportunities, and improving patient care.

The Physician Business utilizes the following programs to accomplish these objectives.

• Advantage Club is a customer membership club that enables customers to participate in exclusive promotions for a broad selection of commonly used products.

• Rx Extreme is a comprehensive program offering pharmaceutical, vaccine and general injectibles products to new and existing customers. The term “Extreme” symbolizes the Physician Business’ significant commitment to its sales force and customers to become the leading provider of these products.

• Can-Do is an equipment marketing program that enables customers to access a broad portfolio of industry-leading laboratory and diagnostic equipment, as well as certain exclusive products available only through the Physician Business.

The Elder Care Business utilizes the following programs to accomplish these objectives.

• ANSWERS, ANSWERS Housekeeping (“ANSWERS HK”), and ANSWERS Home Medical Equipment (“ANSWERS HME”) are marketing programs that align improved business processes in the nursing home operations and purchasing, with more efficient distribution activities of the Elder Care Business. In addition to reducing distribution costs by encouraging more efficient buying patterns, these programs provide opportunities for manufacturing partners to increase sales volume of category-leading, name-brand products while providing customers the opportunity to purchase higher quality products at reduced prices, which improve patient care outcomes for the Elder Care customers.

• ANSWERS Plus is an enhanced version of the ANSWERS marketing programs described above. In addition to the benefits of the ANSWERS program, ANSWERS Plus provides additional resources to the nursing home, home health, and hospice provider, in an effort to directly impact the quality of care provided to residents and patients. This is accomplished through combining all the resources provided by the ANSWERS manufacturer partners and the Elder Care Business to address the major issues facing the Elder Care Business.

• Partners in Efficiency (“P.I.E.”) is a product program designed to reduce customers’ product procurement costs and increase operating efficiencies in their businesses by committing to certain purchasing levels and standardized ordering procedures.

• Fast Accurate Supply Technology (“F.A.S.T”) is ordering, bar-code scanning, inventory management software that utilizes a Palm Pilot to keep track of inventory on hand at customer locations and facilitate automated replenishment of medical supplies.

• AccuSCAN is a bar-code driven inventory management and ancillary billing system for tracking products, treatments, therapies, dietary activity, and rentals.

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Leverage sales and marketing through relationships, products, and services. The Company believes that its sales professionals, which consists of approximately 840 employees, and their customer relationships and knowledge are strategic competitive advantages. The Company trains its sales professionals to build unique relationships with customers and provide solutions though innovative marketing programs, exclusive products, and new product or technology offerings. The Company seeks to establish unique distribution and marketing arrangements for selected products from leading medical product and technology manufacturers.

Be a center of operations excellence. The Company has made a significant investment in its distribution infrastructure, information systems, process reengineering, and training during the last three fiscal years. In order to maximize profitability and build a competitive edge in the market place, the Company will continue to focus on improving operations and distribution processes. During fiscal year 2003, the Physician Business initiated a rationalization program that redesigned its distribution network, reduced the number of full-service distribution centers, and centralized the inventory procurement process. As a result of the program, operating costs and working capital investments have been reduced while improving customer service levels, customer satisfaction, and operating margins. During fiscal year 2005, the Physician Business continued to leverage the infrastructure built during fiscal year 2003 and implemented various process improvements that have resulted in operating efficiencies and improved customer service levels.

During fiscal year 2002, the Elder Care Business completed the rationalization of its distribution infrastructure by reducing the number of full-service distribution centers from 26 to 13. During fiscal year 2003, the Elder Care Business focused on increasing operating efficiency to support current sales growth. During fiscal year 2004, the Elder Care Business began converting its Enterprise Resource Planning (“ERP”) system to JD Edwards XE^® platform (“JDE XE”), the same technology platform as the Physician Business. During the conversion, the advanced warehouse distribution module was implemented, which facilitated the management and tracking of customer orders and inventory. As of April 1, 2005, the Elder Care Business successfully implemented the advanced warehouse distribution module of JDE XE at 9 of its 14 distribution centers.

Be the employer of choice within the industry. The Company believes its sales force, management, and associates are its most valuable assets. Accordingly, the Company invests significant resources in recruiting, training, and continuing professional development. The Company has significantly improved benefits offered to employees, human resource competency, communications regarding the Company’s strategy, and training programs. As a result, employee knowledge and understanding of their benefits has increased as well as understanding of the Company’s mission and business strategies. As a result, the Company’s turnover of employees continues to decrease with an additional decrease of over 13% in calendar year 2004 compared to calendar year 2003 due to this emphasis on employee development and training.

Conduct business in a legal and ethical manner. The Company believes that every employee is responsible for both the integrity and consequences of their actions and is expected to follow the highest standards of honesty, fairness and obedience to the law. No employee is to undertake any business activity that is, or gives the appearance of being, improper, illegal or immoral. Over the last several years, the Company has improved its compliance programs by strengthening and broadenings providing health, safety, and regulatory education training programs for its employees.

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OPERATING HIGHLIGHTS AND TRENDS

The following tables set forth certain financial information by business segment for the past three fiscal years. Such financial information gives retroactive effect to the restatement of the Imaging Business (or “DI”) as discontinued operations. All dollar amounts presented below are in thousands unless otherwise indicated.

	Fiscal Year Ended
	2005			2004			2003
Net Sales:
Physician Business	$	959,017		$	880,598		$	754,295
Elder Care Business		514,752			469,319			423,598
Total Company	$	1,473,769		$	1,349,917		$	1,177,893
Net Sales Per Billing Day:(a)
Physician Business	$	3,790		$	3,413		$	2,982
Elder Care Business		2,035			1,819			1,674
Total Company	$	5,825		$	5,232		$	4,656
Income from Operations:
Physician Business	$	61,971		$	45,504		$	22,850
Elder Care Business		23,572			21,890			18,275
Corporate Shared Services		(23,984	)		(19,573	)		(15,238	)
Total Company	$	61,559		$	47,821		$	25,887
	Fiscal Year Ended
	2005			2004			2003
Days Sales Outstanding:(b)
Physician Business		42.6			41.9			43.6
Elder Care Business		59.9			55.3			52.2
Days On Hand:(c)
Physician Business		45.2			40.3			39.8
Elder Care Business		35.3			28.2			30.6
Days in Accounts Payable:(d)
Physician Business		42.0			39.5			42.4
Elder Care Business		25.0			26.7			33.2
Cash Conversion Days:(e)
Physician Business		45.8			42.7			41.0
Elder Care Business		70.2			56.8			49.6
Inventory Turnover:(f)
Physician Business		8.0	x		8.9	x		9.0	x
Elder Care Business		10.2	x		12.8	x		11.8	x

(a) Net sales per billing day are net sales divided by the number of selling days in the fiscal period. Fiscal years 2005, 2004, and 2003 consisted of 253, 258, and 253 days, respectively.

(b) Days sales outstanding (“DSO”) is average accounts receivable divided by average daily net sales. Average accounts receivable is the sum of accounts receivable, net of the allowance for doubtful accounts, at the beginning and end of the most recent four quarters divided by five. Average daily net sales are net sales for the most recent four quarters divided by 360.

(c) Days on hand (“DOH”) is average inventory divided by average daily cost of goods sold (“COGS”). Average inventory is the sum of inventory at the beginning and end of the most recent four quarters divided by five. Average daily COGS is COGS for the most recent four quarters divided by 360.

(d) Days in accounts payable (“DIP”) is average accounts payable divided by average daily COGS. Average accounts payable is the sum of accounts payable at the beginning and end of the most recent five quarters divided by five.

(e) Cash conversion days is the sum of DSO and DOH, less DIP.

(f) Inventory turnover is 360 divided by DOH.

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RESULTS OF OPERATIONS

FISCAL YEAR ENDED APRIL 1, 2005 VERSUS FISCAL YEAR ENDED APRIL 2, 2004

NET SALES

	For the Fiscal Year Ended
(dollars in millions)	April 1, 2005		April 2, 2004		Increase		Percent Change
Physician Business	$	959.0	$	880.6	$	78.4	8.9	%
Elder Care Business		514.8		469.3		45.5	9.7	%
Total Company	$	1,473.8	$	1,349.9	$	123.9	9.2	%

The comparability of net sales year over year was impacted by the number of selling days in each fiscal year. Fiscal years 2005 and 2004 consisted of 253 and 258 selling days, respectively. Accordingly, although net sales increased 9.2% during fiscal year 2005, average daily net sales increased 11.3% during fiscal year 2005, as shown in the following table.

	Average Daily Net Sales
(dollars in millions)	April 1, 2005		April 2, 2004		Percent Change
Physician Business	$	3.8	$	3.4	11.0	%
Elder Care Business		2.0		1.8	11.9	%
Total Company	$	5.8	$	5.2	11.3	%

Physician Business

The increase in net sales is primarily attributable to (i) an increase in branded consumable product sales of approximately $41.4 million, (ii) an increase in pharmaceutical sales (excluding influenza vaccine sales) of approximately $37.0 million, (iii) an increase in equipment sales of approximately $13.3 million, and (iv) an increase in private label consumable product sales of approximately $8.7 million, offset by (i) a decrease in influenza vaccine sales of approximately $20.3 million and (ii) a decrease in immunoassay sales of approximately $2.8 million. Net sales continued to be positively impacted by utilizing the Advantage Club, Rx Extreme, and Can-Do revenue growth programs to increase sales of consumable products, pharmaceutical products, and equipment, respectively.

Net sales during the fiscal year ended April 1, 2005 were negatively impacted by Chiron Corporation’s (“Chiron”) inability to supply the Fluvirin® influenza vaccine to the U.S. market. Chiron was the Company’s primary supplier of the influenza vaccine and the Company anticipated approximately $44.0 million of influenza vaccine sales during fiscal year 2005. Actual influenza vaccine sales for the fiscal year ended April 1, 2005 were approximately $2.9 million compared to $23.2 million for the fiscal year ended April 2, 2004. Management has estimated that diluted earnings per share for the fiscal year ended April 1, 2005 was negatively impacted by approximately $0.04 due to the supply interruption of the Fluvirin® influenza vaccine.

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The following table compares the product sales mix year over year:

	For the Fiscal Year Ended
	April 1, 2005		April 2, 2004
Consumable products	68.3	%	68.9	%
Pharmaceutical products (other than influenza vaccine product sales)	17.2	%	14.5	%
Influenza vaccine product sales	0.3	%	2.6	%
Equipment	14.2	%	14.0	%
Total	100.0	%	100.0	%

Elder Care Business

The increase in net sales is primarily attributable to (i) an increase in sales to skilled nursing home facilities of approximately $27.4 million, (ii) an increase in sales to home care facilities of $11.3 million, and (iii) an increase in ancillary billing service fees of $6.1 million. The growth in net sales to skilled nursing home facilities primarily resulted from acquisitions, new customers, increased penetration in existing customer facilities, the introduction of new product lines as well as the continued implementation of the ANSWERS, ANSWERS Housekeeping, ANSWERS Home Medical Equipment, Partners in Efficiency, Fast Accurate Supply Technology, and AccuSCAN customer solution programs. This increase was offset by a decrease in net sales to national accounts and is primarily attributable to the loss of a national chain customer and other national chain customers divesting nursing home facilities. Nursing home divestitures may continue to impact net sales during fiscal year 2006 as large, national chain customers may continue to divest facilities located in states with high malpractice claims, high insurance costs, and litigation exposure. Furthermore, voluntary or involuntary changes in control of national chain customers may impact net sales in future periods where the acquirer of an existing customer may not have a previous relationship with the Company. Net sales during the fiscal year ended April 1, 2005 decreased approximately $9.2 million as a result of the loss of a national chain customer during fiscal year 2004.

Subsequent to year end, a national chain customer discontinued its medical supply contractual relationship, effective July 1, 2005. The trailing twelve months of net sales to this customer was approximately $27.0 million.

The following table compares the customer segment sales mix year over year:

	For the Fiscal Year Ended
	April 1, 2005		April 2, 2004
Nursing home and assisted living facilities:
National accounts	26.7	%	29.7	%
Regional accounts	22.4	%	22.2	%
Independent accounts	28.7	%	26.4	%
Subtotal	77.8	%	78.3	%
Home care	22.2	%	21.7	%
Total	100.0	%	100.0	%

The customer segment sales mix has been impacted by management’s increased focus during fiscal years 2004 and 2005 on growing sales to independent and regional accounts and increasing the penetration into the home care market, a strategy to mitigate the impact of large, national chain customer divestitures.

Net sales year over year were also positively impacted by business combinations consummated during fiscal years 2004 and 2005. As a result of these business combinations, approximately $37.5 million of additional net sales were recognized during fiscal year 2005 compared to fiscal year 2004.

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GROSS PROFIT

Gross profit for the fiscal year ended April 1, 2005 totaled $423.4 million, an increase of $38.0 million, or 9.9%, from gross profit of $385.4 million for the fiscal year ended April 2, 2004. Gross profit as a percentage of net sales increased 20 basis points to 28.7% during the fiscal year ended April 1, 2005 from 28.5% during the fiscal year ended April 2, 2004.

Physician Business

Gross profit dollars increased primarily due to the growth in net sales discussed above as well as increased profitability generated by inventory procurement-to-pay process improvements. The Company believes its strategy of centralizing the procurement and disbursements functions has resulted, and will continue to result, in efficiencies and savings that will partially offset pricing declines. Gross profit as a percentage of net sales decreased approximately 30 basis points year over year as a result of change in sales mix (excluding influenza vaccine sales) offset by an increase in vendor incentives earned. Gross margin on pharmaceutical product sales is typically lower than the gross margin on consumable products. Gross profit as a percentage of net sales may decrease in future periods due to an expected increased sales volume of pharmaceutical products and diagnostic equipment. However, the Company’s global sourcing strategy is expected to improve its cost competitiveness and significantly increase its gross margins on certain products.

Elder Care Business

Gross profit dollars increased primarily due to the growth in net sales discussed above. Gross profit as a percentage of net sales increased approximately 110 basis points primarily due to replacing lower margin sales to larger accounts with higher margin sales to smaller accounts. In addition, ancillary billing service revenues have increased which typically generate higher gross profit margins. Furthermore, vendor incentives increased approximately $1.4 million year over year as a result of the revenue growth and changes in contract terms with vendors. Gross profit as a percentage of net sales may continue to increase in future periods as a result of net sales growth in ancillary billing services. In addition, the Company’s global sourcing strategy is expected to improve its cost competitiveness and significantly increase its gross margins on certain products.

GENERAL AND ADMINISTRATIVE EXPENSES

	For the Fiscal Year Ended
	April 1, 2005				April 2, 2004
(dollars in millions)	Amount		% of Net Sales		Amount		% of Net Sales		Increase
Physician Business	$	144.8	15.1	%	$	143.9	16.3	%	$	0.9
Elder Care Business		93.4	18.2	%		79.9	17.0	%		13.5
Corporate Shared Services		24.0	—			19.6	—			4.4
Total Company	$	262.2	17.8	%	$	243.4	18.0	%	$	18.8

Physician Business

General and administrative expenses as a percentage of net sales decreased 120 basis points year over year. This percentage decrease is attributable to leveraging the net sales growth across various fixed costs and the Company’s focus on reducing its cost to deliver. Cost to deliver represents all costs associated with the transportation and delivery of products to customers. Cost to deliver as a percentage of net sales was 2.9% and 3.1% during the fiscal years 2005 and 2004, respectively. This percentage decrease is a result of a decrease in freight costs due to negotiated lower freight rates, route optimization of the Company’s fleet, and optimization of shipments between branches, offset by a significant increase in fuel costs. Management anticipates that rising fuel costs may continue to negatively impact the cost to deliver or expected improvements in cost to deliver during fiscal year 2006.

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Elder Care Business

General and administrative expenses as a percentage of net sales increased 120 basis points year over year. Cost to deliver as a percentage of net sales was 4.3% and 4.1% during the fiscal years 2005 and 2004, respectively. During fiscal year 2004, management focused on reducing the cost to deliver which resulted in a decrease in freight costs due to negotiated lower freight rates, but this decrease was exceeded by a significant increase in fuel costs. Management anticipates that rising fuel costs may continue to negatively impact the cost to deliver or expected improvements in cost to deliver during fiscal year 2006.

Changes in the other components of general and administrative expenses year over year are primarily related to the acquisition of an ancillary billing company during fiscal year 2004 and the acquisition of a long-term medical supply distributor during the three months ended December 31, 2004, including (i) increased salary expense of approximately $3.8 million due to additional employees as a result of these business combinations completed and (ii) increased amortization of intangible assets of approximately $1.3 million as a result of these business combinations. In addition, costs related to the implementation of the JDE XE were approximately $1.1 million during fiscal year 2005. These increases were offset by a decrease in bad debt expense of approximately $0.8 million, which was primarily a result of a decrease in specific allowances recorded for customers entering into bankruptcy during fiscal year 2005 compared to fiscal year 2004.

Corporate Shared Services

The increase in general and administrative expenses is primarily attributable to (i) an increase in accrued incentive compensation of approximately $4.7 million primarily related to the achievement of targets under the Shareholder Value Plan and short term incentive plans, (ii) the reversal of an operating tax charge reserve of approximately $1.4 million during the second quarter of fiscal year 2004, (iii) an increase in depreciation of approximately $1.7 million, (iv) an increase in salary expense of approximately $2.5 million due to the addition of executive level management as well as general wage increases, and (v) an increase in professional fees of approximately $2.3 million primarily related to costs incurred to comply with Section 404 of the Sarbanes-Oxley Act, offset by (i) a settlement for a lawsuit pursuant to which the opposing parties agreed to pay the Company $2.6 million to resolve all claims and counterclaims, (ii) a decrease in business insurance expense of approximately $1.5 million due to general rate decreases, and (iii) a decrease in the cost of the private data network of approximately $0.9 million as a result of reducing the number of service center locations and the conversion to a virtual private network for data transmission.

SELLING EXPENSES

	For the Fiscal Year Ended
	April 1, 2005				April 2, 2004
(dollars in millions)	Amount		% of Net Sales		Amount		% of Net Sales		Increase
Physician Business	$	81.6	8.6	%	$	78.3	8.9	%	$	3.3
Elder Care Business		18.0	3.5	%		15.8	3.4	%		2.2
Total Company	$	99.6	6.8	%	$	94.1	7.0	%	$	5.5

Overall, the change in selling expenses is primarily attributable to an increase in commission expense due to the growth in net sales discussed above. Commissions are generally paid to sales representatives based on gross profit dollars and gross profit as a percentage of net sales.

Physician Business

Selling expenses as a percentage of net sales decreased approximately 30 basis points, which is primarily attributable to leveraging the net sales growth across certain fixed selling expenses. A portion of the decrease is also attributable to the change in the sales mix. Pharmaceutical product sales and equipment sales as a percentage of total sales increased year over year. Commission rates on pharmaceutical product and equipment sales are generally lower as these sales generate lower gross profit margins.

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Elder Care Business

Selling expenses as a percentage of net sales increased approximately 10 basis points due to (i) the addition of higher margin business that pays higher commission rates, (ii) the addition of corporate account executives and sales representatives primarily in the home care market, and (iii) the increased selling expenses associated with the ancillary billing company that was acquired during fiscal year 2004.

INCOME FROM OPERATIONS

	For the Fiscal Year Ended
	April 1, 2005					April 2, 2004
(dollars in millions)	Amount			% of Net Sales		Amount			% of Net Sales		Increase (Decrease)
Physician Business	$	62.0		6.5	%	$	45.5		5.2	%	$	16.5
Elder Care Business		23.6		4.6	%		21.9		4.7	%		1.7
Corporate Shared Services		(24.0	)	—			(19.6	)	—			(4.4	)
Total Company	$	61.6		4.2	%	$	47.8		3.5	%	$	13.8

Income from operations for each business segment changed due to the factors discussed above.

INTEREST EXPENSE

Interest expense for the fiscal year ended April 1, 2005 totaled $6.9 million, an increase of $1.3 million, or 23.3%, from interest expense of $5.6 million for the fiscal year ended April 2, 2004. Capitalized interest was approximately $0.4 million during fiscal year 2005 and was immaterial during fiscal year 2004. During fiscal year 2005, the Company’s debt structure consisted of the $150 million of 2.25% senior convertible notes and variable rate borrowings under its revolving line of credit agreement. During fiscal year 2004, the Company’s debt structure primarily consisted of the variable rate borrowings under its revolving line of credit agreement, as the Company issued the $150 million senior convertible notes on March 8, 2004, near the end of fiscal year 2004.

Interest expense and amortization of debt issuance costs related to the Company’s 2.25% convertible senior notes totaled approximately $4.4 million during fiscal year 2005 compared to $0.3 million during fiscal year 2004. Interest expense, debt issuance costs, and unused line fees related to the revolving line of credit totaled approximately $2.9 million during fiscal year 2005 compared to $5.3 million during fiscal year 2004.

The daily average outstanding borrowings under the revolving line of credit during fiscal years 2005 and 2004 were approximately $34.3 million and $101.2 million, respectively. The interest rate swap arrangement established an interest rate at 4.195% (consisting of a fixed interest rate of 2.195% and a credit spread of 2.00%) for a notional amount of $35 million for four months during fiscal year 2005 and twelve months during fiscal year 2004. In July 2004, the Company terminated $10 million in notional amount of the interest rate swap. The amended interest rate swap arrangement established an interest rate at 3.945% (consisting of a fixed interest rate of 2.195% and a credit spread of 1.75%) for a notional amount of $25 million for eight months of fiscal year 2005. Interest expense related to the interest rate swap was approximately $1.1 million and $1.5 million during fiscal years 2005 and 2004, respectively. Variable interest expense related to the daily average outstanding borrowings of $6.1 million (weighted average interest rate of 4.8%) during fiscal year 2005 was approximately $0.3 million. Variable interest expense related to the daily average outstanding borrowings of $66.2 million (weighted average interest rate of 3.9%) during fiscal year 2004 was approximately $2.6 million. Amortization of the debt issuance costs and fees on the unused portion of the line of credit were approximately $1.5 million and $1.2 million during fiscal years 2005 and 2004, respectively.

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OTHER INCOME

Other income for the fiscal year ended April 1, 2005 totaled $1.2 million, a decrease of $2.7 million from other income of $3.9 million for the fiscal year ended April 2, 2004. The decrease is primarily related to the $3.0 million of other income that was recorded as a result of the transition services agreement (“TSA”) associated with the sale of the Imaging Business. This agreement was terminated during fiscal year 2004.

PROVISION FOR INCOME TAXES

Provision for income taxes was $16.8 million for the fiscal year ended April 1, 2005, a decrease of $0.8 million from the provision for income taxes of $17.6 million for the fiscal year ended April 2, 2004. The effective income tax rate was approximately 29.9% and 38.0% for fiscal year 2005 and 2004, respectively. The decrease in the effective rate is primarily attributable to an Internal Revenue Service (“IRS”) Appeals settlement, described below, which resulted in a reduction in the provision for income taxes for fiscal year 2005 of approximately $5.6 million. The decrease in the effective rate was partially offset by an increase in permanent adjustments and an increase in annual income from continuing operations before provision for income taxes. The increase in permanent adjustments primarily relates to a decrease in the value of cash surrender value of company-owned life insurance policies.

During fiscal year 2002, the Company sold its International Business, which generated a capital loss carryforward. At the time of sale, management believed it was more likely than not that the Company would be unable to use the capital loss before its expiration in fiscal year 2007 and, accordingly, a valuation allowance was recorded. Also during fiscal year 2002, the IRS notified the Company that the Federal income tax returns for the fiscal years ended March 31, 2000 and March 30, 2001 would be examined. During the three months ended December 31, 2003, fieldwork was completed and the Company received the IRS’s report. The Company appealed certain audit findings, which primarily related to timing of tax deductions, with the Appeals Office of the IRS. Based on recent Tax Court rulings, the Company filed a refund claim with the IRS during the three months ended December 31, 2003, to report an ordinary worthless stock deduction on the sale of the International Business. The refund claim reflected a reclassification of the nondeductible capital loss to a tax-deductible ordinary loss.

During the three months ended December 31, 2004, the Company reached a settlement with the Appeals Office of the IRS regarding its audit findings for the fiscal years ended March 31, 2000 and March 30, 2001 and the refund claim. This settlement, which is subject to final review and approval by the Congressional Joint Committee on Taxation (“Joint Committee”), resulted in a reduction to the provision for income taxes of approximately $5.6 million. Management believes that the Joint Committee will approve the agreed-upon settlement with the Appeals Office of the IRS.

During the three months ended December 31, 2004, the IRS completed fieldwork on the audit of the Federal income tax returns for the fiscal years ended March 29, 2002 and March 28, 2003. The Company has appealed certain findings, which primarily related to timing of tax deductions, with the Appeals Office of the IRS. Management does not anticipate the results of the audit to have a material impact on the financial condition or consolidated results of operations of the Company.

TOTAL LOSS FROM DISCONTINUED OPERATIONS

The loss on disposal of discontinued operations of approximately $0.4 million recorded during the fiscal year ended April 1, 2005 represented (i) a true-up of management’s estimated net asset adjustment to the actual net asset adjustment as indicated in the arbitrator’s final ruling of $1.8 million and (ii) interest of $0.4 million, offset by (iii) a reversal of a tax reserve of approximately $1.0 million and (iv) a benefit for income taxes of $0.8 million.

The loss on disposal of discontinued operations of approximately $1.2 million, net of a benefit for income taxes of $0.7 million, recorded during the fiscal year ended April 2, 2004 represented legal and professional fees incurred related to the arbitration proceedings for the claimed purchase price adjustment that was settled during fiscal year 2005.

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The deferred tax asset that was recorded for the tax effect of the actual loss generated as a result of the sale of the Imaging Business was approximately $58.0 million at April 1, 2005. Under the terms of the Stock Purchase Agreement, the Company made a joint election with the buyer to treat the transaction as a sale of assets in accordance with §338(h)(10) of the Internal Revenue Code.

NET INCOME

Net income for the fiscal year ended April 1, 2005 totaled $39.0 million compared to net income of $27.5 million for the fiscal year ended April 2, 2004. Variances are due to the factors discussed above.

FISCAL YEAR ENDED APRIL 2, 2004 VERSUS FISCAL YEAR ENDED MARCH 28, 2003

NET SALES

	For the Fiscal Year Ended
(dollars in millions)	April 2, 2004		March 28, 2003		Increase		Percent Change
Physician Business	$	880.6	$	754.3	$	126.3	16.7	%
Elder Care Business		469.3		423.6		45.7	10.8	%
Total Company	$	1,349.9	$	1,177.9	$	172.0	14.6	%

The comparability of net sales year over year was impacted by the number of selling days in each fiscal year. Fiscal years ended April 2, 2004 and March 28, 2003 consisted of 258 and 253 selling days, respectively. Accordingly, although net sales increased 14.6% during fiscal year 2004, average daily net sales increased 12.4% during fiscal year 2004, as show in the following table.

	Average Daily Net Sales
(dollars in millions)	April 2, 2004		March 28, 2003		Percent Change
Physician Business	$	3.4	$	3.0	14.5	%
Elder Care Business		1.8		1.7	8.6	%
Total Company	$	5.2	$	4.7	12.4	%

Physician Business

The increase in net sales is primarily attributable to (i) an increase in branded consumable product sales of approximately $54.9 million, (ii) an increase in pharmaceutical product sales of approximately $46.7 million, of which approximately $13.2 million was attributable to increased seasonal flu vaccine sales, (iii) an increase in equipment sales of approximately $19.5 million, (iv) an increase in private label consumable product sales of approximately $9.5 million, offset by (v) a decrease in immunoassay sales of approximately $4.0 million. Net sales continued to be positively impacted by the Advantage Club, Rx Extreme and Can-Do revenue growth programs that were launched in June 2003 and focused on consumable products, pharmaceutical products, and equipment, respectively.

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The following table compares the product sales mix year over year:

	For the Fiscal Year Ended
	April 2, 2004		March 28, 2003
Consumable products	68.9	%	72.4	%
Pharmaceutical products (other than influenza vaccine product sales)	14.5	%	12.5	%
Influenza vaccine product sales	2.6	%	1.4	%
Equipment	14.0	%	13.7	%
Total	100.0	%	100.0	%

Elder Care Business

The increase in net sales is primarily attributable to (i) an increase in sales to home care facilities of $23.9 million, (ii) an increase in sales to nursing home facilities of approximately $17.5 million, (iii) an increase in ancillary billing service fees of $2.6 million, and (iv) an increase in sales to assisted living facilities of approximately $1.1 million. The growth in net sales to independent nursing home facilities primarily resulted from new customers, acquisitions, increased penetration in existing customer facilities, and the introduction of new product lines. The decrease in net sales to corporate accounts (national and regional nursing home facilities) is primarily attributable to national chain customers divesting nursing home facilities and the loss of a national chain customer. The overall net sales growth was achieved through the continued implementation of the innovative Elder Care customer specific solution programs such as ANSWERS, ANSWERS HK, ANSWERS HME, P.I.E., and F.A.S.T.

The following table compares the customer segment sales mix year over year:

	For the Fiscal Year Ended
	April 2, 2004		March 28, 2003
Nursing home and assisted living facilities:
National accounts	29.7	%	34.8	%
Regional accounts	22.2	%	23.7	%
Independent accounts	26.4	%	23.3	%
Subtotal	78.3	%	81.8	%
Home care	21.7	%	18.2	%
Total	100.0	%	100.0	%

During fiscal year 2004, management’s focus was on growing independent and regional accounts to offset the impact of large, national chain customer divestitures. In addition, during fiscal year 2004, the Elder Care Business increased focus on the home care market by establishing a dedicated sales force to service home care customers and introducing a new home care marketing program.

Net sales year over year were also positively impacted by business combinations consummated during fiscal years 2004 and 2003. As a result of these business combinations, approximately $18.4 million of additional net sales were recognized during the fiscal year ended April 2, 2004 compared to the fiscal year ended March 28, 2003.

GROSS PROFIT

Gross profit for the fiscal year ended April 2, 2004 totaled $385.4 million, an increase of $49.4 million, or 14.7%, from gross profit of $336.0 million for the fiscal year ended March 28, 2003. Gross profit as a percentage of net sales remained relatively constant at 28.5% during fiscal years ended April 2, 2004 and March 28, 2003.

Physician Business

Gross profit dollars increased primarily due to the growth in net sales discussed above as well as an increase in vendor incentives and cash discounts earned of approximately $1.7 million. The growth in net sales combined with

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increased volume purchasing allowed the Physician Business to achieve higher vendor incentive targets compared to the prior period. Gross profit dollars during the fiscal year ended March 28, 2003 was negatively impacted by a charge of approximately $2.3 million related to the termination of the Candela Corporation distribution agreement. Gross profit as a percentage of net sales decreased slightly as a result of the increase in sales of pharmaceutical products that generate lower gross margins as compared to consumable products. As mentioned above, flu vaccine sales increased during fiscal year 2004; such sales typically generate a lower gross profit percentage than other pharmaceutical sales.

Elder Care Business

Gross profit dollars increased primarily due to the growth in net sales discussed above as well as an increase in vendor incentives and cash discounts earned of approximately $3.8 million. The growth in net sales combined with increased volume purchasing and favorable changes to contract terms allowed the Elder Care Business to achieve higher vendor incentive targets compared to the prior period. Gross profit as a percentage of net sales increased primarily as a result of the replacement of revenues from low margin national accounts with higher margin regional and independent accounts and increased vendor incentives year over year. In addition, gross profit margin has been positively impacted by providing ancillary billing services. Such services typically generate higher gross profit margins.

GENERAL AND ADMINISTRATIVE EXPENSES

	For the Fiscal Year Ended
	April 2, 2004				March 28, 2003
(dollars in millions)	Amount		% of Net Sales		Amount		% of Net Sales		Increase
Physician Business	$	143.9	16.3	%	$	139.2	18.5	%	$	4.7
Elder Care Business		79.9	17.0	%		72.3	17.1	%		7.6
Corporate Shared Services		19.6	—			15.2	—			4.4
Total Company	$	243.4	18.0	%	$	226.7	19.2	%	$	16.7

Physician Business

General and administrative expenses as a percentage of net sales decreased 220 basis points year over year. This decrease in percentage is attributable to leveraging the net sales growth across various fixed costs, the benefit of cost reductions as a result of centralizing the purchasing function and consolidating of the distribution centers into larger facilities (“Rationalization Programs”), and the Company’s focus on reducing the cost to deliver. Warehouse expenses, which are included in general and administrative expenses, were reduced as a percentage of net sales as a result of management’s focus on reducing the cost to deliver. Cost to deliver as a percentage of net sales was 3.1% and 3.5% during the fiscal years 2004 and 2003, respectively. Although warehouse expenses increased $3.2 million year over year, warehouse expenses as a percent of net sales decreased from 4.8% during the fiscal year ended March 28, 2003 to 4.5% during the fiscal year ended April 2, 2004. This percentage decrease is a result of a reduction in the Company’s delivery fleet and optimization of shipments between branches. The percentage decrease was slightly offset by (i) an increase in freight costs due to higher rates that were effective during the first half of fiscal year 2004 and the net sales growth and (ii) an increase in salary expenses primarily due to general wage increases.

The following details other significant dollar increases or decreases in various components of general and administrative expenses: (i) incentive compensation increased approximately $2.3 million as a result of improved branch and division profitability, (ii) meeting expenses increased approximately $0.9 million primarily as a result of the two regional sales meetings held in June 2003 to launch new sales growth programs, (iii) employee benefits and insurance increased approximately $0.9 million as a result of increased medical claims year over year, (iv) depreciation expense increased approximately $0.6 million for completed phases of the ERP system, myPSS.com electronic commerce platform, and supply chain initiatives, (v) an increase in marketing expenses of approximately $0.5 million to support the revenue growth programs established during fiscal year 2004, (vi) bad debt expense increased approximately $0.5 million primarily as a result of the increased sales volume, offset by

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(vii) a decrease in other general and administrative expenses of approximately $2.7 million which is discussed below under the caption Other General and Administrative Expenses, and (viii) a decrease in salary expenses of approximately $1.9 million related to lower head count as a result of the Rationalization Programs and the centralization of the purchasing function to corporate headquarters in Jacksonville, Florida, partially offset by general wage increases.

Elder Care Business

General and administrative expenses as a percentage of net sales decreased 10 basis points year over year. This decrease in percentage is attributable to leveraging the net sales growth across various fixed costs and the Company’s focus on reducing the cost to deliver. Warehouse expenses as a percent of net sales were primarily impacted by the Company’s focus on reducing the cost to deliver. Cost to deliver as a percentage of net sales was 4.1% and 4.2% during the fiscal years 2004 and 2003, respectively. Although warehouse expenses increased $2.3 million year over year, warehouse expenses as a percent of net sales decreased from 7.0% during the fiscal year ended March 28, 2003 to 6.8% during the fiscal year ended April 2, 2004. This percentage decrease is primarily a result of a decrease in warehouse salary expense as a percent of net sales. Although there was an increase in sales volume, the number of warehouse employees was reduced as a result of management’s focus on reducing the cost to deliver. The impact of the reduction of headcount was partially offset by general wage increases. Freight costs as a percentage of net sales remained relatively constant year over year.

The following details other significant dollar increases or decreases in various components of general and administrative expenses: (i) salary expense increased approximately $2.3 million due to general wage increases and additional employees as a result of the fiscal year 2004 business combinations, (ii) the provision for bad debt expense increased approximately $0.8 million primarily due to an overall increase in the accounts receivable base of approximately $15.4 million resulting from the net sales growth discussed above and two customers filing for bankruptcy, offset by the effect of the change in accounting estimate (refer to discussion below in Application of Critical Accounting Policies-Estimating Allowances for Doubtful Accounts), (iii) amortization of intangible assets increased approximately $0.7 million as a result of the recent business combinations, (iv) travel and entertainment expenses increased approximately $0.4 million primarily as a result of the fiscal year 2004 business combinations and increased sales volume, and (v) rent expense increased approximately $0.4 million primarily as a result of the fiscal year 2004 business combinations and moving a distribution center location.

Corporate Shared Services

The increase in general and administrative expenses is primarily attributable to (i) an increase in legal and professional fees of approximately $2.8 million due to the settlement of a class action lawsuit, outstanding litigation, and costs incurred to comply with Section 404 of the Sarbanes-Oxley Act, (ii) an increase in accrued incentive compensation of approximately $1.7 million which is primarily related to the adoption of the Shareholder Value Plan during fiscal year 2003, (iii) an increase in business insurance expense of approximately $1.6 million due to rate increases on the corporate umbrella, director, and officer policies and loss experience, offset by (iv) a decrease in other general and administrative expenses of approximately $5.7 million which is discussed below under the caption Other General and Administrative Expenses, and (v) a decrease in the cost of the private data network of approximately $1.4 million as a result of reducing the number of service center locations and the conversion to a virtual private network for data transmission.

The comparability of general and administrative expenses year over year is impacted by (i) the accounting for the disposition of the Imaging Business and (ii) the costs incurred providing certain services to the buyer under the TSA. In accordance with Emerging Issues Task Force (“EITF”) Issue No. 87-24, Allocation of Interest to Discontinued Operations (“EITF 87-24”), the Company allocated corporate overhead expenses to discontinued operations that are directly attributable to the operations of the Imaging Business. EITF 87-24 states that indirect expenses are not allocable to discontinued operations. During the fiscal year ended March 28, 2003, the Company incurred approximately $11.3 million of general and administrative expenses, which included both direct and indirect overhead expenses that were attributable to the Imaging Business. The Company allocated approximately $5.5 million of these expenses to discontinued operations, which represented direct overhead expenses for the period from March 30, 2002 to November 18, 2002. The expenses associated with providing services under the TSA are

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recorded as a component of general and administrative expenses and the reimbursement is recorded in other income in the accompanying statements of operations.

Other General and Administrative Expenses

General and administrative expenses include charges related to restructuring activity, merger activity, and other items. These charges decreased approximately $8.4 million year over year. The following tables summarize other general and administrative expenses (in millions) by business segment:

	For the Fiscal Year Ended April 2, 2004
	Physician Business		Elder Care Business		Corporate Shared Services			Total
Restructuring costs and expenses	$	0.9	$	—	$	—		$	0.9
Reversal of operational tax charge		—		—		(1.5	)		(1.5	)
Rationalization expenses		0.9		—		—			0.9
Accelerated depreciation		0.2		—		—			0.2
Merger costs and expenses		—		—		—			—
Other		0.2		—		—			0.2
Total	$	2.2	$	—	$	(1.5	)	$	0.7

	For the Fiscal Year Ended March 28, 2003
	Physician Business		Elder Care Business		Corporate Shared Services			Total
Restructuring costs and expenses	$	1.1	$	—	$	0.3		$	1.4
Reversal of operational tax charge		—		—		(0.4	)		(0.4	)
Rationalization expenses		3.2		—		—			3.2
Accelerated depreciation		0.2		—		—			0.2
Merger costs and expenses		—		—		1.4			1.4
Other		0.4		—		2.9			3.3
Total	$	4.9	$	—	$	4.2		$	9.1

Restructuring Costs and Expenses

Physician Business

Plan Adopted During the Fourth Quarter of Fiscal Year 2003. During the quarter ended March 28, 2003, management and the Board of Directors approved and committed to a plan to restructure the Physician Business. This plan was the second phase of the plan adopted during the quarter ended March 29, 2002 and continued to improve the distribution function and completed the centralization of the purchasing function. The total costs related to this plan, which primarily relate to lease termination costs and branch shut down costs, were approximately $0.6 million of which approximately $0.5 million and $0.1 million were recognized during fiscal years 2004 and 2003, respectively. This plan was substantially completed at April 2, 2004.

The following were completed under this plan: (i) 5 service center locations were relocated or expanded, (ii) the purchasing function for 4 service locations were centralized to the corporate office located in Jacksonville, Florida, and (iii) the accounts payable function within the full-service distribution centers was centralized to the corporate office. As a result of the plan, approximately 33 employees, including operations leaders, administrative and warehouse personnel, were involuntarily terminated as of April 2, 2004.

Plan Adopted During the Fourth Quarter of Fiscal Year 2002. During the quarter ended March 29, 2002, management and the Board of Directors approved and adopted a formal plan to restructure the Physician Business.

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In order to improve the distribution infrastructure, certain administrative functions at 13 service center locations, such as accounts receivable billing and collections and inventory management, were consolidated into larger existing facilities within a geographic location. The operations in the affected facilities were reduced to the distribution of inventory and local sales support. Such locations are now referred to as “break-freight” locations. In addition, the purchasing function was centralized to the corporate office located in Jacksonville, Florida. As a result of the plan, 79 employees, including operations leaders, administrative and warehouse personnel, were involuntarily terminated. This plan was substantially complete at March 28, 2003.

The total costs of this plan was approximately $5.4 million, of which approximately $0.3 million, $0.9 million, and $4.2 million were recognized during fiscal years 2004, 2003, and 2002, respectively. During fiscal year 2004, additional charges of $0.4 million were recorded related to this plan, which included lease termination costs of $0.1 million, branch shut down costs of $0.1 million, involuntary employee termination costs of $0.1 million, and employee relocation costs of $0.1 million. Management reevaluated its previous estimates on a quarterly basis and reversed approximately $0.1 million of previously recorded lease termination charges. During fiscal year 2003, charges of $2.0 million were recorded related to this plan, which included branch shut down costs of $1.3 million, involuntary employee termination costs of $0.3 million, and employee relocation costs of $0.4 million. Management reevaluated its previous estimates on a quarterly basis and reversed approximately $1.1 million of previously recorded charges, which included involuntary employee termination costs of $0.6 million, lease termination costs of $0.2 million, and branch shutdown costs of $0.3 million.

Reversal of Operational Tax Charge

The Elder Care Business recorded charges totaling $9.5 million during fiscal years 1998, 1997, and 1996 primarily related to state and local, sales and use, unclaimed property, and property tax payments that were not remitted on a timely basis to taxing authorities. These charges related to periods prior to the Company’s acquisition of Gulf South Medical Supply, Inc. in March 1998. The Company reviewed all available information, including tax exemption certificates received, and recorded charges to general and administrative expenses during the period in which the tax noncompliance issues arose. On a quarterly basis, management performed an analysis of the estimated remaining exposure and recorded adjustments to general and administrative expenses based on the expiration of various states’ statutes of limitations, the resolution of compliance audits, and current available information. During fiscal years 2004 and 2003, the Company reversed $1.5 million and $0.4 million of the previously recorded operating tax charge reserve, respectively. At April 2, 2004, there was no remaining balance in the reserve.

Rationalization Expenses

During fiscal years 2004 and 2003, the Physician Business incurred approximately $0.9 million and $3.2 million, respectively, of rationalization expenses. Rationalization expenses were costs incurred as a result of the conversion to the new ERP system, the centralization of the purchasing function, and the restructuring plan that was adopted during the fourth quarter of fiscal year 2002. Such costs primarily include salary and travel expenses for personnel responsible for converting the ERP system, centralizing the purchasing function, or closing a distribution center location.

Merger Costs and Expenses

Merger costs and expenses includes costs related to an Officer Retention Bonus Plan and a Corporate Office Employee Retention Bonus Plan (collectively the “Retention Plans”), approved by the Board of Directors in February 2000, to retain certain officers and key employees. The total cash compensation cost related to the Retention Plans was approximately $8.2 million of which $1.4 million was expensed during fiscal year 2003. As of March 28, 2003, there were no amounts due under the Retention Plans.

Other

During fiscal year 2003, the Company recorded an allowance for doubtful accounts of $2.9 million against the unsecured note receivable from the Company’s former Chairman and Chief Executive Officer. This allowance did not represent a forgiveness of debt.

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SELLING EXPENSES

	For the Fiscal Year Ended
	April 2, 2004				March 28, 2003
(dollars in millions)	Amount		% of Net Sales		Amount		% of Net Sales		Increase
Physician Business	$	78.3	8.9	%	$	71.1	9.4	%	$	7.2
Elder Care Business		15.8	3.4	%		12.3	2.9	%		3.5
Total Company	$	94.1	7.0	%	$	83.4	7.1	%	$	10.7

Overall, the change in selling expenses is primarily attributable to an increase in commission expense due to the growth in net sales discussed above. Commissions are generally paid to sales representatives based on gross profit dollars and gross profit as a percentage of net sales. The Physician Business’ selling expenses as a percentage of net sales decreased 50 basis points due to a decrease in gross profit as a percentage of net sales resulting from an increased sales volume of pharmaceutical products and equipment, which generate lower gross profit margins. In addition, the decrease is attributable to leveraging the net sales growth across fixed selling expenses. The Elder Care Business’ selling expenses as a percentage of net sales increased 50 basis points due to an increase in gross profit as a percentage of net sales resulting from the addition of higher margin business, the addition of sales representatives primarily in the home care market and regional account executives, and the launch of commission promotion programs to support the sales initiatives discussed above.

INCOME FROM OPERATIONS

	For the Fiscal Year Ended
	April 2, 2004					March 28, 2003
(dollars in millions)	Amount			% of Net Sales		Amount			% of Net Sales		Increase (Decrease)
Physician Business	$	45.5		5.2	%	$	22.8		3.0	%	$	22.7
Elder Care Business		21.9		4.7	%		18.3		4.3	%		3.6
Corporate Shared Services		(19.6	)	—			(15.2	)	—			(4.4	)
Total Company	$	47.8		3.5	%	$	25.9		2.2	%	$	21.9

Income from operations for each business segment changed due to the factors discussed above.

INTEREST EXPENSE

Interest expense for the fiscal year ended April 2, 2004 totaled $5.6 million, a decrease of $7.0 million, or 55.7%, from interest expense of $12.6 million for the fiscal year ended March 28, 2003. During fiscal year 2004, the Company’s debt structure primarily consisted of the variable rate borrowings under its revolving line of credit agreement and the $150 million senior convertible notes, which were issued on March 8, 2004. During fiscal year 2003, the Company’s debt structure consisted of the variable rate borrowings under its revolving line of credit agreement and the 8.5% senior subordinated notes (“8.5% Notes”), which were retired at the end of fiscal year 2003. During fiscal year 2003, interest expense of approximately $2.2 million was allocated to discontinued operations in accordance with EITF 87-24, which states that a portion of the Company’s interest expense that is not directly attributable to or related to other operations of the Company can be allocated to discontinued operations based upon the ratio of net assets to be sold to the sum of consolidated net assets plus consolidated debt.

Interest expense, amortization of debt issuance costs, an unused line fees related to the revolving line of credit totaled approximately $5.3 million during fiscal year 2004 compared to $2.4 million during fiscal year 2003. Interest expense and debt issuance costs related to the Company’s 2.25% convertible senior notes totaled approximately $0.3 million during the fiscal year 2004. Interest expense and the accelerated amortization debt issuance costs as a result of retiring the Company’s 8.5% Notes totaled approximately $9.7 million and 2.7 million, respectively, during fiscal year 2003.

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The daily average outstanding borrowings under the revolving line of credit during fiscal years 2004 and 2003 were approximately $101.2 million and $0.5 million, respectively. The interest rate swap arrangement, which was entered into during fiscal year 2004, established an interest rate at 4.195% (consisting of a fixed interest rate of 2.195% and a credit spread of 2.00%) for a notional amount of $35 million during fiscal year 2004. Interest expense related to the interest rate swap was approximately $1.5 million during fiscal year 2004. Variable interest expense related to the daily average outstanding borrowings of $66.2 million (weighted average interest rate of 3.9%) during fiscal year 2004 was approximately $2.6 million. Variable interest expense related to the daily average outstanding borrowings of $0.5 million during fiscal year 2003 was approximately $1.2 million. Amortization of the debt issuance costs and fees on the unused portion of the line of credit were approximately $1.2 million during fiscal years 2004 and 2003.

INTEREST AND INVESTMENT INCOME

Interest and investment income for fiscal year ended April 2, 2004 totaled $0.2 million, a decrease of $0.3 million, or 66.0%, from interest and investment income of $0.5 million for fiscal year ended March 28, 2003. The decrease is primarily attributable to less cash and cash equivalents on hand year over year and a general reduction in interest rates.

OTHER INCOME

Other income for fiscal year ended April 2, 2004 totaled $3.9 million, an increase of $3.6 million, or 128.5%, from other income of $0.3 million for fiscal year ended March 28, 2003. The decrease in other income is primarily attributable to premiums that were paid during fiscal year 2003 to redeem the 8.5% Notes and a decrease in the amount earned year over year under the TSA with the buyer of the Imaging Business. Upon retirement of the 8.5% Notes during the fiscal year ended March 28, 2003, the Company paid premiums of approximately $5.2 million. During the fiscal years ended April 2, 2004 and March 28, 2003, approximately $3.0 million and $4.3 million, respectively, of other income was recorded as a result of the TSA, which was terminated during the quarter ended December 31, 2003.

PROVISION FOR INCOME TAXES

Provision for income taxes was $17.6 million for the fiscal year ended April 2, 2004, an increase of $12.3 million from the provision for income taxes of $5.3 million for fiscal year ended March 28, 2003. The provision for income taxes for fiscal year 2003 is net of a benefit of approximately $3.1 million related to the loss on the early extinguishment of the 8.5% Notes. Excluding the effect of this benefit, the provision for income taxes increased approximately $9.2 million primarily as a result of an increase in income from continuing operations before provision for income taxes year over year. The effective income tax rate was approximately 38.0% and 37.6% for fiscal years 2004 and 2003, respectively. The increase in the effective rate is primarily attributable to the increase in annual income from continuing operations before provision for income taxes as well as an increase in the permanent adjustment for nondeductible amortization of intangible assets.

TOTAL LOSS FROM DISCONTINUED OPERATIONS

Net sales for the Imaging Business were $445.6 million for the fiscal year ended March 28, 2003. The Imaging Business was sold on November 18, 2002, resulting in 162 selling days for those operations during fiscal year 2003. The pretax loss from operations was $6.7 million for the fiscal year ended March 28, 2003. The pretax loss on disposal of discontinued operations was approximately $1.9 million for the fiscal year ended April 2, 2004, which primarily related to legal and professional fees incurred related to the arbitration proceedings for the claimed purchase price adjustment. The pretax loss on disposal of discontinued operations was approximately $94.6 million for the fiscal year ended March 28, 2003, which related to loss on disposal based on the purchase price. The Company recorded a $0.7 million and $37.7 million income tax benefit related to the operations and disposal of the Imaging Business during the fiscal years ended April 2, 2004 and March 28, 2003, respectively.

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NET INCOME (LOSS)

Net income for the fiscal year ended April 2, 2004 totaled $27.5 million compared to a net loss of $54.8 million for the fiscal year ended March 28, 2003. The net loss for fiscal year ended March 28, 2003 included an after-tax charge of $63.6 million for the total loss from discontinued operations and a charge of $4.8 million for the early extinguishment of the 8.5% Notes. Other variances are due to the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Capital Resources Highlights

	For the Fiscal Year Ended
(dollars in thousands)	April 1, 2005			April 2, 2004			March 28, 2003
Cash Flow Information:
Net cash provided by operating activities	$	36,260		$	21,861		$	44,110
Net cash used in investing activities		(63,470	)		(43,497	)		(6,574	)
Net cash (used in) provided by financing activities		(13,830	)		61,393			(71,939	)
Net (decrease) increase in cash and cash equivalents	$	(41,040	)	$	39,757		$	(34,403	)

	As of
(dollars in thousands)	April 1, 2005			April 2, 2004
Capital Structure:
Bank debt	$	175,000		$	185,000
Cash and cash equivalents		(17,888	)		(58,928	)
Net debt		157,112			126,072
Shareholders’ equity		276,818			239,188
Total capital	$	433,930		$	365,260
Operational Working Capital:
Accounts receivable	$	217,350		$	188,421
Inventories		134,110			99,864
Accounts payable		(109,649	)		(91,160	)
	$	241,811		$	197,125

Cash Flows From Operating Activities

The primary components of net cash provided by operating activities consist of net income adjusted to reflect the effect of non-cash expenses and changes in operational working capital. Overall, net cash provided by operating activities during fiscal years 2005, 2004, and 2003 was impacted by an increase in overall operating profit which was partially offset by operational working capital needs to support net sales growth. The changes in operating working capital during fiscal year 2005 were due to the following:

• The increase in accounts receivable primarily related to net sales growth as a result of the continued implementation of the various revenue growth programs discussed above.

• The increase in inventories primarily related to (i) supporting the implementation of the JDE XE in the Elder Care Business (ii) supporting the pharmaceutical sales growth in the Physician Business, (iii) supporting the further expansion into the durable medical equipment and homecare markets by the Elder Care Business, (iv) higher safety stock to ensure customer service levels during the integration of the company acquired in the Elder Care Business during the three months ended December 31, 2004, and (v) purchases in anticipation of price increases from certain vendors.

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• The increase in accounts payable during fiscal year 2005 did not directly correspond to the increase in inventories primarily as a result of an increase of accelerated payments to selected vendors to take advantage of more favorable discount terms compared to the prior year.

Cash flows from operating activities during fiscal years 2005 and 2004 reflect the Company’s utilization of $19.7 million (tax-effected) and $18.3 million (tax-effected), respectively, of NOL carryforwards (primarily generated during fiscal year 2003 as a result of the disposition of the Imaging Business) to offset cash payments due for Federal and state tax liabilities based on estimated taxable income. In addition, the NOL carryforwards increased approximately $5.6 million (tax-effected) during fiscal year 2005 primarily as a result of finalizing the fiscal year 2004 income tax returns as well as management’s estimate of the outcome of the income tax returns currently under audit. As of April 1, 2005, the Company has $19.5 million (tax-effected) of NOL carryforwards remaining and expects to utilize the remaining Federal NOL carryforward, as well as a portion of the remaining state NOL carryforwards, during fiscal year 2006. Cash flows from operating activities were also impacted by cash payments made or refunds received for Federal and state taxes. During fiscal years 2005 and 2004, the Company paid cash taxes, net of refunds, of approximately $2.0 million and $1.3 million, respectively, which primarily related to Federal alternative minimum tax and state estimated tax payments. During fiscal years 2003, the Company received net cash of approximately $2.8 million primarily related to a NOL carryback refund claim of its fiscal year 2002 tax loss to partially offset the taxable income for fiscal year 2000.

Cash Flows From Investing Activities

Net cash used in investing activities was $63.5 million, $43.5 million, and $6.6 million, during fiscal years 2005, 2004, and 2003, respectively, and was primarily impacted by the following.

• Capital expenditures totaled $25.9 million, $21.1 million, and $12.0 million during fiscal years 2005, 2004, and 2003, respectively, of which approximately $16.9 million, $10.7 million, and $4.5 million, respectively, related to development and enhancement of the Company’s ERP system, electronic commerce platforms, and supply chain integration. Capital expenditures related to the distribution center expansions as a result of the Rationalization Programs were approximately $3.5 million, $4.4 million, and $4.8 million during fiscal years 2005, 2004, and 2003, respectively.

• Payments for business combinations, net of cash acquired, were $24.4 million, $19.3 million, and $4.5 million during fiscal years 2005, 2004, and 2003, respectively. During fiscal year 2005, the Elder Care Business acquired certain assets and assumed certain liabilities of a long-term care medical supply distributor and ancillary billing service provider. The aggregate purchase price was approximately $26.9 million (net of cash acquired of approximately $0.4 million) of which approximately $22.7 million was paid during fiscal year 2005. The remaining purchase price of $4.2 million, which primarily relates to an earn-out provision included in the purchase agreement, was paid during the first quarter of fiscal year 2006. During fiscal year 2004, the Company completed three acquisitions with a total aggregate purchase price, net of cash acquired, of approximately $21.8 million (net of cash acquired of approximately $0.1 million), of which $19.3 million was paid in cash during the fiscal year ended April 2, 2004. Approximately $1.7 million of purchase price, which related to an earn-out provision included in the purchase agreement, was paid during fiscal year 2005 and the remaining purchase price of $0.8 million is expected to be paid during fiscal year 2006. During fiscal year 2003, the Company acquired certain assets and assumed certain liabilities of a long-term care medical supply distributor. The aggregate purchase price was $4.5 million which was fully paid during fiscal year 2003.

• During fiscal years 2005 and 2004, the Company paid approximately $6.8 million and $0.3 million to sales representatives for execution of nonsolicitation agreements. Refer to Application of Critical Accounting Policies for a discussion regarding nonsolicitation agreements.

• Transaction and settlement costs related to the sale of the Imaging Business of approximately $4.9 million, $2.1 million and $3.3 million were paid during fiscal years 2005, 2004, and 2003, respectively. As a result of the final ruling from the arbitrator regarding the disputed net asset calculation, a cash payment of approximately $4.3 million was made to the buyer of the Imaging Business during fiscal year 2005. Cash

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proceeds from the sale of the Imaging Business of approximately $15.4 million were received during fiscal year 2003.

• During fiscal year 2005, the Company made an initial equity investment of $1.0 million in Tiger Medical. The Company ultimately has the right to increase its ownership interest in Tiger Medical to 100% during fiscal years 2006 through 2009 if certain performance targets are achieved. The total purchase price to be paid by the Company for 100% ownership of Tiger Medical ranges between $1.0 million and $32.5 million and depends on the satisfaction of certain performance targets. (Refer to Note 4, Variable Interest Entity, for a further discussion of Tiger Medical.)

Cash Flows From Financing Activities

Net cash used in financing activities was $13.8 million compared to net cash provided by financing activities of $61.4 million during fiscal year 2004 and net cash used in financing activities of $71.9 million during fiscal year 2003. Net cash used in/provided by financing activities during fiscal years 2005, 2004, and 2003 was primarily impacted by the following:

• During fiscal year 2003, the Company refinanced its debt and paid $130.2 million to retire the 8.5% Notes using borrowings under the revolving line of credit. During fiscal year 2004, the Company issued $150.0 million of 2.25% convertible senior notes and used a portion of the proceeds to repay approximately $79.3 million of its debt outstanding under the revolving line of credit. In connection with the issuance of the 2.25% convertible senior notes, the Company paid approximately $6.1 million of debt issuance costs during fiscal year 2004. The Company decreased its borrowings under the revolving line of credit approximately $10.0 million and $48.0 million during fiscal years 2005 and 2004, respectively.

• During fiscal year 2005, the Company paid $9.9 million to repurchase approximately 1.0 million shares of the Company’s common stock at an average price of $9.91 per common share. During fiscal year 2004, the Company paid $40.6 million to repurchase approximately 3.9 million shares of the Company’s common stock at an average price of $10.36 per common share. During fiscal year 2003, the Company paid $25.6 million to repurchase approximately 3.6 million shares of the Company’s common stock at an average price of $7.13 per common share.

• Proceeds received from the exercise of stock options were approximately $5.5 million, $4.9 million, and $0.8 million during fiscal years 2005, 2004, and 2003, respectively.

Capital Resources

Senior management and the Board of Directors determine the amount of capital resources that the Company maintains. Management allocates resources to new long-term business commitments when returns, considering the risks, look promising and when the resources available to support the existing business are adequate.

The Company’s two primary sources of capital are the proceeds from the 2.25% convertible senior notes offering and the revolving line of credit. These instruments furnish the financial resources to support the business strategies of customer service and revenue growth. The revolving line of credit, which is an asset-based agreement, uses the Company’s working capital as collateral to support necessary liquidity. Over the long-term, the Company’s priorities for use of capital are internal growth, acquisitions, and repurchase of the Company’s common stock.

At April 1, 2005, the Company maintained a $200 million revolving line of credit. Availability of borrowings under the revolving line of credit depends upon the amount of a borrowing base consisting of accounts receivable and inventory, subject to satisfaction of certain eligibility requirements. At April 1, 2005, the Company had sufficient assets based on eligible accounts receivable and inventories to borrow up to $171.2 million under the revolving line of credit and had outstanding borrowings of $25.0 million.

As the Company’s business grows, its cash and working capital requirements will also continue to increase. The Company normally meets its operating requirements by maintaining appropriate levels of liquidity under its

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revolving line of credit and using cash flows from operating activities. The Company expects that the overall growth in the business will be funded through a combination of cash flows from operating activities, borrowings under the revolving line of credit, capital markets, and/or other financing arrangements. As of April 1, 2005, the Company has not entered into any material working capital commitments that require funding, other than the items discussed below and the obligations included in the future minimum obligation table below.

As discussed in Note 3, Purchase Business Combinations, on October 7, 2004 the Elder Care Business acquired certain assets and assumed certain liabilities of a long-term care medical supply distributor. The maximum aggregate purchase price was approximately $26.9 million (net of cash acquired of $0.4 million), subject to certain adjustments as set forth in the purchase agreement, of which approximately $22.7 million was paid in cash during fiscal year 2005 and was funded by cash on hand. Pursuant to the terms of the purchase agreement, remaining purchase price of approximately $4.2 million was paid during the first quarter of fiscal year 2006 as certain revenue thresholds were met in periods subsequent to the date of business combination.

As discussed in Note 4, Variable Interest Entity, in January 2005, the Company entered into a Sourcing Services Agreement (the “Sourcing Agreement”) with Tiger Specialty Sourcing Limited, Tiger Shanghai Specialty Sourcing Co. Ltd., and its principals (collectively “Tiger Medical”). The exclusive Sourcing Agreement focuses on two primary objectives – delivery of consistent, high-quality medical products and lowering the acquisition cost of those products. Subject to the terms and conditions of the Sourcing Agreement, the Company has agreed to purchase certain medical and other products from Chinese suppliers and manufacturers using the exclusive sourcing services of Tiger Medical. Pursuant to the terms of the Sourcing Agreement, the Company acquired a minority interest in Tiger Medical in January 2005 for $1.0 million. The Company ultimately has the right to increase its ownership interest in Tiger Medical to 100% during fiscal years 2006 through 2009 if certain performance targets are achieved. If at any time during the term of the Sourcing Agreement, the Company achieves the agreed-upon cost of goods savings target in any twelve-month period prior to achieving the agreed-upon sales target, then either party has the right to trigger an early buy-out of Tiger Medical by the Company. The total purchase price to be paid by the Company for 100% ownership of Tiger Medical ranges between $1.0 million and $32.5 million and depends on the satisfaction of certain performance targets. Cash payments made by the Company during fiscal years 2006 through 2008 for additional interests in Tiger Medical will be credited against the final purchase price to be paid by the Company.

Debt Rating

The Company’s debt is rated by nationally recognized rating agencies. Companies that have assigned ratings at the top end of the range have, in the opinion of the rating agency, the strongest capacity for repayment of debt or payment of claims, while companies at the bottom end of the range have the weakest capability.

During fiscal year 2005, the Company maintained ratings with two leading corporate and credit rating agencies: Standard and Poor’s Ratings Services, a division of McGraw Hill Companies, Inc. and its successors (“S&P”) and Moody’s Investor Services (“Moody’s”). On December 3, 2003, the Company received a revised outlook from S&P from stable to positive. Additionally, S&P affirmed its corporate credit and senior secured debt rating of BB-. During fiscal year 2005, the Company maintained a stable outlook from Moody’s and a senior implied rating of Ba3 and a long-term issuer rating of B1. Ratings are always subject to change, and there can be no assurance that a ratings agency will continue to rate the Company’s debt and/or maintain their current ratings. On May 20, 2005, Moody’s withdrew the Ba3 senior implied and B1 issuer ratings for the Company because they do not rate any of the Company’s debt.

2.25% Convertible Senior Notes

On March 8, 2004, the Company sold $150 million principal amount of 2.25% convertible senior notes, which mature on March 15, 2024. Interest on the notes is payable semiannually in arrears on March 15 and September 15 of each year. Contingent interest is also payable during any six-month interest period, beginning with the six-month interest period commencing on March 15, 2009, if the average trading price of the notes for the five trading days ending on the second trading day immediately preceding such six-month interest period equals or exceeds 120% of the principal amount of the notes. The amount of contingent interest payable per note in respect of any six-month interest period is equal to 0.25% of the average trading price of a note for the trading period referenced above.

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The notes may be converted into shares of the Company’s common stock under the following circumstances: (i) prior to March 15, 2019, during any calendar quarter that the closing sale price of the Company’s common stock for at least 20 of the 30 consecutive trading days ending the day prior to such quarter is greater than 120% of the applicable conversion price of $17.10 per share; (ii) if on any date after March 15, 2019, the closing sale price of the Company’s common stock is greater than 120% of the then applicable conversion price; (iii) during the five consecutive business day period following any five consecutive trading day period in which the trading price for a note for each day of that trading period is less than 98% of the closing sale price of the Company’s common stock on such corresponding trading day multiplied by the applicable conversion rate, provided that if the price of the Company’s common stock issuable upon conversion is between 100% and 120% of the applicable conversion price, then holders will be entitled to receive upon conversion only the value of the principal amount of the notes converted plus accrued and unpaid interest, including contingent interest, if any; (iv) if the Company has called the notes for redemption; (v) during any period in which the Company’s long-term issuer rating assigned by Moody’s is at or below Caa1 or the corporate credit rating assigned by S&P, is at or below B-, or if the Company is no longer rated by at least one of S&P or Moody’s; or (vi) upon the occurrence of specified corporate transactions described in the indenture governing the notes. The initial conversion rate is 58.4949 shares of common stock per each $1 (in thousands) principal amount of notes and is equivalent to an initial conversion price of $17.10 per share. The conversion rate is subject to adjustment if certain events occur, such as stock dividends or other distributions of cash, securities, indebtedness or assets; stock splits and combinations; issuances of rights or warrants; tender offers; or repurchases. Upon conversion, the Company has the right to deliver, in lieu of common stock, cash or a combination of cash and common stock. The Company’s stated policy is to satisfy the Company’s obligation upon a conversion of the notes first, in cash, in an amount equal to the principal amount of the notes converted and second, in shares of the Company’s common stock, to satisfy the remainder, if any, of the Company’s conversion obligation. If the Company’s stock price reaches $17.10, the dilutive effect of the convertible notes may be reflected in diluted earnings per share by application of the treasury stock method. By application of the treasury stock method, a range of approximately 0 to 1.5 million shares (at a stock price range of $17.10 (conversion price) to $20.51(market price trigger)) will be included in the weighted average common shares outstanding used in computing diluted earnings per share as a result of the Company’s stated policy to settle the principal amount of the convertible senior notes in cash.

Revolving Line of Credit

The Company maintains an asset-based revolving line of credit by and among the Company, as borrower thereunder (the “Borrower”), the subsidiaries of the Company, the lenders from time to time party thereto (the “Lenders”), and Bank of America, N.A. (the “Bank”), as agent for the Lenders (the “Credit Agreement”), which permits maximum borrowings of up to $200 million and matures on March 31, 2008. Availability of borrowings depends upon a borrowing base calculation consisting of accounts receivable and inventory, subject to satisfaction of certain eligibility requirements. Borrowings under the revolving line of credit bear interest at the Bank’s prime rate plus an applicable margin based on the Company’s funded debt to earnings before interest, taxes, depreciation, and amortization (the “Leverage Ratio”), or at LIBOR plus an applicable margin based on the Leverage Ratio. Additionally, the Credit Agreement bears interest at a fixed rate of 0.375% for any unused portion of the facility. The average daily interest rate, excluding debt issuance costs and unused line fees, for the fiscal years ended April 1, 2005 and April 2, 2004, was 4.09% and 3.98%, respectively. Under the Credit Agreement, the Company and its subsidiaries are subject to certain covenants, including but not limited to, limitations on (i) paying dividends and repurchasing stock, (ii) selling or transferring assets, (iii) making certain investments including acquisitions, (iv) incurring additional indebtedness and liens, and (v) annual capital expenditures. On March 30, 2005, the Company obtained a waiver from the Bank and Lenders that increased the capital expenditure limit for the fiscal year ended April 1, 2005 from $25.0 million to $28.0 million. Capital expenditures for the fiscal year ended April 1, 2005 were approximately $25.9 million. Borrowings under the revolving line of credit are anticipated to fund future requirements for working capital, capital expenditures, and acquisitions and issue letters of credit.

From time-to-time, the Company has amended the Credit Agreement to meet specific business objectives and requirements. The Credit Agreement originally dated May 20, 2003 has been amended as follows:

• The First Amendment dated June 24, 2003 primarily finalized the syndication of the Credit Agreement to the Lenders.

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• The Second Amendment dated December 16, 2003 primarily increased the maximum borrowings under the Credit Agreement from $150 million to $200 million. In addition, this amendment redefined the applicable margin applied to the Bank’s prime rate or LIBOR.

• The Third Amendment dated March 1, 2004 obtained the Lenders’ approval to issue additional indebtedness in the form of the convertible senior notes and to repurchase up to $42.0 million of the Company’s common stock, including any repurchases made subsequent to May 20, 2003. In addition, this amendment locked the interest rate on the Credit Agreement at the Bank’s prime rate or at LIBOR plus 2.00% for the period of one year, concurrent with the Company’s fiscal year 2005.

• The Fourth Amendment dated June 1, 2004 obtained the Lenders’ approval to increase the aggregate amount of permitted stock repurchases from $42.0 million to $55.0 million, which includes any stock repurchases made subsequent to May 20, 2003.

• The Fifth Amendment dated October 1, 2004 obtained the Lenders’ approval to (i) extend the term of the agreement two years to March 31, 2008, (ii) increase the aggregate amount of permitted stock repurchases from $55.0 million to $80.0 million, which includes any stock repurchases made subsequent to May 20, 2003, (iii) increase the aggregate amount of permitted acquisitions from $50.0 million to $75.0 million, which includes any acquisitions made subsequent to May 20, 2003, (iv) sets the applicable margin level for Base Rate and LIBOR loans to -0.25% and 1.75%, respectively, for the period beginning October 1, 2004 and ending March 26, 2005.

During fiscal year 2004, the Company entered into an interest rate swap agreement to hedge the variable interest rate of its revolving line of credit. Under the terms of the interest rate swap agreement, the Company makes payments based on the fixed rate and will receive interest payments based on 1-month LIBOR. The changes in market value of this financial instrument are highly correlated with changes in market value of the hedged item both at inception and over the life of the agreement. Amounts received or paid under the interest rate swap agreement are recorded as reductions or additions to interest expense. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities, SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133, and SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, the Company’s interest rate swap agreement has been designated as a cash flow hedge with changes in fair value recognized in accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets.

On July 19, 2004, the Company elected to reduce the notional amount of the interest rate swap from $35 million to $25 million. Accordingly, during the nine months ended December 31, 2004, the Company reclassified a gain of $0.1 million from accumulated other comprehensive income to interest expense related to the portion of the swap that was terminated.

As of April 1, 2005, the swap carries a notional principal amount of $25 million and effectively fixes the interest rate on a portion of the revolving line of credit to 2.195%, prior to applying the Leverage Ratio margin discussed above. The swap agreement expires on March 28, 2006 and settles monthly until expiration. During the fiscal year ended April 1, 2005, the Company recorded an unrealized gain, net of tax, of approximately $0.3 million for the estimated fair value of the swap agreement in accumulated other comprehensive income in the accompanying consolidated balance sheet. The unrealized loss recorded during the fiscal year ended April 2, 2004 was not material.

8.5% Senior Subordinated Notes

During fiscal year 2003, the Company retired its $125 million aggregate principal amount of 8.5% Notes due in 2007 and recorded a charge of $4.8 million as a result of the early extinguishment of debt. This charge consisted of $5.2 million of redemption premiums, $2.7 million of accelerated amortization of debt issuance costs, net of an income tax benefit of $3.1 million.

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Stock Repurchase Program

On July 30, 2002, the Company’s Board of Directors approved a stock repurchase program authorizing the Company, depending upon market conditions and other factors, to repurchase up to a maximum of 5% of its common stock, or approximately 3.6 million common shares, in the open market, in privately negotiated transactions, or otherwise. During fiscal year 2003, the Company repurchased 3.6 million shares of common stock at an average price of $7.13 per common share.

On December 17, 2002, the Company’s Board of Directors authorized an additional purchase of up to 5% of its common stock, or approximately 3.4 million common shares, in the open market, in privately negotiated transactions, or otherwise. During the first quarter of fiscal year 2004, the Company repurchased approximately 0.9 million shares of common stock under this program at an average price of $5.92 per common share.

On February 26, 2004, the Board of Directors authorized the repurchase of up to $35.0 million of common stock in connection with the issuance of the convertible senior notes. This authorization terminated the remaining shares available for repurchase under the stock repurchase program authorized in December 2002. During the fourth quarter of fiscal year 2004, the Company repurchased approximately 3.0 million shares of common stock at an average price of $11.79 per common share for approximately $35.0 million.

On June 8, 2004, the Company’s Board of Directors approved a stock repurchase program authorizing the Company, depending upon market conditions and other factors, to repurchase up to a maximum of 5% of its common stock, or approximately 3.2 million common shares, in the open market, in privately negotiated transactions, or otherwise. During fiscal year 2005, the Company repurchased approximately 1.0 million shares of common stock under this program at an average price of $9.91 per common share. At April 1, 2005, approximately 2.2 million shares are available to repurchase under this program.

Liquidity and Capital Resource Outlook

Based on prevailing market conditions, liquidity requirements, contractual restrictions, and other factors, the Company may seek to retire its outstanding equity through cash purchases and/or reduce its debt. The Company may also seek to issue additional debt or equity to meet its future liquidity requirements. Such transactions may occur in the open market, privately negotiated transactions, or otherwise. The amounts involved may be material.

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Future Minimum Obligations

In the normal course of business, the Company enters into obligations and commitments that require future contractual payments. The commitments primarily result from repayment obligations for borrowings under the revolving line of credit, contractual purchase commitments, as well as contractual lease payments for facility, vehicle, and equipment leases, and contractual payments under noncompetition agreements. The following table presents, in aggregate, scheduled payments under contractual obligations for the Physician Business, the Elder Care Business, and Corporate Shared Services (in thousands):

	Fiscal Years										Thereafter		Total
	2006		2007		2008		2009		2010
Revolving line of credit(a)	$	1,643	$	1,969	$	1,969	$	25,016	$	—	$	—	$	30,597
2.25% convertible senior notes		3,375		3,375		3,375		3,375		3,375		197,250		214,125
Operating leases: (b)
Operating		18,776		13,920		9,946		6,445		4,423		9,313		62,823
Restructuring		243		19		—		—		—		—		262
Noncompetition agreements		166		36		30		28		28		56		344
Purchase commitments(c)		395		55		—		—		—		—		450
Total	$	24,598	$	19,374	$	15,320	$	34,864	$	7,826	$	206,619	$	308,601

(a) The revolving line of credit is classified as a current liability in accordance with EITF No. 95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements That Include both a Subjective Acceleration Clause and a Lock-Box Arrangement; however, the credit facility does not expire until March 31, 2008. The Company is not obligated to repay or refinance amounts outstanding under the revolving line of credit until March 31, 2008. Interest expense has been estimated using current level borrowings outstanding at current effective interest rates. Actual interest expense may differ due to changes in interest rates or levels of borrowings.

(b) Amounts represent contractual obligations for operating leases of the Company as of April 1, 2005. Currently, it is management’s intent to either renegotiate existing leases or execute new leases upon the expiration date of such agreements.

(c) If the Physician Business or the Elder Care Business were to terminate a contract with a private label vendor for any reason, the Company may be required to purchase the remaining inventory of private label products from the vendor, provided that, in no event would the Company be required to purchase quantities of such products which exceed the aggregate amount of such products ordered by the Company in the ninety day period immediately preceding the date of termination. As of April 1, 2005, the Company has not terminated any contracts with a private label vendor that had a material impact to the Company’s results of operations and financial condition.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

In preparing the consolidated financial statements in conformity with U.S. generally accepted accounting principles, management is required to make certain estimates, judgments, and assumptions. These estimates, judgments, and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies which management and the audit committee believe are the most critical to fully understand and evaluate the Company’s financial position and results of operations include the following. The discussion below applies to each of the Company’s reportable segments (Physician Business, Elder Care Business, and Corporate Shared Services), unless otherwise noted.

Revenue Recognition

The Physician Business has two primary sources of revenue: the sale of consumable products and the sale of equipment.

• Revenue from the sale of consumable products is recognized when products are shipped or delivered. Revenue for these products is recorded at shipment since at that time there is persuasive evidence that an

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arrangement exists, the price is fixed and determinable, and the collection of the resulting accounts receivable is reasonably assured.

• Revenue from the sale of single deliverable equipment is generally recognized when the equipment is shipped, unless there are multiple deliverables, in which case revenue is recognized when all obligations to the customer are fulfilled. Obligations to the customer are typically satisfied when installation and training are complete.

Customers have the right to return consumable products and equipment. Sales allowances are recorded as a reduction of revenue for potential product returns and estimated billing errors. Management analyzes sales allowances quarterly using historical data adjusted for significant changes in volume and business conditions, as well as specific identification of significant returns or billing errors.

The Elder Care Business has four primary sources of revenue: the sale of consumable products to skilled nursing home facilities, assisted living facilities, and home care providers; the sale of consumable products to Medicare eligible customers; the sale of equipment; and fees earned for providing Medicare Part B billing services.

• Revenue from the sale of consumable products to skilled nursing home facilities, assisted living facilities, and home care providers is recognized when products are shipped or delivered. Revenue for these products is recorded at shipment since at that time there is persuasive evidence that an arrangement exists, the price is fixed and determinable, and the collection of the resulting accounts receivable is reasonably assured.

• Revenue from the sale of consumable products to Medicare eligible customers is recognized upon estimated usage of the product. Revenue is recorded at the amounts expected to be collected from Medicare, other third-party payors, and directly from customers. Revenue for Medicare reimbursement is recorded based on government-determined reimbursement prices for Medicare-covered items. Medicare reimburses 80% of the government-determined reimbursement prices for reimbursable supplies and the remaining balance is billed to either third-party payors or directly to customers. Reimbursement from Medicare is subject to review by appropriate government regulators.

• Revenue from the sale of single deliverable equipment is generally recognized when the equipment is shipped, unless there are multiple deliverables, in which case revenue is recognized when all obligations to the customer are fulfilled.

• Revenue from providing Medicare Part B billing services on a fee for service or a full assignment basis to Medicare eligible customers is recognized during the period the supplies being billed to Medicare are delivered to patients.

Customers have the right to return consumable products and equipment. Sales allowances are recorded as a reduction of revenue for potential product and equipment returns, revenue adjustments related to actual usage of products by eligible Medicare Part B patients, Medicare Part B reimbursement denials, and billing errors. Management analyzes product returns and billing errors using historical data adjusted for significant changes in volume and business conditions, as well as specific identification of significant returns or billing errors. Management analyzes revenue adjustments related to estimated usage of products by eligible Medicare Part B patients and Medicare Part B reimbursement denials using historical actual cash collection and actual adjustments to gross revenue for a certain period of time. Additional allowances are recorded for any significant specific adjustments known to management.

Consolidated sales allowances are immaterial and generally represent less than 1.0% of gross sales.

Estimating Allowances for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability to collect outstanding amounts due from its customers. The allowances include specific amounts for those accounts that are likely to be uncollectible, such as bankruptcies, and general allowances for those accounts that management

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currently believes to be collectible but later become uncollectible. Estimates are used to determine the allowances for bad debts and are based on historical collection experience, current economic trends, credit-worthiness of customers, changes in customer payment terms, and percentages applied to the accounts receivable aging categories. The percentage of each aging category that is reserved is determined by analyzing historical write-offs and current trends in the credit quality of the customer base. Management performs ongoing credit evaluations by reviewing the customer’s current financial information. A credit review is performed on new customers in the Physician Business and an annual credit review is performed on all major customers in the Elder Care Business. At a minimum, each Elder Care customer account is reviewed annually. Adjustments to credit limits and allowances for bad debts are made based upon payment history and the customer’s current credit worthiness. If the financial condition of the Company’s customers were to deteriorate or improve, allowances may be adjusted which will impact general and administrative expenses and accounts receivable.

During fiscal year 2004, the Elder Care Business changed its method for establishing its allowance for doubtful accounts due to (i) changes in Medicare and Medicaid reimbursement rates and (ii) an analysis of the prior two years of accounts receivable collection and write-off history and the then projected bad debt write-offs. Based on the results of this analysis, combined with the changes to the reimbursement rates, management concluded that the methodology for establishing the allowance for doubtful accounts resulted in, and would continue to result in, an overstatement of the reserve requirement. In accordance with Accounting Principles Board (“APB”) Opinion No. 20, Accounting Changes (“APB 20”), management revised the estimates used to establish the allowance for doubtful accounts for the Elder Care Business. This change in estimate reduced the reserve percentages applied to various aging categories of accounts receivable, to more closely reflect actual collection and write-off history. The impact of reducing the reserve percentages was approximately $0.9 million, net of benefit for income taxes, or $0.01 basic and diluted earnings per share for the fiscal year ended April 2, 2004. No changes to the methodology have been made subsequent to December 31, 2003.

Inventory Valuation

Inventories, which primarily consist of medical products and supplies and diagnostic equipment, are valued at the lower of cost or market, on a first-in, first-out basis. As part of this valuation process, excess and slow-moving inventories are reduced to estimated net realizable value. The Company’s accounting for excess and slow-moving inventory contains uncertainty because management must use judgment to estimate when the inventory will be sold and the quantities and prices at which the inventory will be sold in the normal course of business. When preparing these estimates, management considers and reviews historical results, inventory quantities on hand, current operating trends, sales forecasts, and slow movement reports. These estimates can be affected by a number of factors, including general economic conditions, supply interruption by a manufacturer, and other factors affecting demand for the Company’s inventory. Any adjustments to the valuation of inventory will impact cost of goods sold and inventory.

During fiscal year 2002, the Physician Business recorded a $2.3 million charge to cost of goods sold for a discontinued product line. During fiscal year 2002, Candela Corporation (“Candela”) terminated a distribution agreement between the two companies and the Company filed an arbitration proceeding with the American Arbitration Association against Candela (PSS World Medical, Inc. d/b/a Physician Sales & Service, Claimant, v. Candela Corporation, Respondent) for breach of contract, promissory estoppel, intentional interference with contractual/advantageous relations, and violation of the Massachusetts Unfair Business Practices Act. Candela filed counterclaims in the arbitration for breach of contract, seeking payment of $2.4 million in outstanding invoices, which was recorded in accounts payable at the time of purchase, and alleged trademark infringement and violation of the Massachusetts Unfair Business Practices Act. The arbitrators ruled in favor of Candela on May 28, 2003. Due to the termination of the distribution agreement, including termination of manufacturer support, installation services, and warranty coverage, the Physician Business recorded an additional $2.3 million charge to cost of goods sold during fiscal year 2003.

Estimating Accruals for Vendor Rebates

The Company receives transaction-based and performance-based rebates from third party vendors. Such rebates are classified as either (i) a reduction to cost of goods sold, (ii) a reduction of the cost incurred, or (iii) an increase to net sales in the accompanying statements of operations. Transaction-based rebates are generally associated with a

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specific customer contract and are recognized as a reduction to cost of goods sold at the time the transaction occurs. Performance-based rebates are typically measured against inventory purchases from the manufacturer or sales volume levels and are received from the vendors at the time certain performance measures are achieved. Performance-based rebates for contracts entered into subsequent to November 21, 2002 are recognized based on a systematic and rational allocation of the consideration to be received relative to the transaction that marks the progress of the Company toward earning the rebate or refund, provided the amounts are probable and reasonably estimatable. Therefore, management uses judgment and estimates to determine the amount of performance-based rebates to recognize each period. If the amounts are not probable and reasonably estimable, rebate income is recognized upon achieving the performance measure. Prior to November 21, 2002, rebate income was recognized in the period in which the performance measure was achieved. Vendor rebates are recognized in income only if the related inventory has been sold. Therefore, management estimates the amount of vendor rebate income related to inventory not sold and establishes a reserve on a quarterly basis. If the facts and circumstances used by management to assess whether the performance targets will be achieved by the Company or the amount of inventory that has been sold change, the Company’s financial condition and the results of operations could materially change period to period.

Estimating Valuation Allowances for Deferred Tax Assets

The liability method is used for determining income taxes, under which current and deferred tax assets and liabilities are recorded in accordance with enacted tax laws and rates. Under this method, the amounts of deferred tax assets and liabilities at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. Valuation allowances are established to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. In determining the need for valuation allowances, management considers and makes judgments and estimates regarding estimated future taxable income and ongoing prudent and feasible tax planning strategies. These estimates and judgments include some degree of uncertainty and changes in these estimates and assumptions could require management to adjust the valuation allowances for deferred tax assets. The ultimate realization of the deferred tax assets generally depends on the generation of sufficient taxable income in the applicable taxing jurisdictions.

The Company’s tax filings are subjected to audit by the IRS. These audits may result in assessments of additional taxes that are resolved with the authorities or potentially through the courts. Management believes that these assessments may occasionally be based on erroneous and even arbitrary interpretations of tax law. Resolution of these situations inevitably includes some degree of uncertainty; accordingly, the Company provides taxes only for the amounts management believes will ultimately result from these proceedings. Management does not believe it is possible to reasonably estimate the potential impact of changes to the assumptions and estimates identified because the resulting change to the tax liability, if any, is dependent on numerous factors which cannot be reasonably estimated. These include, among others, (i) the amount and nature of additional taxes potentially asserted by Federal, state, and local tax authorities; (ii) the willingness of Federal, state, and local tax authorities to negotiate a fair settlement through an administrative process; and (iii) the impartiality of the Federal, state, and local courts. Management’s experience has been that the estimates and assumptions used to provide for future tax assessments have proven to be appropriate. However, past experience is only a guide, and the potential exists, however limited, that the tax resulting from the resolution of current and potential future tax controversies may differ materially from the amount accrued.

During fiscal year 2002, the Company sold its International Business, which generated a capital loss carryforward. At the time of sale, management believed it was more likely than not that the Company would be unable to use the capital loss before its expiration in fiscal year 2007 and, accordingly, a valuation allowance was recorded. Based on recent Tax Court rulings, the Company filed a refund claim with the IRS during the three months ended December 31, 2003, to report an ordinary worthless stock deduction on the sale of the International Business. The refund claim reflected a reclassification of the nondeductible capital loss to a tax-deductible ordinary loss. The worthless stock deduction claim was combined with the formal protest to the results of the audit of the Federal income tax returns for the fiscal years ended March 31, 2000 and March 30, 2001 and was submitted to the Appeals Office of the IRS. During the three months ended December 31, 2004, the Company and the Appeals Office of the IRS reached a settlement. This settlement, which is subject to final review and approval by the Congressional Joint Committee on Taxation (“Joint Committee”), resulted in a one-time reduction to the provision for income taxes for

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the fiscal year ended April 1, 2005 of approximately $5.6 million. Management believes that the Joint Committee will uphold and approve the agreed-upon settlement with the Appeals Office of the IRS.

Estimating Useful Lives of Property and Equipment

Property and equipment is recorded at cost and is depreciated on a straight-line basis over the following estimated useful lives.

	Useful Life
Equipment	5 to 15 years
Computer hardware and software	3 to 15 years

Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives. Management is required to use judgment in determining the estimated useful lives of such assets. Changes in circumstances such as technological advances, changes to the Company’s business model, changes in the Company’s business strategy, or changes in the planned use of property and equipment could result in the actual useful lives differing from the Company’s current estimates. In those cases where the Company determines that the useful life of property and equipment should be shortened or extended, the Company would depreciate the net book value in excess of the estimated salvage value over its revised remaining useful life.

During fiscal years 2005, 2004, and 2003, the Company adjusted the useful lives of certain assets in accordance with APB 20; however, the impact to depreciation expense was immaterial. During fiscal year 2006, the estimated useful lives of certain computer hardware and software with a carrying value of approximately $27.4 million will be extended 120 months from March 23, 2005 to coincide with the expected service life of the assets. Computer hardware and software capitalized subsequent to this change in estimate will continue to be depreciated over a period ranging from 3 to 10 years. This change in estimate is expected to result in a decrease in depreciation expense of approximately $1.1 million, net of tax, or approximately $0.02 diluted earnings per share, for the fiscal year ended March 31, 2006.

Legal Contingencies

As discussed in Note 16, Commitments and Contingencies, the Company is currently involved in certain legal proceedings. In accordance with SFAS No. 5, Accounting for Contingencies, if it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and the amount of the loss is estimatable, an accrual for the costs to resolve these claims is recorded in accrued expenses in the accompanying balance sheets. Professional fees related to these claims are included in general and administrative expenses in the accompanying statements of operations. Management, with the assistance of outside counsel, determines whether it is probable that a liability has been incurred and whether the amount of potential loss is estimatable. The determination is based upon potential results, assuming a combination of litigation and settlement strategies. Management does not believe the outstanding legal proceedings will have a material adverse effect on the Company’s consolidated financial position. It is possible, however, that future results of operations for any particular period could be materially affected by changes in management’s assumptions related to the anticipated or actual outcome of the outstanding legal proceedings.

During fiscal year 2005, the Company settled a lawsuit pursuant to which the Company was required to pay approximately $2.9 million to resolve all claims. In addition, the Company settled a lawsuit pursuant to which the opposing parties agreed to pay the Company $2.6 million to resolve all claims and counterclaims.

Impairment of Goodwill, Intangibles, and Other Long-Lived Assets

SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”) requires that goodwill no longer be amortized and that goodwill be tested for impairment annually or whenever events or changes in circumstances indicate the carrying amount may be impaired. Goodwill is reviewed for impairment at each reporting unit annually on the last day of each fiscal year, which is the Friday closest to March 31. The Physician Business, the Elder Care Business,

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and Corporate Shared Services are separate reporting units. Goodwill was not impaired during fiscal years 2005 and 2004.

The impairment and disposal of long-lived assets is accounted for in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, (“SFAS 144”). SFAS 144 requires that long-lived assets, such as property and equipment and intangible assets subject to amortization, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Certain factors which may occur and indicate that an impairment exists include, but are not limited to: (i) significant underperformance relative to expected historical or projected future operating results; (ii) significant changes in the manner of the Company’s use of the underlying assets; and (iii) significant adverse industry or market economic trends. During fiscal year 2005, the Company made nonsolicitation payments to certain sales representatives that will be tested annually or more frequently for impairment in accordance with SFAS 144. Certain factors which may occur and indicate that an impairment of the nonsolicitation agreements exists include, but are not limited to: (i) a change in a state’s legal system that would impact any legal opinion relied upon when assessing enforceability of the nonsolicitation covenants, (ii) a decline in sales generated by a sales representative below the amount that the nonsolicitation was based upon, (iii) death, or (iv) full retirement by the sales representative.

In the event that the carrying value of assets are determined to be unrecoverable, the Company would estimate the fair value of the assets or reporting unit and record an impairment charge for the excess of the carrying value over the fair value. Management must make assumptions regarding estimated future cash flows, revenues, earnings, and other factors to determine the fair value of these respective assets. If these estimates or related assumptions change in the future, the Company may be required to record an impairment charge. Impairment charges would be included in general and administrative expenses in the accompanying statements of operations, and would result in reduced carrying amounts of the related assets in the accompanying balance sheets. Management does not believe there were any circumstances which indicated that the carrying value of an asset may not be recoverable during fiscal year 2005.

Business Combinations

The Company allocates the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The Company obtains valuations from an independent third-party to assist in determining the fair values of certain assets acquired and liabilities assumed. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets.

Management makes estimates of fair value based upon assumptions believed to be reasonable. These estimates are based on historical experience and information obtained from the management of the acquired companies. Critical estimates in valuing acquired intangible assets include, but are not limited to: (i) expected future cash flows from existing customer contracts and relationships; (ii) assumptions relating to the impact of noncompete agreements on business operations; (iii) assumptions related to the impact on the timing of expected future cash flows; (iv) retention of customers and key business leaders; and (v) the risk inherent in investing in intangible assets. These estimates are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumption, estimates, or other actual results.

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Variable Interest Entity

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities — an Interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements” (“FIN 46”), and in December 2003, the FASB issued a revision of FIN 46-FIN 46 (Revised 2003) (“FIN 46(R)”). FIN 46(R) provides guidance with respect to the consolidation of variable interest entities (“VIEs”). VIEs are characterized as entities in which equity investors do not have the characteristics of a “controlling financial interest” or there is not sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. Reporting entities which have a variable interest in such an entity and are deemed to be the primary beneficiary must consolidate the variable interest entity.

At April 1, 2005, the Company held a minority interest in Tiger Specialty Sourcing Limited and Tiger Shanghai Specialty Sourcing Co. Ltd. (collectively “Tiger Medical”) that is considered to be a VIE as defined by FIN 46R. The Company is considered to be the primary beneficiary as Tiger Medical provides sourcing services exclusively to the Company. Therefore, the financial statements of Tiger Medical are consolidated with the Company’s financial statements. The Company acquired its interest in Tiger Medical for $1.0 million and the realization of this investment is dependent on the product cost savings to the Company. The Company is not obligated on any of the indebtedness of Tiger Medical nor is the Company obligated to fund any operating losses of Tiger Medical. Therefore, the $1.0 million acquisition price is the only amount at risk as of April 1, 2005. The accompanying consolidated balance sheet as of April 1, 2005 included approximately $0.5 million of cash and $0.6 million of long-term debt due to the principals of Tiger Medical.

Pursuant to the terms of a Sourcing Services Agreement, the Company acquired its minority interest in Tiger Medical on January 25, 2005 for $1.0 million. The Company ultimately has the right to increase its ownership interest in Tiger Medical to 100% during fiscal years 2006 through 2009 if certain performance targets are achieved. If at any time during the term of the Sourcing Services Agreement, the Company achieves the agreed-upon cost of goods savings target in any twelve-month period prior to achieving the agreed-upon sales target, then either party has the right to trigger an early buy-out of Tiger Medical by the Company. The total purchase price to be paid by the Company for 100% ownership of Tiger Medical ranges from $1.0 million to $32.5 million and depends on the satisfaction of certain performance targets. Cash payments made by the Company during fiscal years 2006 through 2008 for additional interests in Tiger Medical will be credited against the final purchase price to be paid by the Company.

Accounting for Discontinued Operations

On September 26, 2002, the Company’s Board of Directors adopted a plan to dispose of the Imaging Business, reflecting a strategic decision by management to focus the Company’s efforts on its Physician and Elder Care Businesses. Accordingly, the results of operations of the Imaging Business and the estimated loss on disposal were classified as “discontinued operations” in accordance with SFAS 144. On November 18, 2002, the Company completed the sale of DI to Imaging Acquisition Corporation (the “Buyer”), a wholly owned subsidiary of Platinum Equity, LLC, a private equity firm (“Platinum”). The sale was completed pursuant to a Stock Purchase Agreement, dated as of October 28, 2002, among the Company, the Buyer, and Platinum, as amended on November 18, 2002 (the “Stock Purchase Agreement”). Under the Stock Purchase Agreement, the purchase price was $45.0 million less (i) an adjustment for any change in net asset value from the initial net asset value target date and (ii) an adjustment for any change in the net cash from the initial net cash target date (“Purchase Price”). The estimated loss on disposal, which was subject to change based on the final Purchase Price adjustments, was finalized during fiscal year 2005.

On March 14, 2003, the Company received a letter from the buyer claiming a purchase price adjustment of $32.3 million. The claimed purchase price adjustment was based on an accounting of the net asset statement as of the closing date, which was delivered to the Buyer in January 2003. Pursuant to the terms of the Stock Purchase Agreement, the matter was referred to an independent accounting firm of national reputation for arbitration. Subsequent to March 14, 2003, the Buyer provided an adjusted claim to the arbitrator claiming a purchase price adjustment of $28.2 million. During fiscal year 2005, the arbitrator ruled in favor of the Buyer for a purchase price adjustment of $1.8 million. As a result of the final ruling from the arbitrator, the Company paid approximately $4.3 million of settlement costs to the Buyer during fiscal year 2005. During the settlement process, management

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estimated the net asset adjustment based on available information and revised its estimate on a quarterly basis, if needed. The pretax loss on disposal of discontinued operations recorded during the fiscal year ended April 1, 2005 represented (i) a true-up of management’s estimated net asset adjustment to the actual net asset adjustment as indicated in the arbitrator’s final ruling of $1.8 million, (ii) interest of $0.5 million, and (iii) legal and professional fees of $0.5 million, offset by (iv) a reversal of the remaining accrued loss on disposal of $0.5 million in order to true-up management’s estimated legal and professional fees based on actual payments made.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to Note 2, Summary of Significant Accounting Policies, of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a full description of recent accounting pronouncements including the respective expected dates of adoption and effects on results of operations and financial condition.

RISK FACTORS

The Company’s business is dependent on sophisticated data processing systems that may impact business operations if they fail to operate properly or not as anticipated.

The success of the Company’s business relies on the ability to obtain, process, analyze, maintain, and manage data. In addition, data processing capabilities are continually upgraded. The Company has increasingly become more reliant on its information systems due to its consolidation and centralization of certain administrative functions. Management relies on this capability because:

• third party ancillary billing services requires proper tracking and reporting;

• customer orders must be received and shipped on a timely basis;

• billings and collections for all customers must be managed efficiently and accurately;

• product cost information, net of rebates, is needed by the sales force in a timely manner to conduct business;

• product reporting, such as product sales by vendor and vendor incentives earned, is a requirement;

• centralized procurement and inventory management systems are required for effective inventory management;

• regulatory compliance on certain products requires proper tracking and reporting;

• rebates are received from manufacturers when certain products are sold and sophisticated systems to track, apply, and collect such rebates are needed;

• data and information systems must be converted after acquisitions are consummated and during operating system conversions; and

• proper employee compensation and record keeping is required.

The Company’s business, financial condition, and results of operations may be materially adversely affected if, among other things:

• data processing capabilities are interrupted or fail for any extended length of time;

• data services are not kept current;

• the data processing system becomes unable to support expanded business;

• data is lost or unable to be re-stored or processed;

• data security is breached; or

• product maintenance and upgrades to the ERP system are no longer provided by Oracle Corporation.

The Elder Care Business’ implementation of the JD Edwards distribution and customer service modules may temporarily disrupt its operations.

The Elder Care Business has successfully completed the implementation of the JDE XE general ledger, accounts receivable, and accounts payable modules at all of its distribution centers. During fiscal year 2005, the Elder Care Business successfully implemented the advanced warehouse distribution module of JDE XE at 9 of the 14 distribution centers. During the first quarter of fiscal year 2006, the Elder Care Business successfully completed this implementation at the remaining distribution centers. The Elder Care Business will begin implementing the

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customer service module of JDE XE during fiscal year 2006. Management anticipates that this implementation will be successfully completed during the fiscal year 2006. There can be no assurance that the implementation of the JDE XE customer service module at the Elder Care Business distribution centers will be successfully completed without disrupting the results of operations of the business. There also can be no assurance that the implementation will be completed within the time frame projected by management.

The Company’s net sales and operating results may fluctuate quarterly as a result of many factors, including:

• fluctuating demand for the products and services offered by the Company;

• the introduction of new products and services offered by the Company and its competitors;

• seasonal vaccine sales;

• acquisitions, disposals, or investments by the Company;

• changes in manufacturers’ pricing policies and/or terms;

• changes in manufacturers’ distribution strategies;

• changes in the level of operating expenses;

• changes in estimates used by management;

• changes in business strategies by competitors;

• changes in business strategy by the Company;

• product supply shortages;

• product recalls by manufacturers;

• inventory valuation adjustments;

• changes in product mix;

• general economic conditions;

• fuel costs and third party shipping rates;

• inclement weather;

• changes in accounting principles;

• disruptions resulting from implementing the strategic business plan;

• disruptions resulting from implementing the ERP systems;

• the number of selling days in a period; and

• changes by the government in reimbursement rates.

Accordingly, management believes that period-to-period comparisons of the results of operations should not be relied upon as an indication of future performance. It is possible that the results of operations may be below analysts’ and investors’ expectations in certain future periods. This could materially and adversely affect the trading price of the Company’s common stock.

The Company’s future results could be adversely affected by operational disruptions due to natural disasters, particularly in regions susceptible to hurricanes.

A severe weather event such as a hurricane, tornado, or flood could cause severe damage to the Company’s property and inventory. In addition, such weather events can cause extended disruptions to the Company’s operations. During fiscal year 2005, the coastal areas of Florida were evacuated on at least four occasions due to hurricanes and the Company’s operations were disrupted for a period of several days. The Company can provide no assurance that a future hurricane or other local disaster would not materially impact the Company’s business or results of operations in the future. The Company has developed disaster recovery plans and maintains business interruption insurance for instances of catastrophic loss. However, there is a risk that the Company may fail to execute its disaster recovery plans or that losses may exceed policy limits. In addition, the Company may have difficulty obtaining business interruption insurance in the future or similar types of coverage may not be available in the markets in which it operates.

The Company’s disaster recovery plans include third party backup facilities for information system infrastructure, internal communication protocols to disseminate information and provide instruction to employees, and plans for

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alternative back-office sites at other Company locations. However, failure to execute or the inability to execute any of the above plans could materially impact the business.

The Company may face increasing, competitive pricing pressures on its sales to large chains and consolidated provider groups.

The Company’s business with large chains and consolidated provider groups, especially in the long-term care market, represents a significant portion of its revenue base. Competitive pricing pressures may increase due to:

• change of ownership of the large chains;

• additional negotiating leverage of large, regional and national chains;

• vendor agreements containing volume discounts;

• service specifications;

• financial health of customers; and

• activity of competitors.

Pricing and customer credit quality pressures due to reduced spending budgets by healthcare providers may affect net sales, the ability to collect accounts receivable, and earnings.

A significant portion of medical care costs in the United States are funded by government and private insurance programs, such as Medicare, Medicaid, and corporate health insurance plans. In recent years, government-imposed limits on reimbursement to hospitals, physicians, nursing homes, and other healthcare providers have significantly impacted spending budgets in certain markets within the medical-products industry. In particular, changes in the Medicare program have limited payments to providers in the long-term care industry, the principal customers of Gulf South Medical Supply, Inc. Beginning July 1, 1998, Medicare’s Prospective Pay System (“PPS”) was applied to the long-term care industry, which limited government payments to long-term care providers to federally established cost levels. Under PPS, many customers of the Elder Care Business have received reimbursements that were substantially less than what they received under the previous cost-based reimbursement system. As a result of this significant reduction in reimbursement levels and adjustments, a substantial number of national, regional, and independent nursing home facilities entered into bankruptcy.

The United States Federal government enacted changes to PPS that became effective October 1, 2003. These changes to Medicare resulted in the implementation of additions to reimbursement funding for providers of elder care services for a specific period of time (referred to as “temporary add-on payments”). The temporary add-on payments were scheduled to expire in September 2005, concurrently with the expected refinement of the RUGs during October 2005. In May 2005, the U.S. House of Representatives and Senate voted to delay the October 2005 expiration of the RUGs and “add-on” reimbursement payments in phases beginning in January 2006 and extending through October 2006. In May 2005, CMS also issued its recommendation to refine the RUGs and expand the number of RUGs from 44 to 53, which included an overall reduction in reimbursements for elder care providers beginning in October 2005. Additionally, CMS recommended a 3% market basket increase (inflationary-related increase that is recommended by CMS and modified, approved or not approved by Congress annually) for all services administered by skilled nursing and other elder care service providers. The net effect of these changes in reimbursement as recommended by CMS, and if approved by Congress, is estimated to be essentially neutral or possibly no change in the effective reimbursement rates for fiscal year 2006 (beginning October 1, 2005). The final acceptance of CMS’ recommendations is due in August 2005. Management cannot yet determine the effects, if any, these changes may have on the financial strength of its customers and/or the elder care services industry.

Future changes in government reimbursement rates, changes in the PPS’ rules, and other regulatory changes may negatively impact the Elder Care Business’ operations. Any reduction in the reimbursements available to physicians under Medicare and Medicaid may lead to a corresponding reduction in the spending budgets of physicians, the principal customers of the Physician Business.

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The Elder Care Business depends on a limited number of large customers.

The Elder Care Business depends on a limited number of large customers for a significant portion of its net sales. The Elder Care Business has long-term contracts with each of its largest customers. The consolidation or divestiture of a large nursing home facility that results in a loss of a significant, large customer or portion thereof in the Elder Care Business, could have a material adverse effect on the Company’s business and results of operations. In addition, an adverse change in the financial condition of one or more of these large customers could have a material adverse effect on the Company’s results of operations or financial condition.

The viability of the Company’s customers may be threatened by increasing costs of malpractice claims and liability insurance.

Insurance rates for the customers of the Elder Care and Physician Businesses have greatly increased. If meaningful reform legislation is not adopted or adopted legislation is not effective in reducing these rates, many of the Company’s customers may be adversely affected which could in turn affect their financial viability.

The Company may not be able to continue to compete successfully with other medical supply companies and direct manufacturers.

The medical supply distribution market is highly competitive. The Company’s operating results could be materially adversely affected if competitors lower prices of products similar to those distributed by the Company, which would require the Company to match the competitive pricing or lose sales. Principal competitors of the Company include full-line and full-service multimarket medical distributors and direct manufacturers, many of which have a national presence. Many of these competitors:

• are substantially larger in size;

• have sales representatives competing directly with the Company;

• have substantially greater financial resources than the Company;

• have lower product costs; and

• have lower operating costs.

The Company also faces significant competition from regional and local dealers, telesales firms, and mail order firms. Several mail order competitors distribute medical supplies on a national, regional or local basis and have less operating costs including lower or no sales tax charges to customers.

Continued consolidation within the healthcare industry may lead to increased competition.

Consolidation within the healthcare industry has resulted in increased competition by direct manufacturers, large national distributors, and drug wholesalers, and may result in lower customer pricing and/or higher operating costs. The Company could face additional competition because:

• many manufacturers are capable of directly marketing to the Company’s customers;

• many products can be readily obtained by competitors from various suppliers;

• competitors could obtain exclusive rights to market a product;

• national hospital distributors, drug wholesale distributors, and healthcare manufacturers could begin focusing their efforts more directly on the Company’s markets;

• hospitals that form alliances with long-term care facilities to create integrated healthcare networks may look to hospital distributors and manufacturers to supply their long-term care affiliates; and

• provider networks created through consolidation among physician provider groups, long-term care facilities and other alternate site providers may shift purchasing decisions to people with whom the Company has no selling relationship.

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There can be no assurance that the Company will maintain operating margins if provider consolidations occur or be able to maintain customer relationships and avoid increased competition and significant pricing pressure in the future.

The expansion of the multi-tiered pricing structure may place the Company at a competitive disadvantage.

The medical-products industry is subject to a multi-tiered pricing structure, which can vary by manufacturer and/or product. Under this structure, certain institutions, originally limited to nonprofit hospitals, can obtain more favorable prices for medical products than the Company. The multi-tiered pricing structure continues to expand as many large integrated healthcare providers and others with significant purchasing power, such as GPOs, demand more favorable pricing terms. Although the Company is seeking to obtain similar terms from manufacturers, management cannot assure that such terms will be obtained.

The Company depends on the availability of lower cost, multi-tiered pricing of products.

In order to offset the negative impact of competition and multi-tiered pricing, the Company depends on the availability of multi-tiered priced products from other distributors and customers at costs that are lower than the manufacturers’ list price. The reduction of availability of lower product costs will negatively impact the Company’s gross margins.

The ability to maintain good relations with vendors may affect the Company’s overall profitability.

Currently, the Company relies on vendors to provide:

• field sales representatives’ technical and selling support;

• acceptable purchasing, pricing, and delivery terms;

• sales performance incentives;

• financial support of sales and marketing programs;

• promotional materials; and

• product availability.

There can be no assurance that the Company will be successful in maintaining good relations with its vendors.

The Company depends heavily on unique distributorship agreements and the termination of any agreements could reduce revenues and earnings.

The Company distributes over 97,000 medical products manufactured by approximately 1,900 vendors. The Company relies on these vendors to manufacture and supply these products. None of the vendors accounted for more than 10% of the Company’s consolidated inventory purchases during the fiscal years ended April 1, 2005, April 2, 2004, and March 28, 2003.

The Company must hire and retain qualified sales representatives to continue its sales growth.

The Company’s ability to retain existing customers and attract new customers is dependent upon hiring new sales representatives and retaining existing sales representatives. The inability to adequately hire or retain sales representatives could limit the Company’s ability to expand its business and increase sales.

If a sales representative ceases employment, the Company risks the loss of customer goodwill based on the impairment of relationships developed between the sales representative and the Company’s customers for whom the sales representative was responsible. This is particularly a risk where the representative goes to work for a competitor. The Company requires sales representatives to execute employment agreements containing restrictive covenants which protect the Company’s legitimate business interests. However, these agreements have not been obtained from all sales representatives. In addition, the terms of these agreements in a limited number of states may not be enforceable. The Company is actively attempting to execute employment agreements with employees that

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currently do not have agreements in place but the Company may not be able to obtain an agreement from each such employee.

The Company must retain the services of senior management.

The Company’s success depends largely on the efforts and abilities of senior management, particularly the executive management team. The loss of the services of one or more of such individuals may adversely affect the Company’s business. Because of the decentralized operating infrastructure, the Company is also dependent upon the operations and sales managers at each distribution center. In addition, the Company does not maintain any key man insurance for members of its senior management.

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The Company’s strategy for growth may not result in additional revenue or operating income and may have an adverse effect on working capital, operating cash flow, and earnings.

There can be no assurance that the Company’s business strategy for growth will result in additional revenues or operating income. A key component of the Company’s business strategy is to increase sales to both existing and new customers, including large chains, independent operators, and provider groups. In addition, these efforts may result in increased costs and expenses to the Company without any increase in revenue or operating income. The Company intends to accomplish this by:

• expanding its product offerings;

• expanding its sales support services;

• expanding its sales force for home care customers;

• developing innovative marketing and distribution programs;

• expanding e-commerce initiatives and development;

• improving distribution capability and efficiency through systems development and implementation;

• improving supply chain efficiency through centralization and systems implementation; and

• improving operating margins through a global sourcing strategy which is designed to source high quality, low cost medical products and equipment.

The Company’s operations and prospects in Asia are subject to significant political, economic and legal uncertainties.

The Company is currently executing a global sourcing strategic initiative whereby certain products will be purchased directly from Asian manufacturers. The Company’s business, financial condition and operating results may be adversely affected by changes in the political, social or economic environment in Asia. Any changes in laws and regulations, or their interpretation, the imposition of surcharges or any material increase in tax rates, restrictions on currency conversion, imports and sources of supply, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on the Company’s ability to conduct business.

The operating costs of the Company’s delivery fleet could increase due to fuel price fluctuations.

The Physician and Elder Care Businesses currently operate a delivery fleet of over 500 vehicles. Management considers the deployment of this fleet to be one of the Company’s competitive advantages. Approximately 76% and 38% of the Physician Business’ and the Elder Care Business’, respectively, shipments are delivered via the fleet. There can be no assurance that the Company would be able to fully pass along any further significant increases in fuel costs to its customers.

In addition, fluctuations in fuel prices impact the operating costs of common carriers who deliver inventory to the Company’s distribution centers. These common carriers may attempt to pass fuel related operating costs through to the Company as a fuel surcharge that may have an adverse effect on the Company’s results of operations. Similarly, strikes or other service interruptions by third party carriers may cause an increase in the Company’s operating expenses and adversely affect the Company’s ability to deliver products on a timely basis. Even if the Company is able to pass through surcharges to its customers, customers may choose to reduce or defer purchases from the Company.

The significant investment in inventory may be exposed to risk of product obsolescence or market valuation.

In order to provide prompt and complete service to customers, the Company maintains a significant investment in inventory at the full-service and strategic distribution centers. Inventory control procedures and policies are in place to monitor the risk of product obsolescence or declining market prices. Nevertheless, management cannot assure that:

• such procedures and policies will continue to be effective;

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• the demand for certain product lines will continue;

• unforeseen product development or price changes will not occur; or

• the write-off of any unsold inventory in the future will not be significant.

In addition, inventory purchased as a result of a business combination may include different product lines that are not normally distributed by the Company. These product lines may be difficult to sell and, therefore, result in a write-off if such inventory is not saleable in the future. Any inventory write-offs could have a material adverse effect on the Company’s business, financial condition, and results of operations.

Business acquisitions may decrease existing shareholders’ percentage ownership in the Company and/or require the Company to incur additional debt.

Future acquisitions or investments may be financed by the issuance of equity securities that could be dilutive to shareholders. Additionally, the Company may incur additional debt and amortization expense related to identifiable intangible assets. This additional debt and amortization expense may significantly reduce profitability and adversely affect the Company’s business, financial condition, and results of operations. The Company is also required to review its intangible assets at least annually to determine if any of these assets have become impaired. A significant impairment of certain intangible assets could negatively impact the Company’s results of operations.

If the Company has difficulties integrating acquired companies within the business, profitability may be adversely affected.

The Company may be unable to successfully integrate acquired businesses and realize anticipated economic, operational, and other benefits in a timely manner. Integration of an acquired business may be difficult when the acquired business is in a market in which the Company has limited or no expertise, or has a different corporate culture. If the Company is unable to successfully integrate acquired businesses:

• substantial costs and delays may be incurred;

• operational, technical, or financial problems may be experienced;

• management’s attention and other resources may be diverted; and

• relationships with key customers and employees may be damaged.

The Company’s indebtedness may limit the ability to obtain additional financing in the future and may limit its flexibility to react to industry or economic conditions.

At April 1, 2005, the Company has a revolving line of credit with maximum availability of borrowings of $200 million. Availability of borrowings depends upon a borrowing base calculation consisting of accounts receivable and inventory, subject to satisfaction of certain eligibility requirements. Any deterioration in the realizability of these assets could reduce the amount available under the revolving line of credit. At April 1, 2005, the Company had sufficient assets based on eligible inventories and accounts receivable to borrow up to $171.2 million under the $200 million revolving line of credit, of which $25.0 million was outstanding.

Increases in the level of the Company’s indebtedness could:

• limit the ability to obtain additional financing in the future for working capital requirements;

• limit the ability to make capital expenditures;

• limit acquisition activity;

• limit the Company’s flexibility in reacting to changes in the industry and economic conditions in general; and

• adversely affect the Company’s liquidity because a substantial portion of cash flow must be dedicated to debt service and will not be available for other purposes.

The Company normally meets its operating requirements by (i) maintaining appropriate levels of liquidity under its revolving line of credit and (ii) using cash flows from operating activities. The Company expects that the overall growth in the business will be funded through a combination of cash flows from operating activities, borrowings under the revolving line of credit, capital markets, and/or other financing arrangements. However, changes in

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capital markets or adverse changes to the Company’s operations may disrupt the Company’s ability to maintain adequate levels of liquidity.

If the Company is unable to generate sufficient cash flow from operations to service the indebtedness, the Company will be forced to adopt an alternative strategy that may include the following options:

• reduce or delay acquisitions and capital expenditures;

• sell assets;

• restructure or refinance the indebtedness; and

• seek additional equity capital.

The price of the Company’s common stock and the trading value of the convertible senior notes may be volatile.

The Company’s common stock experiences significant price and volume fluctuations. Trading prices of the Company’s common stock may be influenced by operating results and prospects and by economic, financial, regulatory and other factors. In addition, general market conditions, including the level of, and fluctuations in, the trading prices of stocks generally, could affect the price of the Company’s common stock.

The market price of the convertible senior notes is expected to be significantly affected by the market price of the Company’s common stock as well as the general level of interest rates and our credit quality. This may result in a significantly greater volatility in the trading value of the notes than would be expected for nonconvertible debt securities the Company may issue.

The price of the Company’s common stock also could be affected by possible sales of the Company’s common stock by investors who view the notes as a more attractive means of equity participation in the Company and by hedging or arbitrage activity that management expects to develop involving the Company’s common stock as a result of the issuance of the notes. The hedging or arbitrage could, in turn, affect the trading prices of the notes.

Tax legislation initiatives could adversely affect the Company’s net earnings and tax liabilities.

The Company is subject to the tax laws and regulations of the United States Federal, state and local governments. From time to time, various legislative initiatives may be proposed that could adversely affect the Company’s tax positions. There can be no assurance that the Company’s effective tax rate will not be adversely affected by these initiatives. In addition, United States Federal, state and local tax laws and regulations are extremely complex and subject to varying interpretations. Although the Company believes that its historical tax positions are sound and consistent with applicable laws, regulations and existing precedent, there can be no assurance that the Company’s tax positions will not be challenged by relevant tax authorities or that the Company would be successful in any such challenge.

The Company faces litigation and liability exposure for existing and potential claims.

The Company is subject to various legal and administrative proceedings and claims arising in the normal course of business, which are described in Note 16 Commitments and Contingencies, of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The outcomes of such proceedings or claims that are unasserted, pending, or known to be threatened could have a material adverse effect on the Company’s consolidated financial position, liquidity, or results of operations.

The Company faces litigation risk exposure to product liability and other claims.

The Company’s business primarily involves the distribution of pharmaceutical and other medical products and equipment. There is a risk that an injury or other liability arising from the use or transportation of the products may result in litigation against the Company. Accordingly, the Company maintains insurance policies, including product liability insurance, covering risks and in amounts management considers adequate. Additionally, in many cases the Company is covered by indemnification from the manufacturer of the product. However, there can be no assurance

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that the coverage maintained by the Company is sufficient to cover future claims, that it will be available in adequate amounts or at a reasonable cost, or that indemnification agreements will provide adequate protection for the Company. A successful claim brought against the Company in excess of available insurance or indemnification, or any claim that results in significant adverse publicity against the Company, could harm the Company’s business.

The Company faces risk that proprietary rights may infringe on the rights of third parties.

The Company believes that its private-label products and other proprietary rights do not infringe upon the proprietary rights of third parties. However, from time to time, third parties may assert infringement claims against the Company. If the Company was found to be infringing on other’s rights, the Company may be required to pay substantial damage awards, obtain a license, or cease selling the products that contain the infringing property and these actions may be significant and result in material losses.

If environmental claims arise, the Company could incur substantial liabilities and costs.

The Company’s operations and properties are subject to various Federal, state and local laws and regulations relating to environmental matters. As such, the Company may be responsible for the investigation and remediation of property contaminated by hazardous, toxic, or other chemical substances, regardless of whether the Company is responsible for such contamination. The costs of such investigation and remediation requirements may be substantial. In addition, the Company could be held liable to governmental entities or third parties for any property damage, personal injury, and investigation and cleanup costs incurred by such parties in connection with the contamination. These costs and liabilities could have a material adverse effect on the Company’s business, financial condition, and results of operations.

Management believes that the Company’s exposure to environmental liabilities under current applicable laws is not material. However, environmental laws and regulations can change rapidly, which could subject the Company to more stringent environmental laws and regulations in the future. The costs of complying with more stringent standards, as well as any liabilities associated with noncompliance with such standards imposed on the Company, may result in a material adverse effect on the Company’s business, financial condition, and results of operations.

If management fails to maintain an effective system of internal controls, the Company may not be able to accurately report its financial results.

Effective internal controls are necessary to provide reliable financial reports. If the Company cannot provide reliable financial reports, the business and operating results could be adversely affected. Any failure to maintain effective internal controls over financial reporting may cause the Company to fail to meet its reporting obligations, which could have a negative impact on the trading price of its stock.

The Articles of Incorporation, Bylaws, Rights Agreement, and Florida law may inhibit a takeover of the Company.

The Company’s Amended and Restated Articles of Incorporation and Amended and Restated Bylaws and Florida law contain provisions that may delay, deter, or inhibit a future acquisition. This could occur even if shareholders are offered an attractive value for their shares of common stock or if a substantial number or even a majority of the Company’s shareholders believe the takeover is in their best interest. These provisions are intended to encourage any person interested in acquiring the Company to negotiate with and obtain the approval of the Board of Directors in connection with any transaction. A staggered Board of Directors, the State of Florida’s Affiliated Transaction Statute, or the State of Florida’s Control-Share Acquisition Statute could delay, deter, or inhibit potential offers to acquire the Company.

In addition, the rights of holders of the Company’s common stock will be subject to, and may be adversely affected by, the rights of the holders of preferred stock that may be issued in the future and that may be senior to the rights of holders of common stock. On April 20, 1998, the Board of Directors approved a Shareholder Protection Rights Agreement that provides for one preferred stock purchase right in respect of each share of common stock. These rights become exercisable upon a person or group of affiliated persons acquiring 15% or more of the Company’s

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then-outstanding common stock by all persons other than an existing 15% shareholder. This Rights Agreement also could discourage bids for shares of common stock at a premium and could have a material adverse effect on the market price of the common stock.

The Company’s business, marketing activities, and pricing are subject to review by Federal or state agencies.

The health care industry is highly regulated and the Company is subject to various Federal, state, and local laws and regulations, which include the operating and security standards of the Drug Enforcement Agency (“DEA”), the FDA, various state boards of pharmacy, state health departments, the United States Department of Health and Human Services (“HHS”), the Occupational Safety and Health Administration (“OSHA”), CMS, the State Attorney General, State Medicaid fraud units, and other comparable agencies. The Company’s global sourcing initiatives have increased the Company’s exposure to these regulatory agencies. Certain of the Company’s distribution service centers may be required to register for permits and/or licenses with, and comply with operating and security standards of, the DEA, the FDA, HHS, and various state boards of pharmacy, state health departments and/or comparable state agencies as well as certain accrediting bodies depending upon the type of operations and location of product distribution, manufacturing, and sale. Although the Company believes that it is in compliance, in all material respects, with applicable laws and regulations, there can be no assurance that a regulatory agency or tribunal would not reach a different conclusion concerning the compliance of the Company’s operations with applicable laws and regulations. In addition, there can be no assurance that the Company will be able to maintain or renew existing permits and licenses or obtain, without significant delay, future permits and licenses needed for the operation of the Company’s businesses.

The noncompliance by the Company with applicable laws and regulations or the failure to maintain, renew or obtain necessary permits and licenses could have an adverse effect on the Company’s results of operations and financial condition. In addition, if changes were to occur to the laws and regulations applicable to the Company’s businesses, such changes could adversely affect many of the Company’s regulated operations, which include distributing pharmaceuticals. Also, the health care regulatory environment may change in a manner that could restrict the Company’s existing operations, limit the expansion of the Company’s businesses, apply regulations to previously unregulated businesses or otherwise affect the Company adversely.

Although the Company attempts to comply with law and regulations applicable to the marketing and sale of medical products and supplies, such standards are rapidly developing and often subject to multiple interpretations. Failure to comply with such laws and regulations could have a material adverse affect on the Company, including criminal and civil penalties, administrative sanctions, fines, and other adverse actions, including but not limited to exclusion from participation in Medicare, Medicaid, and other Federal and state health care programs.

The Medicare Part B billing services provided by the Elder Care Business is subject to review by Federal agencies.

During fiscal year 2004, the Company acquired a company that provides billing services to the long-term care industry. As a result, the Company must comply with Medicare and Medicaid, other Federal health care programs, managed care and third party payor laws and regulations regarding billing, coding, claim submission, and coverage. Failure to comply with the regulations governing Medicare/Medicaid, other Federal programs, managed care or third party payor reimbursement or financial reporting, or otherwise committing healthcare fraud, could subject the Company to adverse actions by its clients or government or private payors as a result of delays or lost reimbursement, recoupment of amounts previously paid, and could subject the Company to substantial fines or penalties, and other sanctions, including exclusion from participation in any Federal health care program. The government is actively involved in investigation of allegations of health care fraud. In addition, the Federal False Claims Act creates a financial incentive for private individuals, called whistleblowers, to bring suit on behalf of the government to recover funds paid pursuant to a false claim, which may include failure to comply with technical requirements for claim submission, coding, and billing. An adverse determination regarding the Company’s compliance with Medicare, Medicaid, or other Federal health care program’s billing, coding, claim submission, and coverage requirements, brought by either the government or a private individual, could have a material effect on the Company’s financial position and results of operations.

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Failure to comply with the United States Foreign Corrupt Practices Act and other laws could adversely impact the Company’s competitive position and subject us to penalties and other adverse consequences.

The Company is subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some that may compete with the Company, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the non-U.S. countries in which the Company conducts business. The Company has attempted to implement safeguards to prevent and discourage such practices by employees and agents. The Company can make no assurance, however, that employees or other agents will not engage in such conduct for which the Company might be held responsible. If employees or other agents are found to have engaged in such practices, the Company could suffer severe penalties and other consequences that may have a material adverse effect on the Company’s business, financial condition and results of operations. The Company is also subject to the Patriot Act and other anti boycott and reporting laws. Failure to comply with these laws could subject the Company, its employees or other agents to penalties and other adverse consequences that may have a material adverse effect on the Company’s business, financial condition and results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

The objective in managing the Company’s exposure to market risk is to limit the potential impact to earnings and cash flow from changes in interest rates and availability of capital. The following assessment of the Company’s market risk does not include uncertainties that are either nonfinancial or nonquantifiable, such as political uncertainty, economic uncertainty, impact of future tax legislation, and credit risks. The Company’s primary interest rate exposure relates to cash, fixed and variable rate debt, and a single interest rate swap.

Interest Rate Sensitivity. During fiscal year 2005, the Company’s debt obligations consisted of (i) the $150 million of 2.25% convertible senior notes and (ii) borrowings under the revolving line of credit, which currently bears interest at the Bank’s prime rate plus an applicable margin of between -0.50% and 0.50% based on the Company’s ratio of funded debt to earnings before interest, taxes, depreciation, and amortization (“Leverage Ratio”), as defined in the Amended Credit Agreement, or at LIBOR plus an applicable margin of between 1.50% and 2.50% based on the Company’s Leverage Ratio.

The Company completed the sale of the 2.25% convertible senior notes on March 8, 2004. The proceeds were used to repurchase $35.0 million shares of the Company’s common stock and repay approximately $79.3 million outstanding under the Company revolving line of credit. The remaining proceeds were available for general corporate purposes. The repayment of a portion of the outstanding balance under the revolving line of credit eliminated a majority of the Company’s floating rate debt and replaced it with long-term debt with interest at a 2.25% fixed rate.

During fiscal year 2004, the Company entered into an interest rate swap agreement to hedge the variable interest rate of its revolving line of credit. Under the terms of the interest rate swap agreement, the Company makes payments based on the fixed rate and will receive interest payments based on 1-month LIBOR. The changes in market value of this financial instrument are highly correlated with changes in market value of the hedged item both at inception and over the life of the agreement. Amounts received or paid under the interest rate swap agreement are recorded as reductions or additions to interest expense. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities, SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133, and SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, the Company’s interest rate swap agreement has been designated as a cash flow hedge with changes in fair value recognized in accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets.

On July 19, 2004, the Company elected to reduce the notional amount of the interest rate swap from $35 million to $25 million. Accordingly, during fiscal year 2005, the Company reclassified a gain of $0.1 million from accumulated other comprehensive income to interest expense related to the portion of the swap that was terminated.

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As of April 1, 2005, the swap carries a notional principal amount of $25 million and effectively fixes the interest rate on a portion of the revolving line of credit to 2.195%, prior to applying the Leverage Ratio margin discussed above. The swap agreement expires on March 28, 2006 and settles monthly until expiration. During fiscal year 2005, the Company recorded an unrealized gain, net of related tax effects, of approximately $0.3 million for the estimated fair value of the swap agreement in accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets. The unrealized loss, net of related tax effects, recorded during fiscal year 2004 was immaterial.

Changes in interest rates affect interest payments under the Company’s variable rate revolving line of credit agreement. A hypothetical increase in interest rates of 100 basis points would result in a potential reduction in future pre-tax earnings of approximately $0.1 million per year for every $10.0 million outstanding under the revolving line of credit. Changes in interest rates also affect rates of return on the Company’s cash equivalents and short-term investments, which generally consist of money market accounts, commercial paper, and government securities. A hypothetical decrease in interest rates of 100 basis points would result in a potential reduction in future pre-tax earnings of approximately $0.1 million per year for every $10.0 million of short-term investments. Due to the short-term nature of the Company’s investments, typically less than 90-day maturities, the impact of a similar 100 basis point change in interest rates would have an immaterial impact on the carrying value of an investment.

Commodity Prices. The Company currently has exposure to commodity risk related to the cost of fuel. Product is delivered to customers either by a third party carrier or the Company-owned delivery fleet. Significant increases in the cost of fuel impact the operating costs of common carriers and would have a material effect on the Company’s operating expenses. Common carriers may pass fuel related operating costs through to the Company as a fuel surcharge. However, there can be no assurance that the Company would be able to fully pass along any further significant increases in fuel costs to its customers due to the competitive nature of the medical supply distribution industry.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

The Company‘s management, with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the Company‘s disclosure controls and procedures (as defined in Exchange Act Rule 240.13a-15(c)) as of the end of the period covered by this report (the “Evaluation Date”). Based on the evaluation, the Principal Executive Officer and the Principal Financial Officer have concluded that the Company‘s current disclosure controls and procedures were effective at April 1, 2005 to provide reasonable assurance that information required to be disclosed by the Company in reports that it filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

In designing and evaluating the disclosure controls and procedures, Company management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitation in any control system, no evaluation or implementation of a control system can provide complete assurance that all control issues and all possible instances of fraud have been or will be detected.

Internal Control Over Financial Reporting

(a) Management’s Report on Internal Control Over Financial Reporting

Management of PSS World Medical, Inc. (the “Company”) is responsible for establishing and maintaining effective internal controls over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act, as amended.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.

Management, with the participation of the Company’s principal executive and principal financial officers, assessed the effectiveness of the Company’s internal control over financial reporting as of April 1, 2005. This assessment was performed using the criteria established under the Internal Control-Integrated Framework established by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

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Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error or circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and reporting and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on the assessment performed using the criteria established by COSO, management has concluded that the Company maintained effective internal control over financial reporting as of April 1, 2005.

KPMG LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report on Form 10-K for the fiscal year ended April 1, 2005, has issued an audit report on management’s assessment of the Company’s internal control over financial reporting. Such report appears immediately below.

(b) Attestation Report of the Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

PSS World Medical, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that PSS World Medical, Inc. maintained effective internal control over financial reporting as of April 1, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). PSS World Medical, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that PSS World Medical, Inc. maintained effective internal control over financial reporting as of April 1, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the COSO. Also, in our opinion, PSS World Medical, Inc. maintained, in all material respects, effective internal control over financial reporting as of April 1, 2005, based on criteria established in Internal Control—Integrated Framework issued by the COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of PSS World Medical, Inc. and subsidiaries as of April 1, 2005 and April 2, 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended April 1, 2005, and our report dated June 8, 2005 expressed an unqualified opinion on those consolidated financial statements.

KPMG LLP

Jacksonville, Florida

June 8, 2005

(c) Changes in Internal Control Over Financial Reporting

There has been no significant change in the Company’s internal control over financial reporting identified in connection with the foregoing evaluation that occurred during the last quarter and that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

In accordance with General Instruction G(3) to Form 10-K, the information called for by this Item 10 is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the SEC pursuant to Regulation 14A of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), relating to the Company’s fiscal year 2005 Annual Meeting of Shareholders under the caption “MANAGEMENT-Directors and Executive Officers.”

ITEM 11. EXECUTIVE COMPENSATION

In accordance with General Instruction G(3) to Form 10-K, the information called for by this Item 11 is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the SEC pursuant to Regulation 14A of the Exchange Act, relating to the Company’s fiscal year 2005 Annual Meeting of Shareholders under the caption “MANAGEMENT-Compensation of Executive Officers.”

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

In accordance with General Instruction G(3) to Form 10-K, the information called for by this Item 12 is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the SEC pursuant to Regulation 14A of the Exchange Act, relating to the Company’s fiscal year 2005 Annual Meeting of Shareholders under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.”

Information with respect to equity compensation plans is included in Item 5, Market for the Registrant’s Common Equity and Related Stockholder Matters, of this Form 10-K and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In accordance with General Instruction G(3) to Form 10-K, the information called for by this Item 13 is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the SEC pursuant to Regulation 14A of the Exchange Act, relating to the Company’s fiscal year 2005 Annual Meeting of Shareholders under the caption “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.”

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

In accordance with General Instruction G(3) to Form 10-K, the information called for by this Item 14 is incorporated herein by reference to the Company’s definitive proxy statement, to be filed with the SEC pursuant to Regulation 14A of the Exchange Act, relating to the Company’s fiscal year 2005 Annual Meeting of Shareholders under the caption “INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.”

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) The following financial statements are included in Item 8 of this report:

	Page
Report of Independent Registered Public Accounting Firm.	F-2
Consolidated Balance Sheets—April 1, 2005 and April 2, 2004	F-3
Consolidated Statements of Operations for the Years Ended April 1, 2005, April 2, 2004, and March 28, 2003	F-4
Consolidated Statements of Shareholders’ Equity for the Years Ended April 1, 2005, April 2, 2004, and March 28, 2003	F-5
Consolidated Statements of Cash Flows for the Years Ended April 1, 2005, April 2, 2004, and March 28, 2003	F-6
Notes to Consolidated Financial Statements	F-7
(a)(2) The following supplemental schedule is included in this report:
	Page
Schedule II—Valuation and Qualifying Accounts for the Years Ended April 1, 2005, April 2, 2004, and March 28, 2003	F-38

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(a)(3) Exhibits required by Item 601 of Regulation S-K:

Exhibit Number	Description
3.1	Amended and Restated Articles of Incorporation, dated as of March 15, 1994. (5)
3.1a	Articles of Amendment to Articles of Incorporation, dated as of September 24, 2001. (10)
3.1b	Articles of Amendment to Articles of Incorporation, dated as of November 9, 2001. (10)
3.2	Amended and Restated Bylaws, dated as of March 15, 1994. (2)
4.1	Registration Rights Agreement, dated as of March 8, 2004, by and among the Company, Goldman, Sachs & Co., Banc of America Securities LLC and Lehman Brothers Inc. (20)
4.2	Indenture, dated as of March 8, 2004, by and between the Company and Wachovia Bank, N.A., as Trustee. (20)
4.3	Form of 2.25% Convertible Senior Note due 2024. (20)
4.4	Shareholder Protection Rights Agreement, dated as of April 20, 1998, between the Company and Continental Stock Transfer & Trust Company, as Rights Agent. (6)
4.5a	Amendment to Shareholder Protection Rights Agreement, dated as of June 21, 2000, between the Company and Continental Stock Transfer & Trust Company as Rights Agent. (7)
4.5b	Amendment to Shareholder Protection Rights Agreement, dated as of April 12, 2002, between the Company and First Union National Bank, as Successor Rights Agent. (11)
10.1*	Incentive Stock Option Plan, dated as of May 14, 1986. (1)
10.2*	Amended and Restated Directors Stock Plan. (17)
10.3*	Amended and Restated 1994 Long-Term Incentive Plan. (4)
10.4*	Amended and Restated 1994 Long-Term Stock Plan. (17)
10.5*	1994 Employee Stock Purchase Plan. (3)
10.6*	1994 Amended Incentive Stock Option Plan. (1)
10.7*	1999 Long-term Incentive Plan (Amended and Restated as of July 25, 2001). (17)
10.8*	1999 Broad-Based Employee Stock Plan. (17)
10.9*	Shareholder Value Plan (Portions omitted pursuant to a request for confidential treatment-Separately filed with the SEC). (17)
10.10	Distributorship Agreement between Abbott Laboratories and the Company (Portions omitted pursuant to a request for confidential treatment – Separately filed with the SEC). (18)
10.11*	Amended and Restated Savings Plan. (12)
10.11a*	First Amendment to the Amended and Restated Savings Plan. (14)
10.11b*	Second Amendment to the Amended and Restated Savings Plan. (16)

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Exhibit Number	Description
10.11c*	Third Amendment to the Amended and Restated Savings Plan. (17)
10.11d*	Fourth Amendment to the Amended and Restated Savings Plan. (18)
10.11e*	Fifth Amendment to the Amended and Restated Savings Plan. (19)
10.11f*	Sixth Amendment to the Amended and Restated Savings Plan.
10.12	Amended and Restated Credit Agreement, dated as of May 20, 2003, by and among the Company, each of the Company’s subsidiaries therein named, the Lenders from time to time party thereto, Bank of America, N.A., as Agent, and Banc of America Securities LLC, as Arranger. (17)
10.12a	Second Amendment to Credit Agreement, dated as of December 16, 2003, by and among the Company, each of the Company’s subsidiaries therein named, the Lenders from time to time party thereto, Bank of America, N.A., as Agent, and Banc of America Securities LLC, as Arranger. (19)
10.12b	Third Amendment to Credit Agreement, dated as of March 1, 2004, among the Company, each of the Company’s subsidiaries therein named, the Lenders party to the amendment, and Bank of America, N.A., as agent for the Lenders. (20)
10.12c	Fourth Amendment to Credit Agreement, dated as of June 1, 2004, among the Company, each of the Company’s subsidiaries therein named, the Lenders party to the amendment, and Bank of America, N.A., as agent for the Lenders. (22)
10.12d	Fifth Amendment to Credit Agreement, dated as of October 1, 2004, among the Company, each of the Company’s subsidiaries therein named, the Lenders party to the amendment, and Bank of America, N.A., as agent for the Lenders. (23)
10.13*	Employment Agreement, dated as of April 1, 1998, by and between the Company and Jeffrey H. Anthony.
10.13a*	Amendment to Employment Agreement, dated as of April 17, 2000, by and between the Company and Jeffrey H. Anthony.
10.14*	Employment Agreement, dated as of April 1, 2003, by and between the Company and David M. Bronson. (16)
10.15*	Employment Agreement, dated as of April 1, 1998, by and between the Company and Gary A. Corless. (9)
10.15a*	Amendment to Employment Agreement, dated as of April 17, 2000, by and between the Company and Gary A. Corless. (9)
10.15b*	Amendment to Employment Agreement, dated as of June 1, 2002, by and between the Company and Gary A. Corless. (16)
10.16*	Employment Agreement, dated as of April 1, 1998, by and between the Company and Edward D. Dienes.
10.16a*	Amendment to Employment Agreement, dated as of April 17, 2000, by and between the Company and Edward D. Dienes.
10.16b*	Addendum to Employment Agreement, dated as of June 16, 2000, by and between the Company and Edward D. Dienes.

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Exhibit Number	Description
10.17*	Employment Agreement, dated as of April 1, 2004, by and between the Company and Kevin P. English. (21)
10.18*	Employment Agreement, dated as of January 1, 2002, by and between the Company and Bradley J. Hilton.
10.19*	Employment Agreement, dated as of April 1, 2001, by and between the Company and Mary M. Jennings.
10.20*	Employment Agreement, dated as of February 21, 2000, by and between the Company and David D. Klarner.
10.20a*	Amendment to Employment Agreement, dated as of April 17, 2000, by and between the Company and David D. Klarner.
10.21*	Employment Agreement, dated as of April 1, 2003, by and between the Company and Gary J. Nutter. (19)
10.22*	Employment Agreement, dated as of April 1, 2000, by and between the Company and David H. Ramsey.
10.23*	Employment Agreement, dated as of April 1, 1998, by and between the Company and John F. Sasen, Sr. (8)
10.23a*	Amendment to Employment Agreement, dated as of April 17, 2000, by and between the Company and John F. Sasen, Sr. (8)
10.24*	Employment Agreement, dated as of July 10, 2003, by and between the Company and David A. Smith. (17)
10.25*	Employment Agreement, dated as of November 19, 2002, by and between the Company and Robert C. Weiner.
10.26*	Employment Agreement, dated as of October 1, 2002, by and between the Company and Tony Oglesby. (16)
10.26a*	Severance Agreement, dated as of October 20, 2003, by and between the Company and Tony Oglesby. (19)
10.27*	Severance Agreement, dated as of March 21, 2001, by and between the Company and Patrick C. Kelly. (8)
10.27a*	Amendment to Severance Agreement, dated as of October 30, 2002, by and between the Company and Patrick C. Kelly. (16)
10.28	Stock Purchase Agreement, dated as of October 28, 2002, among PSS World Medical, Inc., Imaging Acquisition Corporation, and Platinum Equity, LLC. (13)
10.28a	Amendment to Stock Purchase Agreement, dated as of November 18, 2002, among PSS World Medical, Inc., Diagnostic Imaging, Inc., Imaging Acquisition Corporation and Platinum Equity, LLC. (15)
10.29*	PSS World Medical, Inc. Amended and Restated Officer Deferred Compensation Plan, as amended through July 1, 2004. (23)

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Exhibit Number	Description
10.29a*	PSS World Medical, Inc. Amended and Restated Officer Stock Option Grant Program, as amended through July 1, 2004. (23)
10.30*	PSS World Medical, Inc. Amended and Restated ELITe Deferred Compensation Plan, as amended through July 1, 2004. (23)
10.30a*	PSS World Medical, Inc. Amended and Restated ELITe Stock Option Grant Program, as amended through July 1, 2004. (23)
10.31*	PSS World Medical, Inc. Amended and Restated Leader’s Deferral Plan, as amended through July 1, 2004. (23)
10.31a*	PSS World Medical, Inc. Leader’s Stock Option Grant Program, as amended through July 1, 2004. (23)
10.32*	PSS World Medical, Inc. Directors’ Deferred Compensation Plan. (21)
10.33*	PSS World Medical, Inc. 2004 Non-Employee Directors’ Deferred Compensation Plan. (23)
10.34	Asset Purchase Agreement, dated as of October 7, 2004, among the Company, each of the Company’s subsidiaries therein named, the Skoronski Corporation and Stephen M. Skoronski (Portions omitted pursuant to a request for confidential treatment – Separately filed with the SEC.) (24)
10.35	Sourcing Services Agreement, dated as of January 19, 2005, among the Company, each of the Company’s subsidiaries therein named, Tiger Specialty Sourcing Limited, Tiger Shanghai Specialty Sourcing Co., Ltd., Mark Engel, Elaine Fong, and Dr. Gao Zhan (Portions omitted pursuant to a request for confidential treatment – Separately filed with the SEC.)
10.36*	Form of Restricted Stock Award Agreement.
12	Computation of Consolidated Ratios of Earnings to Fixed Charges.
21	List of Subsidiaries of PSS World Medical, Inc.
23	Consent of Independent Registered Public Accounting Firm.
31.1	Rule 13a-14(a) Certification of the Chief Executive Officer.
31.2	Rule 13a-14(a) Certification of the Chief Financial.
32.1	Section 1350 Certification of the Chief Executive Officer.
32.2	Section 1350 Certification of the Chief Financial Officer.

* Represents a management contract or compensatory plan or arrangement.

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(1) Incorporated by Reference to the Company’s Registration Statement on Form S-1, Registration No. 33-76580.

(2) Incorporated by Reference to the Company’s Registration Statement on Form S-3, Registration No. 33-97524.

(3) Incorporated by Reference to the Company’s Registration Statement on Form S-8, Registration No. 33-80657.

(4) Incorporated by Reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1996.

(5) Incorporated by Reference to the Company’s Current Report on Form 8-K, filed April 8, 1998.

(6) Incorporated by Reference to the Company’s Current Report on Form 8-K, filed April 22, 1998.

(7) Incorporated by Reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.

(8) Incorporated by Reference to the Company’s Annual Report on Form 10-K for the year ended March 30, 2001.

(9) Incorporated by Reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2001.

(10) Incorporated by Reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 28, 2001.

(11) Incorporated by Reference to the Company’s Annual Report on Form 10-K for the year ended March 29, 2002.

(12) Incorporated by Reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 28, 2002.

(13) Incorporated by Reference to the Company’s Current Report on Form 8-K, filed October 30, 2002.

(14) Incorporated by Reference to the Company’s Current Report on Form 10-Q, for the quarter ended September 27, 2002.

(15) Incorporated by Reference to the Company’s Current Report on Form 8-K, filed November 20, 2002.

(16) Incorporated by Reference to the Company’s Annual Report on Form 10-K for the year ended March 28, 2003.

(17) Incorporated by Reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.

(18) Incorporated by Reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 3, 2003.

(19) Incorporated by Reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2003.

(20) Incorporated by Reference to the Company’s Current Report on Form 8-K, filed March 9, 2004.

(21) Incorporated by Reference to the Company’s Annual Report on Form 10-K for the year ended April 2, 2004.

(22) Incorporated by Reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.

(23) Incorporated by Reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 1, 2004.

(24) Incorporated by Reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004.

72

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Jacksonville, State of Florida, on June 13, 2005.

PSS WORLD MEDICAL, INC
By:	/s/ David M. Bronson
	David M. Bronson
	Executive Vice President and Chief Financial Officer (Principal Financial Officer/Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signatures	Title	Date
/s/ Clark A. Johnson Clark A. Johnson	Chairman of the Board of Directors	June 13, 2005
/s/ David A. Smith David A. Smith	President, Chief Executive Officer, and Director (Principal Executive Officer)	June 13, 2005
/s/ A. R. Carpenter A. R. Carpenter	Director	June 13, 2005
/s/ T. O’Neal Douglas T. O’Neal Douglas	Director	June 13, 2005
/s/ Melvin L. Hecktman Melvin L. Hecktman	Director	June 13, 2005
/s/ Delores P. Kesler Delores P. Kesler	Director	June 13, 2005
/s/ Stephen H. Rogers Stephen H. Rogers	Director	June 13, 2005
/s/ Charles R. Scott Charles R. Scott	Director	June 13, 2005
/s/ Charles E. Adair Charles E. Adair	Director	June 13, 2005

73

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets—April 1, 2005 and April 2, 2004	F-3
Consolidated Statements of Operations for the Years Ended April 1, 2005, April 2, 2004, and March 28, 2003	F-4
Consolidated Statements of Shareholders’ Equity for the Years Ended April 1, 2005, April 2, 2004, and March 28, 2003	F-5
Consolidated Statements of Cash Flows for the Years Ended April 1, 2005, April 2, 2004, and March 28, 2003	F-6
Notes to Consolidated Financial Statements	F-7
Schedule II—Valuation and Qualifying Accounts for the Years Ended April 1, 2005, April 2, 2004, and March 28, 2003	F-38

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

PSS World Medical, Inc.:

We have audited the accompanying consolidated balance sheets of PSS World Medical, Inc. and subsidiaries (the Company) as of April 1, 2005 and April 2, 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended April 1, 2005. In connection with our audits of the consolidated financial statements, we also audited the financial statement schedule as listed in the accompanying index for each of the years in the three-year period ended April 1, 2005. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PSS World Medical, Inc. and subsidiaries as of April 1, 2005 and April 2, 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended April 1, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the Company adopted Emerging Issues Task Force No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor, effective November 21, 2002.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of April 1, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated June 8, 2005 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

KPMG LLP

Jacksonville, Florida

June 8, 2005

F-2

PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

APRIL 1, 2005 AND APRIL 2, 2004

(Dollars in Thousands, Except Share Data)

	2005			2004
ASSETS
Current Assets:
Cash and cash equivalents	$	17,888		$	58,928
Accounts receivable, net		217,350			188,421
Inventories		134,110			99,864
Employee advances		82			19
Deferred tax assets, net		29,014			40,796
Prepaid expenses and other		19,369			8,687
Total current assets		417,813			396,715
Property and equipment, net		81,105			69,591
Other Assets:
Goodwill		85,617			69,909
Intangibles, net		21,858			11,292
Deferred tax assets, net		811			6,533
Other		39,154			32,806
Total assets	$	646,358		$	586,846
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	109,649		$	91,160
Accrued expenses		44,880			33,253
Revolving line of credit		25,000			35,000
Other		9,701			16,955
Total current liabilities		189,230			176,368
Convertible senior notes		150,000			150,000
Other noncurrent liabilities		30,310			21,290
Total liabilities		369,540			347,658
Commitments and contingencies (Notes 2, 3, 4, 10, 11, 12, 13, 14, and 16)
Shareholders’ Equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $.01 par value; 150,000,000 shares authorized, 64,961,682 and 64,833,453 shares issued and outstanding at April 1, 2005 and April 2, 2004, respectively		649			648
Additional paid-in capital		292,208			292,268
Accumulated deficit		(14,559	)		(53,531	)
Unearned compensation		(1,711	)		(157	)
Accumulated other comprehensive income (loss)		231			(40	)
Total shareholders’ equity		276,818			239,188
Total liabilities and shareholders’ equity	$	646,358		$	586,846

The accompanying notes are an integral part of these consolidated financial statements.

F-3

PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED APRIL 1, 2005, APRIL 2, 2004, AND MARCH 28, 2003

(Dollars in Thousands, Except Per Share Data)

	2005			2004			2003
Net sales	$	1,473,769		$	1,349,917		$	1,177,893
Cost of goods sold		1,050,414			964,560			841,899
Gross profit		423,355			385,357			335,994
General and administrative expenses		262,205			243,395			226,717
Selling expenses		99,591			94,141			83,390
Income from operations		61,559			47,821			25,887
Other (expense) income:
Interest expense		(6,856	)		(5,560	)		(12,554	)
Interest and investment income		217			176			517
Other income		1,234			3,863			279
Other expense		(5,405	)		(1,521	)		(11,758	)
Income from continuing operations before provision for income taxes		56,154			46,300			14,129
Provision for income taxes		16,770			17,597			5,315
Income from continuing operations		39,384			28,703			8,814
Discontinued operations:
Loss from discontinued operations (net of income tax benefit of $2,575)		—			—			(4,101	)
Loss on disposal of discontinued operations (net of income tax benefit of $1,849, $741, and $35,145, respectively)		(412	)		(1,164	)		(59,476	)
Total loss from discontinued operations		(412	)		(1,164	)		(63,577	)
Net income (loss)	$	38,972		$	27,539		$	(54,763	)
Earnings (loss) per share - Basic:
Income from continuing operations	$	0.61		$	0.43		$	0.12
Total loss from discontinued operations		(0.01	)		(0.02	)		(0.91	)
Net income (loss)	$	0.60		$	0.41		$	(0.79	)
Earnings (loss) per share - Diluted:
Income from continuing operations	$	0.60		$	0.42		$	0.12
Total loss from discontinued operations		(0.01	)		(0.02	)		(0.90	)
Net income (loss)	$	0.59		$	0.40		$	(0.78	)

The accompanying notes are an integral part of these consolidated financial statements.

F-4

PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED APRIL 1, 2005, APRIL 2, 2004, AND MARCH 28, 2003

(Dollars in Thousands, Except Share Data)

	Common Stock					Additional Paid-In			Accumulated (Deficit)			Unearned			Accumulated Other Comprehensive
	Shares		Amount			Capital			Earnings			Compensation			Income (Loss)			Totals
Balance at March 29, 2002	71,270,044		$	712		$	350,043		$	(26,307	)	$	—		$	—		$	324,448
Net loss	—			—			—			(54,763	)		—			—			(54,763	)
Purchase of treasury shares	(3,589,000	)		(36	)		(25,551	)		—			—			—			(25,587	)
Employee benefits and other	189,517			2			1,086			—			—			—			1,088
Balance at March 28, 2003	67,870,561			678			325,578			(81,070	)		—			—			245,186
Net income	—			—			—			27,539			—			—			27,539
Unrealized loss on interest rate swap, net of income tax benefit	—			—			—			—			—			(40	)		(40	)
Total comprehensive income																			27,499
Purchase of treasury shares	(3,921,657	)		(39	)		(40,594	)		—			—			—			(40,633	)
Exercise of stock options and related tax benefit	836,043			8			6,718			—			—			—			6,726
Issuance of restricted stock	32,006			1			228			—			(229	)		—			—
Vesting of restricted stock	—			—			—			—			72			—			72
Employee benefits and other	16,500			—			338			—			—			—			338
Balance at April 2, 2004	64,833,453			648			292,268			(53,531	)		(157	)		(40	)		239,188
Net income	—			—			—			38,972			—			—			38,972
Unrealized gain on interest rate swap, net of income tax benefit	—			—			—			—			—			271			271
Total comprehensive income																			39,243
Purchase of treasury shares	(1,000,600	)		(10	)		(9,908	)		—			—			—			(9,918	)
Exercise of stock options and related income tax benefit	936,757			9			7,603			—			—			—			7,612
Issuance of restricted stock, net of forfeitures	191,892			2			2,059			—			(2,061	)		—			—
Vesting of restricted stock and related income tax benefit	—			—			94			—			507			—			601
Employee benefits and other	180			—			92			—			—			—			92
Balance at April 1, 2005	64,961,682		$	649		$	292,208		$	(14,559	)	$	(1,711	)	$	231		$	276,818

The accompanying notes are an integral part of these consolidated financial statements.

F-5

PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED APRIL 1, 2005, APRIL 2, 2004, AND MARCH 28, 2003

(Dollars in Thousands)

	2005			2004			2003
Cash Flows From Operating Activities:
Net income (loss)	$	38,972		$	27,539		$	(54,763	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Total loss from discontinued operations		412			1,164			63,577
Provision for deferred income taxes		17,371			11,851			6,516
Depreciation		14,241			12,756			12,011
Provision for doubtful accounts		5,081			5,926			4,613
Amortization of intangible assets		4,537			2,835			2,368
Amortization of debt issuance costs		1,918			1,065			3,806
Provision for deferred compensation		816			682			632
Noncash compensation expense		652			220			73
Provision for notes receivable		187			182			2,939
Loss on sale of property and equipment		153			339			296
Changes in operating assets and liabilities, net of effects from business combinations and discontinued operations:
Accounts receivable, net		(26,322	)		(34,276	)		(9,436	)
Inventories		(30,926	)		(18,378	)		4,933
Prepaid expenses and other current assets		(6,167	)		7,263			(14,262	)
Other assets		(4,876	)		(7,749	)		1,337
Accounts payable		13,026			(1,739	)		13,437
Accrued expenses and other liabilities		7,185			12,181			6,389
Net cash used in discontinued operations		—			—			(356	)
Net cash provided by operating activities		36,260			21,861			44,110
Cash Flows From Investing Activities:
Capital expenditures		(25,931	)		(21,117	)		(11,999	)
Payments for business combinations, net of cash acquired of $355, $135, and $0, respectively		(24,367	)		(19,328	)		(4,464	)
Payments for nonsolicitation agreements		(6,750	)		(327	)		—
Proceeds from sale of Imaging Business, net of transaction and settlement costs of $4,854, 2,067 and $3,298, respectively		(4,854	)		(2,067	)		12,087
Payment for investment in Tiger Medical		(1,000	)		—			—
Payments for noncompetition agreements		(591	)		(702	)		(690	)
Proceeds from sale of property and equipment		23			44			47
Net cash used in discontinued operations		—			—			(1,555	)
Net cash used in investing activities		(63,470	)		(43,497	)		(6,574	)
Cash Flows From Financing Activities:
Net (repayments) proceeds from revolving line of credit		(10,000	)		(48,000	)		83,000
Purchase of treasury shares		(9,918	)		(40,633	)		(25,587	)
Proceeds from issuance of common stock		5,489			4,898			818
Proceeds from borrowings related to Tiger Medical		599			—			—
Proceeds from issuance of 2.25% convertible senior notes		—			150,000			—
Proceeds from note receivable		—			1,190			—
Payment of debt issuance costs		—			(6,062	)		—
Repayment of Senior Subordinated Notes		—			—			(125,000	)
Payment of premiums for retirement of Senior Subordinated Notes		—			—			(5,170	)
Net cash (used in) provided by financing activities		(13,830	)		61,393			(71,939	)
Net (decrease) increase in cash and cash equivalents		(41,040	)		39,757			(34,403	)
Cash and cash equivalents, beginning of year		58,928			19,171			53,574
Cash and cash equivalents, end of year	$	17,888		$	58,928		$	19,171
Supplemental Disclosures:
Cash paid (received) for:
Interest	$	5,484		$	4,671		$	15,883
Income taxes, net	$	1,969		$	1,260		$	(2,809	)

The accompanying notes are an integral part of these consolidated financial statements.

F-6

PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

APRIL 1, 2005, APRIL 2, 2004, AND MARCH 28, 2003

(Dollars and Shares in Thousands, Except Per Share Data, Unless Otherwise Noted)

1. NATURE OF OPERATIONS

PSS World Medical, Inc. (the “Company” or “PSSI”), a Florida corporation which began operations in 1983, is a specialty marketer and distributor of medical products, equipment, and pharmaceutical related products to alternate-site healthcare providers including physician offices, long-term care facilities, and home care providers through 43 full-service distribution centers, which serve all 50 states throughout the United States (“U.S.”). The Company currently conducts business through two operating segments, the Physician Business and the Elder Care Business. These strategic segments serve a diverse customer base. A third reporting segment, titled Corporate Shared Services, includes allocated and unallocated costs of corporate departments that provide services to the operating segments.

The Physician Business, or the Physician Sales & Service division, is a leading distributor of medical supplies, diagnostic equipment, and pharmaceutical related products to primary care office-based physicians in the U.S. The Physician Business currently operates 29 full-service distribution centers, 23 break-freight locations, and two redistribution facilities serving physician offices in all 50 states.

The Elder Care Business, or the Gulf South Medical Supply, Inc. subsidiary, is a leading national distributor of medical supplies and related products to the long-term and elder care industry in the U.S. In addition, the Elder Care Business provides Medicare Part B reimbursable products and billing services, either on a fee for service or a full assignment basis. The Elder Care Business currently operates 14 full-service distribution centers, 5 break-freight locations, and 2 ancillary billing service centers serving independent, regional, and national skilled nursing facilities, assisted living centers, and home care providers in all 50 states.

Historically, the Company conducted business under a third operating segment, the Imaging Business or the Diagnostic Imaging, Inc. subsidiary (“DI”), a distributor of medical diagnostic imaging supplies, chemicals, equipment, and services to the acute and alternate-care markets in the United States. On November 18, 2002, the Company completed the sale of the Imaging Business. As a result, DI’s results of operations for fiscal year 2003 have been classified as discontinued operations. Refer to Note 17, Discontinued Operations, for a further discussion.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include the consolidated accounts of PSS World Medical, Inc. and its wholly owned subsidiaries. Variable Interest Entities (“VIEs”), as defined by the Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (Revised 2003), Consolidation of Variable Interest Entities-an Interpretation of Accounting Research Bulletin No. 51 (“FIN 46(R)”), are entities in which equity investors do not have the characteristics of a “controlling financial interest” or there is not sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. VIEs are consolidated by the Company when it is determined that it will, as the primary beneficiary, absorb the majority of the VIEs expected losses and/or expected residual returns. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company reports its year-end financial position, results of operations, and cash flows on the Friday closest to March 31. Fiscal years 2005, 2004 and 2003 consisted of 52 weeks, 53 weeks, and 52 weeks, respectively.

F-7

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include the carrying amount of inventories, property and equipment, goodwill, and intangibles; allowances for doubtful accounts receivables and vendor rebate receivables; valuation allowances for deferred income taxes; liabilities for loss contingencies; valuations associated with business combinations; and valuation of derivatives. Actual results could differ from the estimates and assumptions used in preparing the consolidated financial statements.

Fair Value of Financial Instruments

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, short-term trade receivables, and accounts payable and amounts outstanding under the revolving line of credit approximate their fair values due to the short-term nature of these assets and liabilities. The carrying value of the Company’s 2.25% convertible senior notes at April 1, 2005 and April 2, 2004 was $150,000 and the fair value, which is estimated using quoted market prices, was approximately $144,000 and $152,780, respectively.

Cash and Cash Equivalents

Cash and cash equivalents generally consist of demand deposits with financial institutions and highly liquid investment grade instruments having maturities of three months or less at the date of purchase. Cash and cash equivalents are stated at cost, which approximates market value.

Accounts Receivable

Trade accounts receivable consist of amounts owed to the Company and are stated at cost, which approximates fair value due to the short-term nature of the asset. Although the Company’s outstanding accounts receivable are exposed to credit risk, the Company maintains valuation allowances for estimated losses resulting from non-collection of outstanding amounts due from its customers. The valuation allowances include specific amounts for those accounts that are likely to be uncollectible, such as customer bankruptcies and disputed amounts, and general allowances for accounts that management currently believes to be collectible but later become uncollectible. Estimates are used to determine the valuation allowances and are generally based on historical collection experience, current economic trends, credit-worthiness of customers, and changes in customer payment terms.

The Physician Business’ trade accounts receivable consist of numerous individual accounts; none of which is individually significant to the Company. The Physician Business had allowances for doubtful accounts of approximately $2,053 and $2,009 at April 1, 2005 and April 2, 2004, respectively.

The Elder Care Business’ trade accounts receivable have a number of large, national chain customer accounts that are significant to its business. Approximately 21%, 24%, and 30% of the Elder Care Business’ net sales for the fiscal years ended April 1, 2005, April 2, 2004, and March 28, 2003, respectively, represent sales to its largest five customers. As of April 1, 2005, the largest five customer accounts receivable balances outstanding represented 15% of the Elder Care Business’ gross accounts receivable and accounts receivable, net of allowance for doubtful accounts. As of April 2, 2004, the largest five customer accounts receivable balances outstanding represented approximately 15% of the Elder Care Business’ gross accounts receivable balance and 16% of accounts receivable, net of allowance for doubtful accounts. The Elder Care Business had allowances for doubtful accounts of approximately $7,552 and $8,011 at April 1, 2005 and April 2, 2004, respectively.

During fiscal year 2004, the Elder Care Business changed its method for establishing its allowance for doubtful accounts due to (i) changes in Medicare and Medicaid reimbursement rates and (ii) an analysis of the prior two years of accounts receivable collection and write-off history and the then projected bad debt write-offs. Based on the results of this analysis, combined with the changes to the reimbursement rates, management concluded that the methodology for establishing the allowance for doubtful accounts resulted in, and would continue to result in, an overstatement of the reserve requirement. In accordance with Accounting Principles Board (“APB”) Opinion No. 20, Accounting Changes (“APB 20”), management revised the estimates used to establish the allowance for doubtful accounts for the Elder Care Business. This change in estimate reduced the reserve percentages applied to various aging categories of accounts receivable, to more closely reflect actual collection and write-off history. The

F-8

impact of reducing the reserve percentages was approximately $900, net of benefit for income taxes, or $0.01 basic and diluted earnings per share for the fiscal year ended April 2, 2004. No changes to the methodology have been made subsequent to December 31, 2003.

Inventories

Inventories consist of medical products, medical equipment, and other related products and are stated at the lower of cost or market. Cost is determined using the first-in, first-out (“FIFO”) method. Market is defined as net realizable value. The net realizable value of excess and slow moving inventory is determined using judgment as to when the inventory will be sold and the quantities and prices at which the inventory will be sold in the normal course of business. During fiscal year 2005, the Physician Business and the Elder Care Business conducted physical inventory observations and reconciliations to inventory per the general ledger on a semi-annual basis. Obsolete or damaged inventory is disposed of or written down to net realizable value on a quarterly basis. Additional adjustments, if necessary, are made based on management’s specific review of each distribution center inventory valuation.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the following estimated useful lives of the respective classes of assets.

	Useful Life
Equipment	5 to 15 years
Computer hardware and software	3 to 15 years

During fiscal year 2006, the estimated useful lives of certain computer hardware and software with a carrying value of approximately $27.4 million will be extended 120 months from March 23, 2005 to coincide with the expected service life of the assets. Computer hardware and software capitalized subsequent to this change in estimate will continue to be depreciated over a period ranging from 3 to 10 years.

Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives. Gains or losses upon retirement or disposal of property and equipment are recorded in other income in the accompanying consolidated statements of operations. Normal repair and maintenance costs that do not substantially extend the life of the property and equipment are expensed as incurred.

The Company capitalizes the following costs associated with developing internal-use computer software: (i) external direct costs of materials and services consumed in developing or obtaining internal-use computer software; (ii) certain payroll and payroll-related costs for Company employees who are directly associated with the development of internal-use software, to the extent of the time spent directly on the project; and (iii) interest costs incurred while developing internal-use computer software. Capitalized internal-use software costs are amortized over the estimated useful lives of the software, ranging from 6 to 15 years.

Statement of Financial Accounting Standards (“SFAS”) No. 34, Capitalization of Interest Cost, requires the capitalization of interest cost as a part of the historical cost of acquiring certain assets, such as assets that are constructed or produced for a company’s own use. The amount of capitalized interest during fiscal years 2005, 2004, and 2003 was $469, $27, and $0, respectively.

Goodwill

Goodwill represents the excess of the cost of an acquired company over the fair value of identifiable assets and liabilities acquired. The fair value of goodwill is reviewed annually, as of the last day of the fiscal year, for impairment in accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). An interim review is performed between annual tests whenever events or changes in circumstances indicate the carrying amount of the goodwill may be impaired.

F-9

Intangibles

SFAS 142 requires intangible assets with finite useful lives be amortized over their respective estimated useful lives. Amortization is computed using the straight-line method over the following estimated useful lives.

	Useful Life
Customer Relationships	7 to 15 years
Nonsolicitation Agreements	4 to 21 years
Noncompetition Agreements	1 to 10 years
Signing Bonuses	1 to 5 years
Other Intangibles	4 to 5 years

Nonsolicitation Agreements

Certain sales representatives employed by the Physician and Elder Care Businesses have executed employment agreements in exchange for a cash payment (“Nonsolicitation Agreements”). These employment agreements include nonsolicitation covenants, which state that the sales representative can neither solicit nor accept business from certain of the Company’s customers for a one-year period subsequent to the date the sales representative ceases employment with the Company. The costs of these Nonsolicitation Agreements made to sales representatives are capitalized and amortized on a straight-line basis over its estimated useful life, which is based on a number of factors, plus one year for the nonsolicitation period. If a sales representative terminates employment prior to the end of the estimated useful life of the agreement, the remaining net book value of the asset will be amortized over the one-year nonsolicitation period.

During the period the sales representatives remain employed with the Company, the nonsolicitation intangible asset is evaluated for impairment in accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). SFAS 144 requires the Company to test for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Certain factors which may occur and indicate that an impairment exists include, but are not limited to: (i) a change in a state’s legal system that would impact any legal opinion relied upon when assessing enforceability of the nonsolicitation covenants, (ii) a decline in sales generated by a sales representative below the amount that the nonsolicitation was based upon, (iii) death, or (iv) full retirement by the sales representative. In the event that the carrying value of the assets are determined to be unrecoverable, the Company would estimate the fair value of the assets and record an impairment charge for the excess of the carrying value over the fair value.

Impairment of Long-Lived Assets

Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable in accordance with SFAS 144. Long-lived assets include property and equipment and intangibles. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset. The impairment loss is measured as the amount by which the carrying amount of the long-lived asset exceeds fair value.

Accounts Payable

The Company maintains a zero balance cash management system. Accordingly, approximately $17,616 and $13,574 checks that did not clear the bank are included in accounts payable at April 1, 2005 and April 2, 2004, respectively.

Insurance Coverage

The Company has a self-funded program for employee and dependent health insurance. This program includes an administrator, a large provider network, and stop loss reinsurance to cover individual claims in excess of $200 per person, and up to $2,000 catastrophic loss maximum per lifetime benefit per person. Claims incurred but not reported are recorded based on estimates of claims provided by the third party administrator and are included in accrued expenses in the accompanying consolidated balance sheets.

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The Company maintains a casualty insurance program for automobile, workers compensation, and general liability risks which in general provide coverage of up to $2,000, $1,000, and $2,000, respectively. The policies have a retention of $250 per claim for each type of coverage and an aggregate stop loss of approximately $5,100 in any plan year. In addition, the Company maintains an umbrella policy to cover individual losses in excess of program limits.

Contingent Loss Accruals

In determining the accrual necessary for probable loss contingencies as defined by SFAS No. 5, Accounting for Contingencies, the Company includes estimates for professional fees, such as legal, accounting, and consulting, and other related costs to be incurred, unless such fees and related costs are not probable of being incurred or are not reasonably estimatable.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the tax consequences attributable to temporary differences between the financial statement carrying amounts and the respective tax bases in existing assets and liabilities. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date.

Revenue Recognition

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectibility of the resulting accounts receivable is reasonably assured. The Company assesses collectibility based upon a thorough evaluation of current and prospective customers’ credit history and ability to pay. The Company establishes and adjusts credit terms and limits to reflect customer credit worthiness based upon this evaluation. Customer credit evaluations are updated periodically and for specific events or circumstances such as deterioration in the aging of account balances, bankruptcy filings, or notice of financial difficulties.

The Physician Business has two primary sources of revenue: the sale of consumable products and the sale of equipment.

• Revenue from the sale of consumable products is recognized when products are shipped or delivered. Revenue for these products is recorded at shipment since at that time there is persuasive evidence that an arrangement exists, the price is fixed and determinable, and the collection of the resulting accounts receivable is reasonably assured.

• Revenue from the sale of single deliverable equipment is generally recognized when the equipment is shipped, unless there are multiple deliverables, in which case revenue is recognized when all obligations to the customer are fulfilled. Obligations to the customer are typically satisfied when installation and training are complete.

Customers have the right to return consumable products and equipment. Sales allowances are recorded as a reduction of revenue for potential product returns and estimated billing errors. Management analyzes sales allowances quarterly using historical data adjusted for significant changes in volume and business conditions, as well as specific identification of significant returns or billing errors.

The Elder Care Business has four primary sources of revenue: the sale of consumable products to skilled nursing home facilities, assisted living facilities, and home care providers, the sale of consumable products to Medicare eligible customers; the sale of equipment; and fees earned for providing Medicare Part B billing services.

• Revenue from the sale of consumable products to skilled nursing home facilities, assisted living facilities, and home care providers is recognized when products are shipped or delivered. Revenue for these products is recorded at shipment since at that time there is persuasive evidence that an arrangement exists, the price is fixed and determinable, and the collection of the resulting accounts receivable is reasonably assured.

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• Revenue from the sale of consumable products to Medicare eligible customers is recognized upon estimated usage of the product. Revenue is recorded at the amounts expected to be collected from Medicare, other third-party payors, and directly from customers. Revenue for Medicare reimbursement is recorded based on government-determined reimbursement prices for Medicare-covered items. Medicare reimburses 80% of the government-determined reimbursement prices for reimbursable supplies and the remaining balance is billed to either third-party payors or directly to customers. Reimbursement from Medicare is subject to review by appropriate government regulators.

• Revenue from the sale of single deliverable equipment is generally recognized when the equipment is shipped, unless there are multiple deliverables, in which case revenue is recognized when all obligations to the customer are fulfilled.

• Revenue from providing Medicare Part B billing services on a fee for service or a full assignment basis to Medicare eligible customers is recognized during the period the supplies being billed to Medicare are delivered to patients.

Customers have the right to return consumable products and equipment. Sales allowances are recorded as a reduction of revenue for potential product and equipment returns, revenue adjustments related to actual usage of products by eligible Medicare Part B patients, Medicare Part B reimbursement denials, and billing errors. Management analyzes product returns and billing errors using historical data adjusted for significant changes in volume and business conditions, as well as specific identification of significant returns or billing errors. Management analyzes revenue adjustments related to estimated usage of products by eligible Medicare Part B patients and Medicare Part B reimbursement denials using historical actual cash collection and actual adjustments to gross revenue for a certain period of time. Additional allowances are recorded for any significant specific adjustments known to management.

Consolidated sales allowances are immaterial and generally represent less than 1.0% of gross sales.

Vendor Rebates

The Company receives transaction-based and performance-based rebates from third party vendors. Such rebates are classified in the accompanying consolidated statements of operations as either (i) a reduction to cost of goods sold, (ii) a reduction of the cost incurred, or (iii) an increase to net sales. Cash consideration received from a vendor generally represents a reduction in the cost of the vendor’s products or services and, therefore, is classified as a reduction to cost of goods sold. However, cash consideration that represents a reimbursement of costs incurred by the Company to sell the vendor’s products is classified as a reduction of that cost, typically a reduction to general and administrative expenses, and cash consideration that represents a payment for assets or services delivered to the vendor is classified as net sales.

Transaction-based rebates are generally associated with a specific customer contract and are recognized as a reduction to cost of goods sold at the time the transaction occurs. Performance-based rebates are typically measured against inventory purchases or sales volume levels and are received from the vendors once certain performance measures are achieved. The Company recognizes performance-based rebates in accordance with Emerging Issues Task Force (“EITF”) No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor. Performance-based rebates for contracts entered into subsequent to November 21, 2002 are recognized based on a systematic and rational allocation of the consideration to be received relative to the transaction that marks the progress of the Company toward earning the rebate or refund, provided the amounts are probable and reasonably estimatable. If the amounts are not probable and reasonably estimatable, rebate income is recognized upon achieving the performance measure. Prior to November 21, 2002, rebate income was recognized in the period in which the performance measure was achieved.

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The following table summarizes the amount of vendor rebates recognized by segment and the total Company for fiscal years 2005, 2004, and 2003 and indicates what line-items are impacted in the accompanying statements of operations.

	Physician Business						Elder Care Business						Total Company
	2005		2004		2003		2005		2004		2003		2005		2004		2003
Net sales	$	2,165	$	1,182	$	1,142	$	—	$	—	$	—	$	2,165	$	1,182	$	1,142
Cost of goods sold		59,875		50,836		42,244		78,153		64,844		49,321		138,028		115,680		91,565
General and administrative expenses		5,656		5,018		4,170		916		784		873		6,572		5,802		5,043
Total	$	67,696	$	57,036	$	47,556	$	79,069	$	65,628	$	50,194	$	146,765	$	122,664	$	97,750

Transaction-based and performance-based rebate contracts are negotiated periodically with vendors. The Company believes that such contracts will continue to be renewed in future periods with terms consistent with the Company’s expected revenue growth rates.

Shipping and Handling Costs

Shipping and handling costs billed to customers are included in net sales and totaled approximately $6,019, $5,258, and $4,986 for fiscal years 2005, 2004, and 2003, respectively. Shipping and handling costs included in general and administrative expenses totaled approximately $77,633, $71,167, and $65,681 for fiscal years 2005, 2004, and 2003, respectively.

Derivative Financial Instruments

Derivative financial instruments are used principally in the management of the Company’s interest rate exposure and are recorded in the accompanying balance sheets at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized as a charge or credit to earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in accumulated other comprehensive income (loss) and are recognized in the consolidated statements of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized as a charge or credit to earnings. Derivative instruments not designated as hedges are marked-to-market at the end of each accounting period with the results included in earnings. Currently, the Company’s sole derivative is designated as a cash flow hedge.

Earnings Per Share

Basic and diluted earnings per share are presented in accordance with SFAS No. 128, Earnings Per Share. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the year adjusted for the potential dilutive effect of stock options using the treasury stock method and the conversion of the convertible senior notes. Common equivalent shares are excluded from the computation in periods in which they have an antidilutive effect.

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The following table sets forth basic and diluted earnings per share computational data for the fiscal years ended April 1, 2005, April 2, 2004, and March 28, 2003 (share amounts in thousands, except per share data):

	2005			2004			2003
Income from continuing operations	$	39,384		$	28,703		$	8,814
Total loss from discontinued operations		(412	)		(1,164	)		(63,577	)
Net income (loss)	$	38,972		$	27,539		$	(54,763	)
Earnings (loss) per share - Basic:
Income from continuing operations	$	0.61		$	0.43		$	0.12
Total loss from discontinued operations		(0.01	)		(0.02	)		(0.91	)
Net income (loss)	$	0.60		$	0.41		$	(0.79	)
Earnings (loss) per share - Diluted: (a)
Income from continuing operations	$	0.60		$	0.42		$	0.12
Total loss from discontinued operations		(0.01	)		(0.02	)		(0.90	)
Net income (loss)	$	0.59		$	0.40		$	(0.78	)
Weighted average shares outstanding:
Common shares		64,547			67,074			69,680
Assumed exercise of stock options (b)		1,017			890			694
Assumed vesting of restricted stock		43			26			—
Diluted shares outstanding		65,607			67,990			70,374

(a) The effect of the assumed conversion of the $150 million convertible senior notes, which were issued in March 2004, has been excluded from diluted earnings per share for the fiscal years ended April 1, 2005 and April 2, 2004, because none of the conditions that would permit conversion were satisfied during the period and the Company’s stock price did not reach the applicable conversion price of $17.10. The Company’s stated policy is to satisfy the Company’s obligation upon a conversion of the notes first, in cash, in an amount equal to the principal amount of the notes converted and second, in shares of the Company’s common stock, to satisfy the remainder, if any, of the Company’s conversion obligation. If the Company’s stock price reaches $17.10, the dilutive effect of the convertible notes will be reflected in diluted earnings per share by application of the treasury stock method. By application of the treasury stock method, a range of approximately 0 to 1.5 million shares (at a stock price range of $17.10 (conversion price) to $20.51(market price trigger)) will be included in the weighted average common shares outstanding used in computing diluted earnings per share because of the Company’s stated policy to settle the principal amount of the convertible senior notes in cash.

(b) Options to purchase approximately 1,801, 1,811, and 4,715 shares of common stock that were outstanding during fiscal years 2005, 2004, and 2003, respectively, were not included in the computation of diluted earnings per share for each of the respective periods because the options’ exercise prices exceeded the fair market value of the Company’s common stock.

Stock-Based Compensation

There are two categories of stock-based awards: restricted stock and stock options. Stock-based awards are accounted for using the intrinsic-value recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related interpretations. The intrinsic value method of accounting results in compensation expense to the extent option exercise prices are set below the current market price of the underlying stock on the date of grant.

Restricted stock is generally measured at fair value on the date of grant based on the number of shares granted and the quoted market price of the Company’s common stock. Such value is recognized as expense on a straight-line basis over the vesting period. To the extent restricted stock is forfeited prior to vesting, the corresponding previously recognized expense is reversed as a reduction to stock-based compensation expense.

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The following table summarizes relevant information as if the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, had been applied to all outstanding and unvested stock-based awards in each period.

	2005			2004			2003
Net income (loss), as reported	$	38,972		$	27,539		$	(54,763	)
Stock-based employee compensation expense included in reported net income, net of related tax effects		405			43			—
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(5,797	)		(2,995	)		(2,497	)
Pro forma net income (loss)	$	33,580		$	24,587		$	(57,260	)
Earnings (loss) per share – Basic:
As reported	$	0.60		$	0.41		$	(0.79	)
Pro forma	$	0.52		$	0.37		$	(0.82	)
Earnings (loss) per share – Diluted:
As reported	$	0.59		$	0.40		$	(0.78	)
Pro forma	$	0.51		$	0.37		$	(0.81	)

The fair value of stock options granted was estimated as of the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions.

	2005		2004		2003
Expected dividend yield	—		—		—
Expected stock price volatility	53.3	%	54.8	%	60.5	%
Risk-free interest rate	3.44-3.81	%	2.46-3.15	%	3.0%-4.6	%
Expected life of options (years)	5		5-10		5-10

Based on these assumptions, the estimated fair value of options granted for fiscal years 2005, 2004, and 2003, were approximately $178, $5,271, and $5,254, respectively, and such amounts would be amortized to compensation expense over the vesting period. The per share weighted average fair value of stock options granted during fiscal years 2005, 2004, and 2003 was $5.34, $4.11, and $3.95, respectively.

On June 7, 2004, the Compensation Committee of the Board of Directors approved an amendment to all outstanding stock options granted to employees. This amendment accelerated the vesting of all unvested stock options outstanding as of April 1, 2005, which is prior to the effective date of SFAS No. 123 (Revised 2004), Share-Based Payment (“SFAS 123(R)”). The Company took this action to reduce compensation expense in future periods in light of SFAS 123(R), which is effective for the Company at the beginning of fiscal year 2007, or April 1, 2006. Under SFAS 123(R), the Company estimated that a compensation charge of approximately $2,833, net of tax, would have been recorded in future periods if the vesting of the stock options was not accelerated. As a result of the acceleration, the Company recognized a contingent compensation expense equal to the difference between the fair market value of the common stock on the modification date and the option exercise price for the estimated number of options that, absent the acceleration, would have expired unexercisable as a result of the termination of the holders’ employment prior to the original vesting dates of the options. The maximum stock-based compensation expense would be approximately $3,397 if all holders benefited from this amendment with respect to outstanding options. The Company has estimated and recognized compensation expense in the accompanying statements of operations of approximately $0.1 million based on its historical option forfeiture rate. This liability may be adjusted in future periods based on actual experience and changes in management assumptions. For pro forma disclosure requirements under SFAS 148, the Company recognized approximately $4,562 of stock-based compensation during the fiscal year 2005 for all options whose vesting was accelerated.

Comprehensive Income

Comprehensive income represents all changes in equity of an enterprise that result from recognized transactions and other economic events during the period. Other comprehensive income (loss) refers to revenues, expenses, gains, and losses that under GAAP are included in comprehensive income but excluded from net income (loss), such as the unrealized gain or loss on the interest rate swap.

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Statements of Cash Flows

The Company’s noncash investing and financing activities during fiscal years 2005, 2004, and 2003 were as follows:

	2005		2004		2003
Operating Activities:
Tax benefits related to stock option plans	$	2,217	$	1,827	$	195
Investing Activities:
Business combinations:
Fair value of assets acquired		13,686		8,821		2,056
Liabilities assumed		7,223		4,024		1,024
Customer relationships intangible assets		6,400		5,500		891
Signing bonuses issued		623
Nonsolicitation agreements issued		521		—		—
Noncompetition agreements issued		—		1,200		265
Other intangibles		—		—		538
Investment in Tiger Medical:
Other intangibles		225
Other assets		240
Other long-term liabilities		240
Imaging Business divestiture:
Assets disposed of		—		—		186,428
Liabilities assumed by purchaser		—		—		77,822
Other
Noncompetition agreements issued		—		—		992

Reclassification

Certain amounts reported in prior years have been reclassified to conform to the fiscal year 2005 presentation.

Recent Accounting Pronouncements

In October 2004, the EITF issued its consensus opinion on EITF Issue No. 04-8, The Effect of Contingently Convertible Debt on Diluted Earnings Per Share (“EITF 04-8”). EITF 04-8 requires that contingently convertible debt instruments with embedded conversion features that are contingent upon market price triggers be included in diluted earnings per share computations, if dilutive, regardless of whether the contingency has been met. The provisions of EITF 04-08 were effective for the quarterly period ended December 31, 2004. If the Company’s stock price reaches $17.10, the dilutive effect of the Company’s $150 million 2.25% convertible senior notes, which have an embedded conversion feature that is contingent upon a market price trigger, would be required to be reflected in diluted earnings per share by application of the treasury stock method. By application of the treasury stock method, a range of approximately 0 to 1.5 million shares (at a stock price range of $17.10 (conversion price) to $20.51(market price trigger)) would be included in the weighted average common shares outstanding used in computing diluted earnings per share due to the Company’s stated policy to settle the principal amount of the convertible senior notes in cash. (Refer to Earnings Per Share above for a related discussion.) However, the diluted earnings per share calculation may be further impacted if the Proposed Statement of Financial Accounting Standards, Earnings Per Share, an amendment of FASB Statement No. 128 (“SFAS 128(R)”) becomes effective. SFAS 128(R) eliminates the provisions of SFAS No. 128, Earnings Per Share that allows an entity to rebut the presumption that contracts with the option of settling in either cash or stock will be settled in stock. Therefore, SFAS 128(R) may eliminate the Company’s ability to use a stated policy to settle the principal amount of the Company’s convertible senior notes in cash. If SFAS 128(R) becomes effective, the number of diluted weighted average shares outstanding will include approximately 8.8 million shares and earnings used to calculate diluted earnings per share would increase approximately $2.7 million (after tax) for the interest expense on the convertible senior notes. The Company may elect to settle the principal amount of its convertible senior notes in cash in accordance with the terms of the indenture. If such election is made, a range of approximately 0 to 1.5 million shares (at a stock price of $17.10 (conversion price) to $20.51(market price trigger)) will be included in the weighted average common shares outstanding used in computing diluted earnings per share in accordance with the provisions of EITF 04-08.

In December 2004, the FASB issued SFAS 123(R). This Statement revises SFAS 123 by eliminating the option to account for employee stock options under APB 25 and generally requires companies to recognize the cost of

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employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards (the “fair-value-based method”). The Company is required to adopt SFAS 123(R) at the beginning of fiscal year 2007, or April 1, 2006. As discussed above, the Compensation Committee of the Board of Directors approved an amendment to all outstanding stock options as of June 7, 2004 that accelerated the vesting of any unvested stock option as of April 1, 2005. Therefore, the impact of adopting SFAS 123(R) will be immaterial.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29 (“SFAS 153”). SFAS 153 addresses the measurement of exchanges of nonmonetary assets and redefines the scope of transactions that should be measured based on the fair value of the assets exchanged. SFAS 153 is effective for nonmonetary asset exchanges occurring beginning in our second quarter of fiscal 2006. The adoption of SFAS 153 will not have a material effect on the Company’s consolidated financial position, results of operations, or cash flows.

3. PURCHASE BUSINESS COMBINATIONS

The following acquisitions were accounted for under the purchase method of accounting in accordance with SFAS No. 141, Business Acquisitions (“SFAS 141”); accordingly, the operations of the acquired companies have been included in the Company’s results of operations subsequent to the date of acquisition. The assets acquired and liabilities assumed were recorded at their estimated fair values at the date of the acquisition as determined by management based on information currently available. Supplemental unaudited pro forma information, assuming these acquisitions were made at the beginning of the immediate preceding period, is not presented as the results would not differ materially from the amounts reported in the accompanying consolidated statements of operations.

Fiscal Year 2005

On October 7, 2004, the Elder Care Business acquired certain assets and assumed certain liabilities of a long-term care medical supply distributor and ancillary billing service provider. The aggregate purchase price, which was subject to certain adjustments as set forth in the purchase agreement, was approximately $26,884 (net of cash acquired) of which approximately $22,682 was paid during fiscal year 2005. Pursuant to the terms of the purchase agreement, approximately $5,550 of the purchase price was to be paid to the seller by April 30, 2005 if minimum revenue thresholds were met in future periods and final working capital balances as of the closing date were validated and settled. A cash payment of $1,550 was made during the three months ended April 1, 2005 and a cash payment of $4,202, which primarily relates to an earn-out payment, was made during the first quarter of fiscal year 2006. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.

Cash	$	355
Accounts receivable		7,700
Inventory		3,320
Other current assets		2,276
Goodwill		13,232
Intangibles		7,544
Other noncurrent assets		35
Total assets acquired		34,462
Current liabilities		7,223
Net assets acquired	$	27,239

Goodwill of $13,232 was assigned to the Elder Care Business and is expected to be deductible for tax purposes. Of the $7,544 of acquired intangible assets, $6,400, $623, and $521 was assigned to customer relationships, signing bonuses, and nonsolicitation agreements, respectively. The acquired intangible assets had a weighted-average useful life of approximately 6.7 years as of the date of acquisition.

Fiscal Year 2004

The Company acquired the stock of a service company that provides ancillary billing services to the long-term care industry and a long-term care medical supply distributor. The Company also acquired certain assets and assumed certain liabilities of a billing service company. The aggregate purchase price, net of cash acquired, for these acquired companies was $21,963, of which $19,328 was paid in cash during the fiscal year ended April 2, 2004.

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The Company obtained independent valuations of certain intangible assets and the final allocation of the purchase price was finalized during the three months ended December 31, 2004. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.

Cash	$	135
Accounts receivable		5,668
Inventory		1,739
Other current assets		861
Goodwill		10,506
Intangibles		6,700
Other noncurrent assets		291
Total assets acquired		25,900
Current liabilities		3,937
Net assets acquired	$	21,963

Goodwill of $10,506 was assigned to the Elder Care Business and is expected to be nondeductible for tax purposes. Of the $6,700 of acquired intangible assets, $1,200 and $5,500 was assigned to non-competition agreements and customer relationships, respectively. The acquired intangible assets had a weighted-average useful life of approximately 6.1 years as of the date of acquisition.

The terms of one purchase agreement provided for additional consideration to be paid (earn-out payment) if the acquired entity’s earnings before interest expense, provision for income taxes, depreciation and amortization, as defined, exceeded a targeted level. During fiscal year 2005, the Elder Care Business paid $1,685 under this agreement, which fulfilled all obligations under the terms of the purchase agreement.

Fiscal Year 2003

The Company acquired certain assets and assumed certain liabilities of a long-term care medical supply distributor. The aggregate purchase price was $4,464. The Company obtained independent valuations of certain intangible assets and finalized the allocation of the purchase price during fiscal year 2003. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.

Accounts receivable	$	1,230
Inventory		826
Goodwill		1,738
Intangibles		1,694
Total assets acquired		5,488
Current liabilities		1,024
Net assets acquired	$	4,464

The $1,738 of goodwill was assigned to the Elder Care Business and is expected to be deductible for tax purposes. Of the $1,694 of identifiable intangible assets, $265, $538, and $891 was assigned to noncompetition agreements, customer contracts, and customer relationships, respectively, and is primarily deductible for tax purposes. The acquired intangible assets had a weighted-average useful life of approximately 5.6 years as of the date of acquisition.

4. VARIABLE INTEREST ENTITY

PSS World Medical, Inc., and its wholly owned subsidiary, World Med Shared Services, Inc. (collectively the “Company”), entered into a Sourcing Services Agreement, dated as of January 19, 2005 (the “Agreement”), with Tiger Specialty Sourcing Limited, Tiger Shanghai Specialty Sourcing Co. Ltd., and its principals (collectively “Tiger Medical”). Subject to the terms and conditions of the Agreement, the Company has agreed to purchase certain medical and other products from Chinese suppliers and manufacturers using the exclusive sourcing services of Tiger Medical.

Pursuant to the terms of the Agreement, the Company acquired a minority interest in Tiger Medical on January 25, 2005 for $1,000. In return for its initial equity investment, the Company appointed two individuals to serve on the

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five-member board of directors of both Tiger Specialty Sourcing Limited and Tiger Shanghai Specialty Sourcing Co. Ltd. The Company ultimately has the right to increase its ownership interest in Tiger Medical to 100% during fiscal years 2006 through 2009 if certain performance targets are achieved. If at any time during the term of the Agreement, the Company achieves the agreed-upon cost of goods savings target in any twelve-month period prior to achieving the agreed-upon sales target, then either party has the right to trigger an early buy-out of Tiger Medical by the Company. The total purchase price to be paid by the Company for 100% ownership of Tiger Medical ranges between $1,000 and $32,500 and depends on the satisfaction of certain performance targets. Cash payments made by the Company during fiscal years 2006 through 2008 for additional interests in Tiger Medical will be credited against the final purchase price to be paid by the Company.

The Company’s interest in Tiger Medical is considered to be a VIE as defined by FIN 46(R). The Company is considered to be the primary beneficiary as Tiger Medical provides sourcing services exclusively to the Company. Therefore, the financial statements of Tiger Medical are consolidated with the Company’s financial statements. The Company acquired its interest in Tiger Medical for $1,000 and the realization of this investment is dependent on the product cost savings to the Company. The Company is not obligated on any of the indebtedness of Tiger Medical nor is the Company obligated to fund any operating losses of Tiger Medical. Therefore, the $1,000 acquisition price is the only amount at risk as of April 1, 2005. The accompanying consolidated balance sheet as of April 1, 2005 included approximately $546 of cash and $599 of long-term debt due to the principals of Tiger Medical.

5. NOTES RECEIVABLE

As of April 1, 2005, the Company has two notes receivable (the “Loans”) outstanding from its former Chairman and Chief Executive Officer, which bear interest at the applicable Federal rate for long-term obligations (5.03% and 5.08% at April 1, 2005 and April 2, 2004, respectively). These Loans were issued in order to consolidate debt incurred related to certain real estate activities, as well as to provide the cash needed to repay personal debt.

Loan 1, which was issued in September 1997, matures on September 16, 2007 (“Maturity Date”). Interest payments due prior to May 2003 were deferred until the Maturity Date; however, Loan 1 was amended during fiscal year 2003 to forgive interest of approximately $560 accrued during the period from December 31, 1997 to April 30, 2003 if certain covenants under a noncompetition agreement are complied with through December 31, 2005. Interest payments are required at least annually after May 2003. Principal payments are not required under the agreement until the Maturity Date. The terms of the agreement also provide for forgiveness of the outstanding principal in the event of a change in control; however, the accrued interest becomes payable immediately. The Company maintains an insurance policy on the life of the former Chairman and Chief Executive Officer. Upon death, the proceeds from this policy will be used to repay the outstanding principal and interest. As part of the Company’s ongoing review of the realization of the Loans during fiscal year 2003, the Company determined that an allowance for doubtful accounts was required for Loan 1 because it was unsecured. As a result, the Company recorded an allowance for doubtful accounts of $2,939 against Loan 1. This allowance does not represent a forgiveness of debt.

Loan 2, which was issued in January 2001, matures on the earlier of (i) the death of the former Chairman and Chief Executive Officer or (ii) the termination of a split-dollar agreement (“Loan 2 Maturity Date”). Loan 2 bears interest annually during the period from January 1, 2001 until the Loan 2 Maturity Date. Payments of both principal and interest are due upon maturity. A split-dollar life insurance policy on the former Chairman and Chief Executive Officer secures this note.

On October 2, 2003, the Company received a cash payment of $1,190, which consisted of principal and interest payments of $997 and $193, respectively, which fulfilled all obligations under a third Loan.

F-19

The gross amount of the outstanding principal and accrued interest for the above Loans, which are included in other assets in the accompanying consolidated balance sheets, are summarized below.

	Total
Balance at March 28, 2003	$	5,595
Principal payments(a)		(997	)
Accrued interest		198
Interest payments(b)		(193	)
Balance at April 2, 2004	$	4,603
Principal payments(a)		—
Accrued interest		187
Interest payments(b)		—
Balance at April 1, 2005	$	4,790

(a) Principal payments are deferred until the maturity date of each note.

(b) Interest payments for Loan 1 are required at least annually after May 2003 until the Maturity Date. Interest payments for Loan 2 are deferred until the Loan 2 Maturity Date.

The allowance for doubtful accounts related to these Loans, which is included in other assets in the accompanying consolidated balance sheets, was approximately $3,794, and $3,607 at April 1, 2005 and April 2, 2004, respectively. Interest income, included in interest and investment income in the accompanying consolidated statements of operations, for fiscal years 2005, 2004, and 2003 was approximately $187, $198, and $275, respectively.

6. PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:

	2005			2004
Land	$	9		$	9
Leasehold improvements		8,367			8,044
Equipment		23,289			22,561
Computer hardware and software		92,838			79,105
		124,503			109,719
Accumulated depreciation		(43,398	)		(40,128	)
Property and equipment, net	$	81,105		$	69,591

Depreciation expense, included in general and administrative expenses in the accompanying consolidated statements of operations, approximated $14,241, $12,756, and $12,011, for fiscal years 2005, 2004, and 2003, respectively.

7. GOODWILL

The change in the carrying value of goodwill for the fiscal years ended April 1, 2005 and April 2, 2004 is as follows:

	Physician Business		Elder Care Business			Corporate Shared Services		Total
Balance as of March 28, 2003	$	9,788	$	51,340		$	—	$	61,128
Purchase business combinations		—		9,558			—		9,558
Purchase price allocation adjustments		—		(777	)		—		(777	)
Balance as of April 2, 2004		9,788		60,121			—		69,909
Purchase business combinations		—		9,457			749		10,206
Acquisition earn-out payment		—		5,685			—		5,685
Purchase price allocation adjustments		—		(183	)		—		(183	)
Balance as of April 1, 2005	$	9,788	$	75,080		$	749	$	85,617

The Company performs its annual impairment test for each reporting unit on the last day of each fiscal year. Because the fair value of the reporting units exceeded the carrying amount of the goodwill, there was no impairment at April 1, 2005 and April 2, 2004.

F-20

8. INTANGIBLES

The following table summarizes the gross carrying amount and accumulated amortization for existing intangible assets subject to amortization by business segment and major asset class.

	As of
	April 1, 2005							April 2, 2004
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Customer Relationships:
Physician Business	$	2,463	$	(1,854	)	$	609	$	2,463	$	(1,674	)	$	789
Elder Care Business		12,791		(1,973	)		10,818		6,391		(603	)		5,788
		15,254		(3,827	)		11,427		8,854		(2,277	)		6,577
Nonsolicitation Agreements:
Physician Business		7,077		(470	)		6,607		327		(10	)		317
Elder Care Business		521		(33	)		488		—		—			—
		7,598		(503	)		7,095		327		(10	)		317
Noncompetition Agreements:
Physician Business		2,630		(1,975	)		655		2,242		(1,643	)		599
Elder Care Business		3,255		(2,429	)		826		3,255		(1,440	)		1,815
Corporate Shared Services		441		(314	)		127		417		(174	)		243
		6,326		(4,718	)		1,608		5,914		(3,257	)		2,657
Signing Bonuses:
Physician Business		1,985		(1,147	)		838		2,076		(729	)		1,347
Elder Care Business		618		(204	)		414		50		(24	)		26
		2,603		(1,351	)		1,252		2,126		(753	)		1,373
Other Intangibles:
Elder Care Business		538		(278	)		260		538		(170	)		368
Corporate Shared Services		225		(9	)		216		—		—			—
		763		(287	)		476		538		(170	)		368
Total	$	32,544	$	(10,686	)	$	21,858	$	17,759	$	(6,467	)	$	11,292

Total amortization expense for intangible assets for the fiscal years ended April 1, 2005, April 2, 2004, and March 28, 2003 was $4,537, $2,779, and $2,368, respectively. The estimated amortization expense for the next five fiscal years is as follows:

Fiscal Year:
2006	$	4,696
2007		3,864
2008		3,333
2009		2,994
2010		2,651
Thereafter		4,320
Total	$	21,858

The remaining weighted-average amortization period, in total and by major asset class, is as follows:

(in years)	April 1, 2005	April 2, 2004
Customer relationships	8.1	8.8
Nonsolicitation Agreements	9.6	11.0
Noncompetition Agreements	5.2	5.2
Signing Bonuses	3.9	4.5
Other Intangibles	4.8	5.0
Total weighted-average period	7.4	7.0

F-21

Future minimum payments required under noncompetition agreements at April 1, 2005 are as follows:

Fiscal Year:
2006	$	166
2007		36
2008		30
2009		28
2010		28
Thereafter		56
Total	$	344

9. ACCRUED EXPENSES

Accrued expenses at April 1, 2005 and April 2, 2004 were as follows.

	2005		2004
Accrued incentive compensation costs	$	19,078	$	12,494
Accrued payroll		10,624		9,660
Accrued restructuring costs and expenses		177		786
Other		15,001		10,313
Accrued expenses	$	44,880	$	33,253

Accrued Restructuring Costs and Expenses

During the quarter ended March 29, 2002, management and the Board of Directors approved and committed to a plan to restructure the Physician Business. Certain administrative functions, such as accounts receivable billing and collections and inventory management, at 13 service center locations were consolidated into larger existing facilities within a geographic location. The operations in the affected facilities were reduced to the distribution of inventory and sales support. Such locations are now referred to as “break-freight” locations. In addition, the purchasing function was centralized to the corporate office located in Jacksonville, Florida. This plan was substantially complete at March 28, 2003. As a result of the plan, 79 employees, including operations leaders, administrative and warehouse personnel, were involuntarily terminated.

The total costs of this plan were approximately $5,384, of which $348, $862, and $4,174 was recognized during fiscal years 2004, 2003 and 2002, respectively. Accrued restructuring costs and expenses related to this plan, classified as accrued expenses in the accompanying consolidated balance sheets, were $165 and $563 at April 1, 2005 and April 2, 2004, respectively. The following is a summary of the restructuring activity related to the plan described above:

	Involuntary Employee Termination Costs			Lease Termination Costs			Total
Balance at March 28, 2003	$	23		$	1,536		$	1,559
Adjustments		—			(171	)		(171	)
Additions		6			146			152
Utilized		(29	)		(948	)		(977	)
Balance at April 2, 2004		—			563			563
Utilized		—			(398	)		(398	)
Balance at April 1, 2005	$	—		$	165		$	165

The remaining lease termination costs are expected to be paid during fiscal year 2006.

F-22

10. DEBT

Debt consists of the following:

	April 1, 2005		April 2, 2004
2.25% convertible senior notes	$	150,000	$	150,000
Revolving line of credit		25,000		35,000
	$	175,000	$	185,000

2.25% Convertible Senior Notes

On March 8, 2004, the Company sold $150 million principal amount of 2.25% convertible senior notes, which mature on March 15, 2024. Interest on the notes is payable semiannually in arrears on March 15 and September 15 of each year. Contingent interest is also payable during any six-month interest period, beginning with the six-month interest period commencing on March 15, 2009, if the average trading price of the notes for the five trading days ending on the second trading day immediately preceding such six-month interest period equals or exceeds 120% of the principal amount of the notes. The amount of contingent interest payable per note in respect of any six-month interest period is equal to 0.25% of the average trading price of a note for the trading period referenced above.

The notes may be converted into shares of the Company’s common stock under the following circumstances: (i) prior to March 15, 2019, during any calendar quarter that the closing sale price of the Company’s common stock for at least 20 of the 30 consecutive trading days ending the day prior to such quarter is greater than 120% of the applicable conversion price of $17.10 per share; (ii) if on any date after March 15, 2019, the closing sale price of the Company’s common stock is greater than 120% of the then applicable conversion price; (iii) during the five consecutive business day period following any five consecutive trading day period in which the trading price for a note for each day of that trading period is less than 98% of the closing sale price of the Company’s common stock on such corresponding trading day multiplied by the applicable conversion rate, provided that if the price of the Company’s common stock issuable upon conversion is between 100% and 120% of the applicable conversion price, then holders will be entitled to receive upon conversion only the value of the principal amount of the notes converted plus accrued and unpaid interest, including contingent interest, if any; (iv) if the Company has called the notes for redemption; (v) during any period in which the Company’s long-term issuer rating assigned by Moody’s Investor Services (“Moody’s”) is at or below Caa1 or the corporate credit rating assigned by Standard & Poor’s Ratings Services, a division of McGraw Hill Companies, Inc. and its successors (“S&P”), is at or below B-, or if the Company is no longer rated by at least one of S&P or Moody’s; or (vi) upon the occurrence of specified corporate transactions described in the indenture governing the notes. The initial conversion rate is 58.4949 shares of common stock per each $1 (in thousands) principal amount of notes and is equivalent to an initial conversion price of $17.10 per share. The conversion rate is subject to adjustment if certain events occur, such as stock dividends or other distributions of cash, securities, indebtedness or assets; stock splits and combinations; issuances of rights or warrants; tender offers; or repurchases. Upon conversion, the Company has the right to deliver, in lieu of common stock, cash or a combination of cash and common stock. The Company’s stated policy is to satisfy the Company’s obligation upon a conversion of the notes first, in cash, in an amount equal to the principal amount of the notes converted and second, in shares of the Company’s common stock, to satisfy the remainder, if any, of the Company’s conversion obligation. If the Company’s stock price reaches $17.10, the dilutive effect of the convertible notes may be reflected in diluted earnings per share by application of the treasury stock method. By application of the treasury stock method, a range of approximately 0 to 1.5 million shares (at a stock price range of $17.10 (conversion price) to $20.51(market price trigger)) will be included in the weighted average common shares outstanding used in computing diluted earnings per share as a result of the Company’s stated policy to settle the principal amount of the convertible senior notes in cash.

Revolving Line of Credit

The Company maintains an asset-based revolving line of credit by and among the Company, as borrower thereunder (the “Borrower”), the subsidiaries of the Company, the lenders from time to time party thereto (the “Lenders”), and Bank of America, N.A. (the “Bank”), as agent for the Lenders (the “Credit Agreement”), which permits maximum borrowings of up to $200 million and matures on March 31, 2008. Availability of borrowings depends upon a borrowing base calculation consisting of accounts receivable and inventory, subject to satisfaction of certain eligibility requirements. Borrowings under the revolving line of credit bear interest at the Bank’s prime rate plus an applicable margin based on the Company’s funded debt to earnings before interest, taxes, depreciation, and amortization (the “Leverage Ratio”), or at LIBOR plus an applicable margin based on the Leverage Ratio. Additionally, the Credit Agreement bears interest at a fixed rate of 0.375% for any unused portion of the facility. Under the Credit Agreement, the Company and its subsidiaries are subject to certain covenants, including but not limited to, limitations on (i) paying dividends and repurchasing stock, (ii) selling or transferring assets, (iii) making

F-23

certain investments including acquisitions, (iv) incurring additional indebtedness and liens, and (v) annual capital expenditures. On March 30, 2005, the Company obtained a waiver from the Bank and Lenders that increased the capital expenditure limit for the fiscal year ended April 1, 2005 from $25.0 million to $28.0 million. Capital expenditures for the fiscal year ended April 1, 2005 were approximately $25.9 million. Borrowings under the revolving line of credit are anticipated to fund future requirements for working capital, capital expenditures, and acquisitions and issue letters of credit. Although the Credit Agreement expires on March 31, 2008, the revolving line of credit is classified as a current liability in accordance with EITF No. 95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements That Include both a Subjective Acceleration Clause and a Lock-Box Arrangement. The Company is not obligated to repay or refinance amounts outstanding under the revolving line of credit until March 31, 2008.

As of April 1, 2005, the Company had sufficient assets based on eligible accounts receivable and inventory to borrow up to approximately $171.2 million under the revolving line of credit and had outstanding borrowings of $25.0 million. The average daily interest rate, excluding debt issuance costs and unused line fees, for the fiscal years ended April 1, 2005 and April 2, 2004, was 4.09% and 3.98%, respectively.

From time-to-time, the Company has amended the Credit Agreement to meet specific business objectives and requirements. The Credit Agreement originally dated May 20, 2003 has been amended as follows:

• The First Amendment dated June 24, 2003 primarily finalized the syndication of the Credit Agreement to the Lenders.

• The Second Amendment dated December 16, 2003 primarily increased the maximum borrowings under the Credit Agreement from $150 million to $200 million. In addition, this amendment redefined the applicable margin applied to the Bank’s prime rate or LIBOR.

• The Third Amendment dated March 1, 2004 obtained the Lenders’ approval to issue additional indebtedness in the form of the convertible senior notes and to repurchase up to $42.0 million of the Company’s common stock, including any repurchases made subsequent to May 20, 2003. In addition, this amendment locked the interest rate on the Credit Agreement at the Bank’s prime rate or at LIBOR plus 2.00% for the period of one year, concurrent with the Company’s fiscal year 2005.

• The Fourth Amendment dated June 1, 2004 obtained the Lenders’ approval to increase the aggregate amount of permitted stock repurchases from $42.0 million to $55.0 million, which includes any stock repurchases made subsequent to May 20, 2003.

• The Fifth Amendment dated October 1, 2004 obtained the Lenders’ approval to (i) extend the term of the agreement two years to March 31, 2008, (ii) increase the aggregate amount of permitted stock repurchases from $55.0 million to $80.0 million, which includes any stock repurchases made subsequent to May 20, 2003, (iii) increase the aggregate amount of permitted acquisitions from $50.0 million to $75.0 million, which includes any acquisitions made subsequent to May 20, 2003, (iv) sets the applicable margin level for Base Rate and LIBOR loans to -0.25% and 1.75%, respectively, for the period beginning October 1, 2004 and ending March 26, 2005.

During fiscal year 2004, the Company entered into an interest rate swap agreement to hedge the variable interest rate of its revolving line of credit. Under the terms of the interest rate swap agreement, the Company makes payments based on the fixed rate and will receive interest payments based on 1-month LIBOR. The changes in market value of this financial instrument are highly correlated with changes in market value of the hedged item both at inception and over the life of the agreement. Amounts received or paid under the interest rate swap agreement are recorded as reductions or additions to interest expense. In accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133, and SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, the Company’s interest rate swap agreement has been designated as a cash flow hedge with changes in fair value recognized in accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets.

F-24

On July 19, 2004, the Company elected to reduce the notional amount of the interest rate swap from $35 million to $25 million. Accordingly, during fiscal year 2005, the Company reclassified a gain of $61 from accumulated other comprehensive income to interest expense related to the portion of the swap that was terminated.

As of April 1, 2005, the swap carries a notional principal amount of $25 million and effectively fixes the interest rate on a portion of the revolving line of credit to 2.195%, prior to applying the Leverage Ratio margin discussed above. The swap agreement expires on March 28, 2006 and settles monthly until expiration. During fiscal years 2005 and 2004, the Company recorded an unrealized gain (loss), net of related tax effects, for the estimated fair value of the swap agreement in accumulated other comprehensive income (loss) of $271 and ($40), respectively.

8.5% Senior Subordinated Notes

During fiscal year 2003, the Company repaid its $125 million aggregate principal amount of 8.5% senior subordinated notes, which were due in 2007, and recorded a charge of $4,826. This charge consisted of $5,170 of redemption premiums, $2,728 of accelerated amortization of debt issuance costs, net of a income tax benefit of $3,072.

11. INCOME TAXES

The provision for income taxes from continuing operations is detailed below:

	2005			2004		2003
Current tax (benefit) provision:
Federal	$	(533	)	$	7,034	$	(1,025	)
State		(68	)		1,241		(176	)
Total current (benefit) provision		(601	)		8,275		(1,201	)
Deferred tax provision:
Federal		15,392			7,924		5,562
State		1,979			1,398		954
Total deferred provision		17,371			9,322		6,516
Total income tax provision	$	16,770		$	17,597	$	5,315

A reconciliation of the total income tax provision as presented in the consolidated statements of operations is as follows:

	2005			2004			2003
Provision for income taxes from continuing operations	$	16,770		$	17,597		$	5,315
Benefit for income taxes from discontinued operations:
Loss from discontinued operations		—			—			(2,575	)
Loss on disposal of discontinued operations		(1,849	)		(741	)		(35,145	)
		(1,849	)		(741	)		(37,720	)
Benefit for income taxes recorded in stockholders’ equity:
Compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes		(2,217	)		(1,827	)		(195	)
Unrealized gain (loss) on interest rate swap recognized for financial reporting purposes		167			(26	)		—
		(2,050	)		(1,853	)		(195	)
Benefit for income taxes recorded as a reduction to goodwill		(1,522	)		(752	)		—
Total income tax provision (benefit)	$	11,349		$	14,251		$	(32,600	)

During the fiscal year ended March 28, 2003, the difference between the provision for income taxes from continuing operations and the total provision for income taxes, as previously reported, was allocated to discontinued operations.

F-25

The difference between income tax computed at the Federal statutory rate and the actual tax provision is shown below:

	2005			2004			2003
Income from continuing operations before provision for income taxes	$	56,154		$	46,300		$	14,129
Tax provision at the 35% statutory rate		19,654			16,205			4,945
Increase (decrease) in taxes:
State income tax, net of Federal benefit		1,241			1,716			506
Meals and entertainment		432			431			322
State net operating loss impairment		130			342			—
Reversal of valuation allowance and IRS tax settlement		(5,133	)		—			—
Officer life insurance		(384	)		(1,167	)		804
Adjustment to prior year tax estimates		—			—			(1,193	)
Other, net		830			70			(69	)
Total (decrease) increase in taxes		(2,884	)		1,392			370
Total income tax provision	$	16,770		$	17,597		$	5,315
Effective tax rate		29.9	%		38.0	%		37.6	%

At April 1, 2005 and April 2, 2004, the Company recorded an income tax receivable of $1,469 and $4,081, respectively, related to current income tax filings.

Deferred income taxes for fiscal years 2005 and 2004 reflect the impact of temporary differences between the financial statement and tax bases of assets and liabilities. The tax effect of temporary differences, which create deferred tax assets and liabilities, at April 1, 2005 and April 2, 2004 are detailed below:

	2005			2004
Deferred tax assets:
Net operating loss carryforwards	$	19,470		$	33,604
Deferred compensation		11,015			8,075
Allowance for doubtful accounts and sales returns		6,070			5,907
Inventory obsolescence		3,727			3,650
Accrued expenses		2,257			3,941
Inventory uniform cost capitalization		1,667			1,385
Charitable contribution carryover		1,090			1,118
Other		401			127
Capital loss carryforward		364			5,552
Restructuring and other nonrecurring costs and expenses		351			765
Excess of book amortization over tax amortization		264			363
Gross deferred tax assets		46,676			64,487
Valuation allowance		(338	)		(5,552	)
Deferred tax assets, net of valuation allowance		46,338			58,935
Deferred tax liabilities:
Excess of tax depreciation over book depreciation		(8,193	)		(6,037	)
Capitalized software development costs		(5,289	)		(5,569	)
Interest on convertible debt instrument		(3,031	)		—
Gross deferred tax liabilities		(16,513	)		(11,606	)
Deferred tax assets, net	$	29,825		$	47,329

Management believes that the deferred tax assets, net of the valuation allowance, as of April 1, 2005 will be realizable to offset the projected future taxable income.

At April 1, 2005 and April 2, 2004, the Company had Federal and state net operating loss (“NOL”) carryforwards for income tax purposes of approximately $51,372 (pre-tax) and $86,386 (pre-tax), respectively, which expire from 2005 to 2023. The utilization of certain NOL carryforwards is subject to an annual limitation. The decrease in the Federal and state NOLs during fiscal years 2005 and 2004 was primarily a result of utilizing the NOLs to offset the fiscal year 2005 and 2004 estimated tax liabilities of approximately $19,687 and $18,366, respectively. In addition, the NOL carryforwards increased approximately $5,553 (tax-effected) during fiscal year 2005 primarily as a result of finalizing the fiscal year 2004 income tax returns as well as management’s estimate of the outcome of the income tax returns currently under audit. Management expects to fully utilize the Federal NOL carryforward as well as a portion of the remaining state NOL carryforwards during fiscal year 2006.

F-26

The Company is subject to periodic review by Federal, state, and local tax authorities in the ordinary course of business. During fiscal year 2002, the Internal Revenue Service’s (“IRS”) notified the Company that the income tax returns for the fiscal years ended March 31, 2000 and March 30, 2001 would be examined. During the three months ended December 31, 2003, fieldwork was completed and the Company received the IRS’s report. The Company appealed certain findings, which primarily related to timing of tax deductions, with the Appeals Office of the IRS.

During fiscal year 2002, the Company sold its International Business, which generated a capital loss carryforward. At the time of sale, management believed it was more likely than not that the Company would be unable to use the capital loss before its expiration in fiscal year 2007 and, accordingly, a valuation allowance was recorded. Based on recent Tax Court rulings, the Company filed a refund claim with the IRS during the three months ended December 31, 2003, to report an ordinary worthless stock deduction on the sale of the International Business. The refund claim reflected a reclassification of the nondeductible capital loss to a tax-deductible ordinary loss. The worthless stock deduction claim was combined with the formal protest to the results of the audit of the Federal income tax returns for the fiscal years ended March 31, 2000 and March 30, 2001 and was submitted to the Appeals Office of the IRS. During the three months ended December 31, 2004, the Company and the Appeals Office of the IRS reached a settlement. This settlement, which is subject to final review and approval by the Congressional Joint Committee on Taxation (“Joint Committee”), resulted in a reduction to the provision for income taxes for the fiscal year ended April 1, 2005 of approximately $5,558 (including a state income tax benefit of $425), of which approximately $5,071 represented the reversal of the valuation allowance. Management believes that the Joint Committee will approve the agreed-upon settlement with the Appeals Office of the IRS.

During the three months ended December 31, 2004, the IRS completed fieldwork on the audit of the Federal income tax returns for the fiscal years ended March 29, 2002 and March 28, 2003. The Company plans to appeal certain findings, which primarily relate to timing of tax deductions, with the Appeals Office of the IRS. Management does not anticipate the results of the audit to have a material impact on the financial condition or consolidated results of operations of the Company.

12. SHAREHOLDERS’ EQUITY

Stock Repurchase Programs

On July 30, 2002, the Company’s Board of Directors approved a stock repurchase program authorizing the Company, depending upon market conditions and other factors, to repurchase up to a maximum of 5% of its common stock, or approximately 3.6 million common shares, in the open market, in privately negotiated transactions, or otherwise. During fiscal year 2003, the Company repurchased 3.6 million shares of common stock at an average price of $7.13 per common share.

On December 17, 2002, the Company’s Board of Directors authorized an additional purchase of up to 5% of its common stock, or approximately 3.4 million common shares, in the open market, in privately negotiated transactions, or otherwise. During the first quarter of fiscal year 2004, the Company repurchased approximately 0.9 million shares of common stock under this program at an average price of $5.92 per common share.

On February 26, 2004, the Board of Directors authorized the repurchase of up to $35.0 million of common stock in connection with the issuance of the convertible senior notes. This authorization terminated the remaining shares available for repurchase under the stock repurchase program authorized in December 2002. During the fourth quarter of fiscal year 2004, the Company repurchased approximately 3.0 million shares of common stock at an average price of $11.79 per common share for approximately $34,990.

On June 8, 2004, the Company’s Board of Directors approved a stock repurchase program authorizing the Company, depending upon market conditions and other factors, to repurchase up to a maximum of 5% of its common stock, or approximately 3.2 million common shares, in the open market, in privately negotiated transactions, or otherwise. During fiscal year 2005, the Company repurchased approximately 1.0 million shares of common stock under this program at an average price of $9.91 per common share. At April 1, 2005, approximately 2.2 million shares are available to repurchase under this program.

F-27

Stock Incentive Plans

The Company has the following stock incentive plans for the benefit of certain officers, directors, and employees. The Compensation Committee of the Board of Directors has discretion to make grants under these plans in the form of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, performance units, dividend equivalents, other stock-based awards, or other rights or interests relating to common stock or cash.

	Shares Reserved for Issuance	Shares Available for Issuance
Equity compensation plans approved by shareholders:
1999 Long-Term Incentive Plan	4,370	261
2004 Non-Employee Directors Compensation Plan(a)	400	390
Amended and Restated Directors Stock Plan(b)	800	—
1994 Long-Term Stock Plan(c)	2,190	—
Amended and Restated 1994 Long-Term Incentive Plan(c)	500	—
	8,260	651
Equity compensation plans not approved by shareholders:
1999 Broad-Based Employee Stock Plan	2,600	249
Total	10,860	900

(a) This plan superceded the Amended and Restated Directors Stock Plan and was approved by shareholders during fiscal year 2005.

(b) This plan was terminated during fiscal year 2005 as a result of shareholders approving the 2004 Non-Employee Directors Compensation Plan.

(c) These plans are terminated, however, options remain outstanding at April 1, 2005 that are exercisable.

Under these plans, options are generally granted for the purchase of shares of common stock at an exercise price not less than the fair market value of the Company’s common stock on the date of grant. Options granted under the 1999 Long-Term Incentive Plan and the 1999 Broad-Based Employee Stock Plan are generally fully vested and exercisable three years from the date of grant. Options granted under the Amended and Restated Directors’ Stock Plan, the 1994 Long-Term Stock Plan, and the Amended and Restated 1994 Long-Term Incentive Plan are fully vested and exercisable at the date of grant. Outstanding options have a term of 5 years or 10 years.

Historically, the Company primarily awarded stock options under these stock incentive plans, which did not require compensation expense to be recorded in the consolidated statements of operations as the Company adopted the disclosure only provisions of SFAS 123. During fiscal year 2005, the Company used restricted stock as the primary vehicle for employee equity compensation. Upon issuance of restricted stock, unearned compensation is charged to shareholders’ equity for the market value of the restricted stock and recognized as compensation expense ratably over the vesting period, which is generally three years.

Outstanding stock-based awards were as follows:

	April 1, 2005	April 2, 2004	March 28, 2003
Stock options(a)	6,584	7,608	7,430
Restricted stock(b)	208	24	3
Total outstanding stock-based awards	6,792	7,632	7,433

(a) Amounts are excluded from shares of common stock issued and outstanding.

(b) Amounts are included in shares of common stock issued and outstanding.

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The following table summarizes the stock option activity during the period from March 29, 2002 to April 1, 2005:

	Shares		Range of Exercise Prices	Weighted Average Exercise Price
Balance, March 29, 2002	7,980		$2.59-$28.86	$	9.04
Granted	1,691		$6.45-$9.89	$	7.97
Exercised	(192	)	$2.72-$8.46	$	4.32
Forfeited	(2,049	)	$2.72-$28.86	$	8.72
Balance, March 28, 2003	7,430		$2.59-$28.86	$	8.97
Granted	1,282		$6.01-$12.13	$	9.06
Exercised	(828	)	$2.59-$12.07	$	5.86
Forfeited	(276	)	$2.72-$28.86	$	7.96
Balance, April 2, 2004	7,608		$2.59-$28.86	$	9.40
Granted	35		$10.72-$10.75	$	10.72
Exercised	(937	)	$2.59-$12.07	$	5.86
Forfeited	(122	)	$2.72-$28.86	$	9.69
Balance, April 1, 2005	6,584		$2.59-$28.86	$	9.90

The following table summarizes information about stock options outstanding at April 1, 2005:

	Outstanding and Exercisable
Range of Exercise Prices	Shares	Weighted Average Remaining Life	Weighted Average Exercise Price
$2.59-$2.88	179	2.8	$	2.65
$2.89-$5.77	680	5.3	$	4.81
$5.78-$8.65	1,915	4.2	$	7.20
$8.66-$11.54	2,009	4.3	$	9.61
$11.55-$14.43	508	3.4	$	12.74
$14.44-$17.31	875	1.4	$	14.92
$17.32-$20.20	228	2.7	$	19.66
$20.21-$23.08	166	2.5	$	21.98
$23.09-$28.86	24	2.9	$	28.86
	6,584	3.8	$	9.90

The following table summarizes the restricted stock activity during the period from March 29, 2002 to April 1, 2005:

	Shares		Weighted Average Grant Date Fair Value
Balance, March 29, 2002	—		$	—
Granted	3		$	7.40
Vested	—		$	—
Forfeited	—		$	—
Balance, March 28, 2003	3		$	7.40
Granted	29		$	7.13
Vested	(8	)	$	6.52
Forfeited	—		$	—
Balance, April 2, 2004	24		$	7.35
Granted	197		$	10.74
Vested	(8	)	$	6.52
Forfeited	(5	)	$	10.72
Balance, April 1, 2005	208		$	10.50

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Scheduled vesting for outstanding restricted stock is as follows:

Fiscal Year:
2006	65
2007	75
2008	68
Total	208

Total compensation expense for restricted stock grants during the fiscal years ended April 1, 2005, April 2, 2004, and March 28, 2003 was $507, $72, and $0, respectively. The estimated amortization expense for the next five fiscal years is as follows:

Fiscal Year:
2006	$	760
2007		692
2008		259
Total	$	1,711

13. EMPLOYEE BENEFIT PLANS

PSS World Medical, Inc. Savings Plan

The PSS World Medical, Inc. Savings Plan (the “Plan”) provides an opportunity for tax-deferred savings, enabling eligible employees to invest in a variety of mutual funds or to acquire an interest in the common stock of the Company. Employees become eligible to participate in the Plan upon the completion of 30 days of service. Employees may elect to defer up to 85% but not less than 1% of their compensation to the Plan, subject to certain limitations imposed by the Internal Revenue Code. The Company matches an amount equal to the lesser of (i) 50% of the employee deferrals up to 6% of their compensation or (ii) $1.2 (in thousands). This match can be invested in various mutual funds or the common stock of the Company at the discretion of the participant and vests over a six-year period. During the fiscal year ended April 1, 2005, April 2, 2004 and March 28, 2003, the Company contributed approximately $1,377, $843, and $818, respectively, to the Plan under this matching arrangement. The Plan owned approximately 2.3 million, 2.6 million and 3.0 million shares of the Company’s common stock at April 1, 2005 April 2, 2004 and March 28, 2003, respectively.

Employee Stock Purchase Plan

The Company also has an employee stock purchase plan available to all employees with at least six months of service. The plan allows eligible employees to purchase Company stock over-the-counter through after-tax payroll deductions.

Deferred Compensation Program

The Company offers a deferred compensation program (the “Program”) to qualified executives, management, and sales representatives. The Program consists of a deferred compensation plan and a stock option program. Under the deferred compensation plan, participants can elect to defer up to 100% of their total compensation; however, the Company matching contribution program only applies to deferrals of up to 10% or 15% of the participant’s compensation. The Company’s matching contribution ranges from 10% to 125% of the participant’s deferral. Participant contributions are always 100% vested. The Company’s matching contribution vest ratably over 8 years. The stock option program was amended on July 1, 2004 to reflect that no options will be granted after July 1, 2004, but the program will otherwise remain in effect to govern the terms of any options granted prior to July 1, 2004. Under the stock option program, participants were granted stock options to purchase common stock of the Company. The number of stock options granted was a function of the participant’s annual deferral amount and was limited to 250 shares (in thousands) per year. The grant price of the options was not less than the fair market value of the common stock on the date such options were granted and the options were issued under existing stock incentive plans. As discussed in Note 2, Summary of Significant Accounting Policies, the vesting of all unvested stock options outstanding as of April 1, 2005 was accelerated.

At age 60, or at age 55 with ten years of participation in the Program, the retirement benefit is distributed to participants in five equal annual installments, or in a lump sum payment if the vested account balance is less than

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$25. The retirement benefit is distributed in a lump sum upon death and over five years upon disability. In the event of termination of employment, 100% of the participant’s vested balance will be distributed in five equal installments or in a lump-sum payment if the vested account balance is less than $25. In the event of a change in control, if the successor terminates the plan, all participants become 100% vested in their accounts, including the Company’s matching contributions, discretionary Company contributions, and allocated return thereon. The Company has purchased corporate-owned, life insurance policies for certain participants in the Program to fund the future payments related to the deferred compensation liability.

During fiscal years 2005, 2004, and 2003 the Company matched approximately $1,681, $1,347, and $1,328, respectively, of employee deferrals. The cash surrender value of the corporate-owned, life insurance policies, which is recorded in other long-term assets in the accompanying consolidated balance sheets, was approximately $28,280 and $21,292, at April 1, 2005 and April 2, 2004, respectively. In addition, the deferred compensation liability, which is recorded in other long-term liabilities in the accompanying consolidated balance sheets, was approximately $28,179 and $20,262 at April 1, 2005 and April 2, 2004, respectively.

Directors’ Deferred Compensation Plan

Effective January 1, 2004, the Company offers a deferred compensation plan to non-employee members of the Board of Directors. Participants may elect to defer up to 100% receipt of their annual retainer, meeting fees, other director’s fees, and other cash compensation and invest their deferrals in a variety of investment options. The benefits are distributed to participants in annual installments, or in a lump sum payment if the vested account balance is less than $25. A participant’s deferred compensation account balance will be distributed, at the election of the participant, in a single lump sum payment following the participant’s termination of service on the board of directors, or in up to ten annual installments. The deferred compensation account balance will be distributed in a lump sum payment upon the death of the participant, or in the event of a change in control of the Company.

Long-Term Executive Cash-Based Incentive Plans

During fiscal year 2003, the Compensation Committee of the Board of Directors approved a cash-based performance award program under the 1999 Long-Term Incentive Plan, known as the Shareholder Value Plan (“SVP”). The SVP provided incentive to executives to enhance shareholder value through the achievement of earnings per share goals outlined in the Company’s three-year strategic plan. The first performance period under the SVP was the 30-month period from October 1, 2002 to March 31, 2005.

Target awards under the SVP were expressed as a percentage of base salary for the top five officer levels. The performance goals were based on planned cumulative earnings per share, as approved by the Board of Directors. The Compensation Committee may establish different target awards for future performance periods. The Company accrued compensation cost over the 30-month period and the actual pay-out for the first performance period was approximately $8,451. As of April 1, 2005 and April 2, 2004, the Company accrued approximately $8,451 and $3,000, respectively, related to the SVP.

Subsequent to year end, the Compensation Committee approved the 2006 Shareholder Value Plan (“2006 SVP”). The performance period under the 2006 SVP is the 36-month period from April 2, 2005 to March 28, 2008. Target awards under the 2006 SVP are also expressed as a percentage of base salary (ranging from 15% to 55%) in effect at the inception of the performance period for all officer levels and performance goals are based on planned cumulative earnings per share. Participants have the opportunity to earn from 50% to 150% of their target award, based on planned cumulative earnings per share. The planned cumulative earnings per share measured for performance under the plan includes the after-tax effect of the compensation costs related to the 2006 SVP. The Company will accrue compensation cost over the 36-month period as performance goals are achieved and expects the target pay-out to be approximately $7,400.

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14. OPERATING LEASE COMMITMENTS

The Company leases various facilities and equipment under operating leases. Certain lease commitments provide that the Company pays taxes, insurance, and maintenance expenses related to the leased assets.

Rent expense for operating leases approximated $21,034, $20,376, and $21,469, for fiscal years 2005, 2004, and 2003, respectively. As of April 1, 2005, future minimum payments, by fiscal year and in the aggregate, required under noncancelable operating leases are as follows:

	Fiscal Year
	2006		2007		2008		2009		2010		Thereafter		Total
Operating	$	18,776	$	13,920	$	9,946	$	6,445	$	4,423	$	9,313	$	62,823
Restructuring		243		19		—		—		—		—		262
Total	$	19,019	$	13,939	$	9,946	$	6,445	$	4,423	$	9,313	$	63,085

15. SEGMENT INFORMATION

The Company’s reportable segments are strategic businesses that offer different products to different segments of the healthcare industry, and are the basis which management regularly evaluates the Company. These segments are managed separately because of different customers and products. See Note 1, Nature of Operations, for descriptive information about the Company’s operating segments. The Company primarily evaluates the operating performance of its segments based on net sales and income from operations. Corporate Shared Services allocates amounts to the two operating segments for general corporate overhead costs and intercompany interest expense. The corporate overhead allocation is generally proportional to the revenues of each operating segment. Intercompany interest is allocated based on (i) an internally calculated carrying value of historical capital used to acquire or develop the operating segments’ operations and (ii) budgeted operating cash flow. The following table presents financial information about the Company’s business segments:

	2005			2004			2003
NET SALES:
Physician Business	$	959,017		$	880,598		$	754,295
Elder Care Business		514,752			469,319			423,598
Total net sales	$	1,473,769		$	1,349,917		$	1,177,893
NET SALES BY PRODUCT TYPE:
Consumable products	$	1,118,070		$	1,042,801		$	945,439
Pharmaceutical products		183,710			165,777			117,724
Equipment		156,687			132,678			108,602
Billing services		7,118			2,221			—
Customer freight charges		6,019			5,258			4,986
Vendor incentive income		2,165			1,182			1,142
Total net sales	$	1,473,769		$	1,349,917		$	1,177,893
INCOME FROM OPERATIONS:
Physician Business	$	61,971		$	45,504		$	22,850
Elder Care Business		23,572			21,890			18,275
Corporate Shared Services		(23,984	)		(19,573	)		(15,238	)
Total income from operations	$	61,559		$	47,821		$	25,887
DEPRECIATION:
Physician Business	$	9,139		$	9,414		$	8,862
Elder Care Business		1,639			1,603			1,630
Corporate Shared Services		3,463			1,739			1,519
Total depreciation	$	14,241		$	12,756		$	12,011
AMORTIZATION OF INTANGIBLE ASSETS:
Physician Business	$	1,642		$	1,185		$	1,576
Elder Care Business		2,736			1,455			757
Corporate Shared Services		159			139			35
Total amortization of intangible assets	$	4,537		$	2,779		$	2,368

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	2005			2004			2003
PROVISIONS FOR DOUBTFUL ACCOUNTS AND NOTES RECEIVABLE:
Physician Business	$	1,605		$	1,678		$	1,172
Elder Care Business		3,476			4,248			3,441
Corporate Shared Services		187			182			2,939
Total provision for doubtful accounts and notes receivable	$	5,268		$	6,108		$	7,552
INTEREST EXPENSE:
Physician Business	$	3,328		$	3,950		$	4,370
Elder Care Business		7,000			5,538			4,908
Corporate Shared Services		(3,472	)		(3,928	)		3,276
Total interest expense	$	6,856		$	5,560		$	12,554
PROVISION (BENEFIT) FOR INCOME TAXES:
Physician Business	$	23,393		$	15,864		$	7,407
Elder Care Business		6,607			6,047			5,061
Corporate Shared Services		(13,230	)		(4,314	)		(7,153	)
Total provision for income taxes	$	16,770		$	17,597		$	5,315
CAPITAL EXPENDITURES:
Physician Business	$	2,687		$	7,114		$	9,284
Elder Care Business		4,336			5,256			1,011
Corporate Shared Services		18,908			8,747			1,704
Total capital expenditures	$	25,931		$	21,117		$	11,999

	2005		2004
ASSETS:
Physician Business	$	314,437	$	265,594
Elder Care Business		257,024		202,825
Corporate Shared Services		74,897		118,427
Total assets	$	646,358	$	586,846

16. COMMITMENTS AND CONTINGENCIES

Litigation

The Company, through its Elder Care Business, its Physician Business, and/or predecessor companies, has been named as one of many defendants in latex glove product liability claims in various Federal and state courts. The defendants are primarily distributors of certain brands of latex gloves. The Company’s insurers have settled all of the outstanding cases, without expense to the Company. Defense costs were allocated by agreement between a consortium of insurers on a pro rata basis for each case depending upon policy years and alleged years of exposure.

The Company and certain of its current and former officers and directors are named as defendants in a securities class action lawsuit entitled Jack Hirsch v. PSS World Medical, Inc., et al., Civil Action No. 3:98-CV 502-J-32TEM. The action, which was filed in May 1998, is pending in the United States District Court for the Middle District of Florida, Jacksonville Division. The plaintiff initially alleged, for himself and for a purported class of similarly situated stockholders who purchased the Company’s stock between December 23, 1997 and May 8, 1998 that the defendants engaged in violations of certain provisions of the Securities Exchange Act, and Rule 10b-5 promulgated thereunder. The allegations reference a decline in the Company’s stock price following an announcement by the Company in May 1998 regarding the Gulf South Medical Supply, Inc. merger, which resulted in earnings below analysts’ expectations. In December 2002, the Court granted the Company’s motion to dismiss the plaintiff’s second amended complaint with prejudice with respect to the Section 10(b) claims. The plaintiffs filed their third amended complaint in January 2003 alleging claims under Sections 14(a) and 20(a) of the Exchange Act on behalf of a putative class of all persons who were shareholders of the Company as of March 26, 1998. In May 2003, the Court denied the defendants’ motion to dismiss. By order dated February 18, 2004, the Court granted plaintiffs’ motion for class certification. Court ordered mediation occurred on June 10, 2004 and April 6, 2005, during which the parties were not able to resolve their dispute. The parties all served motions for summary judgment and motions in limine to strike the opposing experts on May 11, 2005. These motions are currently pending. The case is set for trial in November 2005. The Company intends to vigorously defend the proceedings; however, there can be no assurance that this litigation will be ultimately resolved on terms that are favorable to the Company. An estimate of the potential range of loss is $1,000 to $3,500.

F-33

The Company was named along with certain present and former directors and officers as a defendant in ten related class action complaints, the first of which was filed on July 13, 2001, in the United States District Court for the Middle District of Florida. Those ten actions were consolidated into a single action under the caption “In Re PSS World Medical Inc. Securities Litigation.” The amended complaint was filed as a purported class action on behalf of persons who purchased or acquired PSS World Medical, Inc. common stock at various times during the period between October 26, 1999 and December 31, 2000 and alleged, among other things, violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The plaintiffs alleged that the Company issued false and misleading statements and failed to disclose material facts concerning, among other things, the Company’s financial condition and that because of the issuance of false and misleading statements and/or failure to disclose material facts, the price of PSS World Medical, Inc. common stock was artificially inflated during the class period. The Court granted the plaintiff’s motion for class certification in November 2002. The parties signed a settlement agreement pursuant to which the Company agreed to pay $6,750 for the benefit of the class members, of which $6,500 was covered by the Company’s insurance policy. The final settlement agreement was filed with the court on June 9, 2004 and became effective July 9, 2004.

The Company was named as a defendant in a suit brought by three former and certain present employees of the Company, entitled Angione, et al. v. PSS World Medical, Inc., which was filed on or about June 4, 2002 in the U.S. District Court for the Central District of California, Santa Ana Division. The court approved the transfer of venue, and the case was held in the United States Court for the Middle District of Florida, Jacksonville Division. The plaintiffs allege that the Company wrongfully classified its purchasers, operations leader trainees, and accounts receivable representatives as exempt from the overtime requirements imposed by the Fair Labor Standards Act and the California Wage Orders, and they seek to recover back pay, interest, costs of suit, declaratory and injunctive relief, and applicable statutory penalties. On February 21, 2003, the court conditionally allowed the case to proceed as a collective action under the Fair Labor Standards Act. An additional 59 plaintiffs opted into the proceeding, bringing the total number of plaintiffs to 62. Two of the three original named plaintiffs also brought, but subsequently have settled, individual claims for gender discrimination and retaliation under Title VII of the Civil Rights Act of 1964 and the Equal Pay Act of 1963. As a result of mediation in March 2004, the parties agreed on a framework for mediation or arbitration in October 2004 on the issue of the plaintiffs’ attorney’s fees. The attorney’s fee issue was resolved and the parties entered into negotiations for resolution of the plaintiffs’ outstanding wage claims. The parties were able to reach agreement on the amount of wages to be paid to the plaintiffs. On November 5, 2004, the Court approved the $2,900 settlement payment, which has been paid by the Company.

On February 8, 2005, the Company settled a lawsuit pursuant to which the opposing parties agreed to pay the Company $2,600 to resolve all claims and counterclaims. The settlement agreement received court approval. Accordingly, during fiscal year 2005, the Company recorded a $2,600 gain, which was offset by approximately $1,933 of legal and professional fees and expenses incurred during this same period. The Company previously recorded approximately $387 in legal and professional fees and expenses from the inception of the case in July 2003 through April 2, 2004.

The Company is also a party to various other legal and administrative proceedings and claims arising in the normal course of business. While any litigation contains an element of uncertainty, the Company, after consultation with outside legal counsel, believes that the outcome of such other proceedings or claims which are pending or known to be threatened will not have a material adverse effect on the Company’s consolidated financial position, liquidity, or results of operations.

The Company has various insurance policies, including product liability insurance, covering risks and in amounts it considers adequate. In many cases in which the Company has been sued in connection with products manufactured by others, the Company is provided indemnification by the manufacturer. There can be no assurance that the insurance coverage maintained by the Company is sufficient or will be available in adequate amounts or at a reasonable cost, or that indemnification agreements will provide adequate protection for the Company.

Commitments and Other Contingencies

The Company has employment agreements with certain executive officers which provide that in the event of their termination or resignation, under certain conditions, the Company may be required to pay severance to the executive officers in amounts ranging from one-fourth to two times their base salary and target annual bonus. In the event that a termination or resignation follows or is in connection with a change in control, the Company may be required to pay severance to the executive officers in amounts ranging from three-fourths to three times their base salary and

F-34

target annual bonus. The Company may also be required to continue welfare benefit plan coverage for the executive officers following a termination or resignation for a period ranging from three months to three years.

If the Physician Business or the Elder Care Business were to terminate a contract with a private label vendor for any reason, the Company may be required to purchase the remaining inventory of private label products from the vendor, provided that, in no event would the Company be required to purchase quantities of such products which exceed the aggregate amount of such products ordered by the Company in the ninety day period immediately preceding the date of termination. As of April 1, 2005, the Company has not terminated any contracts with a private label vendor that had a material impact to the Company’s results of operations and financial condition.

17. DISCONTINUED OPERATIONS

On September 26, 2002, the Company’s Board of Directors adopted a plan to dispose of the Imaging Business, reflecting a strategic decision by management to focus the Company’s efforts on its Physician and Elder Care Businesses. Accordingly, the results of operations of the Imaging Business and the loss on disposal of discontinued operations were classified as “discontinued operations” in accordance with SFAS 144. On November 18, 2002, the Company completed the sale of the DI to Imaging Acquisition Corporation (the “Buyer”), a wholly owned subsidiary of Platinum Equity, LLC, a private equity firm (“Platinum”). The sale was completed pursuant to a Stock Purchase Agreement, dated as of October 28, 2002, among the Company, the Buyer, and Platinum, as amended on November 18, 2002 (the “Stock Purchase Agreement”). Under the Stock Purchase Agreement, the purchase price was $45,000 less (i) an adjustment for any change in net asset value from the initial net asset value target date and (ii) an adjustment for any change in the net cash from the initial net cash target date (collectively “Purchase Price”).

In connection with the closing of the transaction, the Company and the Buyer entered into a transitional services agreement (“TSA”), pursuant to which the Company provided certain reimbursable services to the Buyer for a period of one year. This agreement terminated during fiscal year 2004. The costs incurred related to providing services under the TSA were included in general and administrative expenses and the reimbursement for these expenses were included in other income in the accompanying statements of operations. During the fiscal years ended April 2, 2004 and March 28, 2003, the Company recognized approximately $2,959 and $4,256, respectively, of other income related to the TSA.

On March 14, 2003, the Company received a letter from the Buyer claiming a Purchase Price adjustment of $32,257. The claimed Purchase Price adjustment was based on an accounting of the net asset statement as of the closing date, which was delivered to the Buyer in January 2003. Pursuant to the terms of the Stock Purchase Agreement, the matter was referred to an independent accounting firm of national reputation for arbitration. Subsequent to March 14, 2003, the Buyer provided an adjusted claim to the arbitrator claiming a purchase price adjustment of $28,222. During the three months ended June 30, 2004, the arbitrator ruled in favor of the Buyer for a purchase price adjustment of $1,821. As a result of the final ruling from the arbitrator, the Company paid approximately $4,279 of settlement costs to the Buyer during fiscal year 2005. During the settlement process, management estimated the net asset adjustment based on available information and revised its estimate on a quarterly basis, if needed. The cash proceeds received during fiscal year 2003 were reduced by approximately $4,854, $2,067 and $3,298 for transaction and settlement costs that were paid during fiscal years ended April 1, 2005, April 2, 2004, and March 28, 2003, respectively.

F-35

The following table details the total loss from discontinued operations and net sales for fiscal years 2005, 2004, and 2003.

	For the Fiscal Year Ended
	April 1, 2005			April 2, 2004			March 28, 2003
Net sales	$	—		$	—		$	445,630
Loss from operations before benefit for income taxes		—			—			(6,676	)
Loss on disposal of discontinued operations before benefit for income taxes		(2,261	)		(1,905	)		(94,621	)
Benefit for income taxes		1,849			741			37,720
Total loss from discontinued operations	$	(412	)	$	(1,164	)	$	(63,577	)

The pretax loss on disposal of discontinued operations for the fiscal year ended April 1, 2005 represented (i) a true-up of management’s estimated net asset adjustment to the actual net asset adjustment as indicated in the arbitrator’s final ruling of $1,821, (ii) interest of $458, and (iii) legal and professional fees of $471, offset by (iv) a reversal of the remaining accrued loss on disposal of $489 in order to true-up management’s estimated legal and professional fees based on actual payments made.

The pretax loss on disposal of discontinued operations for the fiscal year ended April 2, 2004 primarily related to (i) legal and professional fees of approximately $1,155 which primarily related to the arbitration proceedings and (ii) management’s estimated net asset adjustment of $750.

The pretax loss on disposal of discontinued operations for the fiscal year ended March 28, 2003 represented (i) management’s estimated total loss on disposal based on the Purchase Price, as defined in the Stock Purchase Agreement, (ii) estimated transaction costs of approximately $4,412, and (iii) management’s estimated net asset adjustment of $1,200. The loss from operations before benefit for income taxes for the fiscal year ended March 28, 2003 included an allocation of interest expense of approximately $2,157. In accordance with EITF Issue No. 87-24, Allocation of Interest to Discontinued Operations (“EITF 87-24”), a portion of the Company’s interest expense that is not directly attributable to or related to other operations of the Company was allocated to discontinued operations based upon the ratio of net assets to be sold to the sum of consolidated net assets plus consolidated debt. In addition, in accordance with EITF 87-24, general corporate overhead was not allocated to discontinued operations.

18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following tables present summarized unaudited quarterly results of operations for fiscal years 2005 and 2004. The Company believes all necessary adjustments have been included in the amounts stated below to present fairly the following selected information when read in conjunction with the consolidated financial statements of the Company. Future quarterly operating results may fluctuate depending on a number of factors, including the timing of business acquisitions and changes in customer’s buying patterns of supplies, equipment, and pharmaceuticals. Results of operations for any particular quarter are not necessarily indicative of results of operations for a full year or any other quarter.

F-36

The quarterly results of operations fluctuate depending on the number of selling days in each quarter. The following table compares the number of selling days included in the first, second, third, and fourth quarters of fiscal years 2005 and 2004.

	Fiscal Years
	2005	2004
First quarter	62	65
Second quarter	65	67
Third quarter	61	60
Fourth quarter	65	66
Total	253	258

The quarterly results of operations during fiscal year 2005 also fluctuated as a result of the reduction to the provision for income taxes of approximately $5,558 recorded during the three months ended December 31, 2004. (Refer to Note 11, Income Taxes, for a further discussion). In addition, during the three months ended April 1, 2005, the Company record a $2,600 gain, offset by approximately $651 of legal and professional fees and expenses incurred during this same period, as a result of a lawsuit that was settled. (Refer to Note 16, Commitments and Contingencies, for a further discussion).

As discussed in Note 2, Summary of Significant Accounting Policies, management revised the estimates used to establish the allowance for doubtful accounts for the Elder Care Business during the three months ended December 31, 2003. This represented a change in accounting estimate in accordance with APB 20. The impact of reducing the reserve percentages was approximately $1.0 million, net of an income tax benefit, or $0.015 basic and diluted earnings per share for the three months ended December 31, 2003.

	Fiscal Year 2005
	Q1			Q2			Q3		Q4			Total
Net sales	$	330,361		$	364,267		$	377,842	$	401,299		$	1,473,769
Gross profit		95,776			105,322			109,167		113,090			423,355
Income from continuing operations		5,925			8,772			14,436		10,251			39,384
Total (loss) income from discontinued operations		(1,708	)		—			1,295		—			(412	)
Net income	$	4,217		$	8,772		$	15,731	$	10,251		$	38,972
Earnings per share – Basic:
Income from continuing operations	$	0.09		$	0.14		$	0.22	$	0.16		$	0.61
Total (loss) income from discontinued operations		(0.03	)		—			0.02		—			(0.01	)
Net income	$	0.06		$	0.14		$	0.24	$	0.16		$	0.60
Earnings per share – Diluted:
Income from continuing operations	$	0.09		$	0.13		$	0.22	$	0.16		$	0.60
Total (loss) income from discontinued operations		(0.03	)		—			0.02		—			(0.01	)
Net income	$	0.06		$	0.13		$	0.24	$	0.16		$	0.59
	Fiscal Year 2004
	Q1			Q2			Q3		Q4			Total
Net sales	$	308,780		$	346,059		$	343,662	$	351,416		$	1,349,917
Gross profit		87,884			98,073			96,993		102,407			385,357
Income from continuing operations		4,657			8,289			8,327		7,430			28,703
Total loss from discontinued operations		—			(324	)		—		(840	)		(1,164	)
Net income	$	4,657		$	7,965		$	8,327	$	6,590		$	27,539
Earnings per share – Basic:
Income from continuing operations	$	0.07		$	0.12		$	0.12	$	0.11		$	0.43
Total loss from discontinued operations		—			—			—		(0.01	)		(0.02	)
Net income	$	0.07		$	0.12		$	0.12	$	0.10		$	0.41
Earnings per share – Diluted:
Income from continuing operations	$	0.07		$	0.12		$	0.12	$	0.11		$	0.42
Total loss from discontinued operations		—			—			—		(0.01	)		(0.02	)
Net income	$	0.07		$	0.12		$	0.12	$	0.10		$	0.40

F-37

PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED APRIL 1, 2005, APRIL 2, 2004, AND MARCH 28, 2003

(Dollars in Thousands)

			Additions
Valuation Allowance for Accounts Receivable	Balance at Beginning of Period		Provision Charged to Expense			Transfers From (Dispositions)		Write-offs		Balance at End of Period
Fiscal year ended March 28, 2003	$	10,376	$	4,613		$	—	$	4,730	$	10,259
Fiscal year ended April 2, 2004		10,259		5,926			—		6,165		10,020
Fiscal year ended April 1, 2005	$	10,020	$	5,081		$	—	$	5,496	$	9,605
			Additions
Valuation Allowance for Notes Receivable	Balance at Beginning of Period		Provision Charged to Expense			Transfers From Acquisitions		Write-offs		Balance at End of Period
Fiscal year ended March 28, 2003	$	564	$	3,195		$	—	$	—	$	3,759
Fiscal year ended April 2, 2004		3,759		248			—		400		3,607
Fiscal year ended April 1, 2005	$	3,607	$	187		$	—	$	—	$	3,794
Valuation Allowance for Income Taxes	Balance at Beginning of Period		Provision Charged to Expense			Utilizations		Balance at End of Period
Fiscal year ended March 28, 2003	$	6,150	$	(170	)	$	—	$	5,980
Fiscal year ended April 2, 2004		5,980		—			428		5,552
Fiscal year ended April 1, 2005	$	5,552	$	(5,214	)	$	—	$	338
Gulf South Operational Tax Charge Reserve(a)	Balance at Beginning of Period		Reversed to General & Administrative Expenses			Utilizations		Balance at End of Period
Fiscal year ended March 28, 2003	$	1,936	$	380		$	53	$	1,503
Fiscal year ended April 2, 2004	$	1,503	$	1,503		$	—	$	—

(a) The Elder Care Business recorded charges totaling $9.5 million during fiscal years 1998, 1997, and 1996 primarily related to state and local, sales and use, and property taxes that were not charged to customers and remitted to taxing authorities on a timely basis. On a quarterly basis, management performed an analysis of the estimated remaining exposure and recorded adjustments to general and administrative expenses based on the expiration of various states statutes of limitations, the resolution of compliance audits, and current available information.

F-38

EX-10.11F

Exhibit 10.11f

SIXTH AMENDMENT

TO THE

PSS WORLD MEDICAL, INC.

SAVINGS PLAN

This Sixth Amendment to the PSS World Medical, Inc. Savings Plan is adopted by PSS World Medical, Inc. (the “Company”) effective as of March 28, 2005.

W I T N E S S E T H :

WHEREAS, the Company has previously adopted the PSS World Medical, Inc. Savings Plan (the “Plan”), which has been amended from time to time; and

WHEREAS, the Company is authorized and empowered to further amend the Plan; and

WHEREAS, the Company has determined that it advisable and in the best interests of the Participants to amend the Plan to address federally mandated automatic rollovers.

NOW, THEREFORE, Article IX of the Plan is hereby amended by adding the following new section 9.8 to the end thereof:

9.8 Automatic Rollovers. Effective March 28, 2005, in the event of a mandatory distribution greater than $1,000 in accordance with the provisions of section 9.1(b)(2), if the Participant does not elect to have such distribution paid directly to an eligible retirement plan specified by the Participant in a direct rollover or to receive the distribution directly in accordance with the provisions of this Article IX, then the Plan Administrator will pay the distribution in a direct rollover to an individual retirement plan designated by the Plan Administrator.

IN WITNESS WHEREOF, this Sixth Amendment has been executed and is effective as of the date set forth hereinabove.

PSS WORLD MEDICAL, INC.
By:	/s/ David D. Klarner
Its:	Vice President

EX-10.13

Exhibit 10.13

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and effective this 1st day of April, 1998 by and between PSS WORLD MEDICAL, INC., a Florida corporation (hereinafter, the “Company” which term shall include the Company’s other subsidiaries, affiliates and successors), and JEFFREY H. ANTHONY, (hereinafter, “Executive”).

BACKGROUND

The Company desires to engage Executive in Executive capacities set forth herein, in accordance with the terms and conditions of this Agreement. Executive is willing to serve as such in accordance with the terms and conditions of this Agreement.

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

1. Effective Date. This Agreement is effective as of April 1, 1998 (the “Effective Date”).

2. Employment. Executive is hereby employed on the Effective Date as the Senior Vice President & Chief Information Officer of the Company. Executive’s responsibilities under this Agreement shall be in accordance with the policies and objectives established by the President or the Board of Directors of the Company and shall be consistent with the responsibilities of similarly situated executives of comparable companies in similar lines of business.

3. Employment Period. Unless earlier terminated herein in accordance with Section 7 hereof, Executive’s employment shall be for a two-year term (the “Employment Period”), beginning on the Effective Date. The Employment Period shall, without further action by Executive or the Company, be extended by an additional one-year period on each anniversary of the Effective Date; provided, however, that either party may, by notice to the other, cause the Employment Period to cease to extend automatically. Upon such notice, the Employment Period shall terminate upon the expiration of the then-current term, including any prior extensions.

4. Extent of Service. During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive agrees to devote his business time, attention, skill and efforts exclusively to the faithful performance of his duties hereunder; provided, however, that it shall not be a violation of this Agreement for Executive to (i) devote reasonable periods of time to charitable

and community activities and, with the approval of the Company, industry or professional activities, and/or (ii) manage personal business interests and investments, so long as such activities do not materially interfere with the performance of Executive’s responsibilities under this Agreement.

5. Compensation and Benefits.

(a) Base Salary. During the Employment Period, the Company will pay to Executive a base salary as previously agreed (“Base Salary”), less normal withholdings, payable in equal monthly or more frequent installments as are customary under the Company’s payroll practices from time to time. The Compensation Committee of the Board of Directors of the Company shall review Executive’s Base Salary annually and in its sole discretion, subject to approval of the Board of Directors of the Company, may increase Executive’s Base Salary from year to year. The annual review of Executive’s salary by the Board will consider, among other things, Executive’s own performance and the Company’s performance.

(b) Incentive, Savings and Retirement Plans. During the Employment Period, Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to peer executives of the Company and its affiliated companies (“Peer Executives”), and on the same basis as such other similarly situated officers.

(c) Welfare Benefit Plans. During the Employment Period, Executive and Executive’s family shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to Peer Executives.

(d) Expenses. During the Employment Period, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in accordance with the policies, practices and procedures of the Company and its affiliated companies to the extent applicable generally to Peer Executives.

(e) Fringe Benefits. During the Employment Period, Executive shall be entitled to fringe benefits in accordance with the plans, practices, programs and policies of the Company and its affiliated companies in effect for Peer Executives.

6. Change of Control. Subject to the last sentence of this Section 6, for the purposes of this Agreement, a “Change of Control” shall mean:

(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning

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of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (ii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 6; or

(b) Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 80% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination.

Notwithstanding the above definition, a Change of Control will not be deemed to have occurred for purposes of this Agreement if, immediately after the event that otherwise

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would constitute a Change of Control, Patrick Kelly and a least a majority of the 12 next most highly compensated officers of the Company and its subsidiaries (as measured immediately prior to such transaction) shall have entered into employment agreements with by the Company, the resulting or surviving company, or its or their subsidiaries.

7. Termination of Employment.

(a) Death, Retirement or Disability. Executive’s employment shall terminate automatically upon Executive’s death or Retirement during the Employment Period. For purposes of this Agreement, “Retirement” shall mean normal retirement as defined in the Company’s then-current retirement plan, or there is no such retirement plan, “Retirement” shall mean voluntary termination after age 65 with ten years of service. If the Company determines in good faith that the Disability of Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to Executive written notice in accordance with Section 15(f) of this Agreement of its intention to terminate Executive’s employment. In such event, Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such written notice by Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties. For purposes of this Agreement, “Disability” shall mean a mental or physical disability as determined by the Board of Directors of the Company in accordance with standards and procedures similar to those under the Company’s employee long-term disability plan, if any. At any time that the Company does not maintain such a long-term disability plan, Disability shall mean the inability of Executive, as determined by the Board, to substantially perform the essential functions of his regular duties and responsibilities due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of six consecutive months.

(b) Termination by the Company. The Company may terminate Executive’s employment during the Employment Period with or without Cause. For purposes of this Agreement, “Cause” shall mean:

(i) the willful and continued failure of Executive to perform substantially Executive’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness, and specifically excluding any failure by Executive, after reasonable efforts, to meet performance expectations), after a written demand for substantial performance is delivered to Executive by the President or the Board of Directors of the Company which specifically identifies the manner in which such Board or the President believes that Executive has not substantially performed Executive’s duties, or

(ii) the willful engaging by Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or

(iii) Executive engages in any misconduct involving moral turpitude whether occurring in the performance of his duties or otherwise.

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For purposes of this provision, no act or failure to act, on the part of Executive, shall be considered “willful” unless it is done, or omitted to be done, by Executive in bad faith or without reasonable belief that Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company. The cessation of employment of Executive shall not be deemed to be for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board of the Company at a meeting of such Board called and held for such purpose (after reasonable notice is provided to Executive and Executive is given an opportunity, together with counsel, to be heard before such Board), finding that, in the good faith opinion of such Board, Executive is guilty of the conduct described in subparagraph (i), (ii) or (iii) above, and specifying the particulars thereof in detail.

(c) Termination by Executive. Executive’s employment may be terminated by Executive for Good Reason or no reason. For purposes of this Agreement, “Good Reason” shall mean:

(i) without the written consent of Executive, the assignment to Executive of any duties materially inconsistent with Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as in effect on the Effective Date, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by Executive;

(ii) a reduction by the Company in Executive’s Base Salary and benefits as in effect on the Effective Date or as the came may be increased from time to time, unless a similar reduction is made in salary and benefits of Peer Executives, or the failure by the Company to increase Executive’s Base Salary each year during the Employment Period by an amount which at least equals, on a percentage basis, the mean average percentage increase in base salary for Peer Executives, unless such failure to increase is based on nonarbitrary criteria applied to Executive and Peer Executives;

(iii) after the occurrence of a Change of Control, the Company’s requiring Executive to be based at any office or location other than in the greater Jacksonville, Florida metropolitan area or the Company’s requiring Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;

(iv) any failure by the Company to comply with and satisfy Section 14(b) of this Agreement; or

(v) any termination by Executive for any reason or no reason during the 30-day period beginning on the first anniversary of a Change of Control.

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(d) Notice of Termination. Any termination by the Company for Cause, or by Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 15(f) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company, respectively, hereunder or preclude Executive or the Company, respectively, from asserting such fact or circumstance in enforcing Executive’s or the Company’s rights hereunder.

(e) Date of Termination. “Date of Termination” means (i) if Executive’s employment is terminated by the Company for Cause, or by Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies Executive of such termination and (iii) if Executive’s employment is terminated by reason of death, Retirement or Disability, the Date of Termination shall be the date of death or Retirement of Executive or the Disability Effective Date, as the case may be.

8. Obligations of the Company upon Termination.

(a) Termination by Executive for Good Reason: Termination by the Company Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate Executive’s employment other than for Cause, death or Disability, or Executive shall terminate employment for Good Reason within a period of 30 days after the occurrence of the event giving rise to Good Reason, then in consideration of Executive’s services rendered prior to such termination and as reasonable compensation for his compliance with the Restrictive Covenants in Section 13 hereof:

(i) the Company shall pay to Executive in a lump sum in cash within 30 days after the Date of Termination or, with respect to the prorata bonus described in clause A(2) below, within 30 days after the determination of the bonus amount, the aggregate of the following amounts:

A. the sum of (1) Executive’s Base Salary through the Date of Termination to the extent not theretofore paid, (2) if the Date of Termination occurs after or in connection with the occurrence of a Change of Control, the product of (x) Executive’s annual bonus that would have been payable with respect to the fiscal year in which the Date of Termination occurs (determined at the end of such year based on actual performance results through the end of such year) and (y) a

- 6 -

fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the “Accrued Obligations”); and

B. the amount equal to six times Executive’s monthly Base Salary in effect as of the Date of Termination (the “Severance Payment”); provided, however, that if the Date of Termination occurs after or in connection with the occurrence of a Change of Control, the Severance Payment shall be the amount equal to two times Executive’s annual Base Salary in effect as of the Date of Termination; and

(ii) one year (12 months) after Executive’s Date of Termination (or two years in the event that the Date of Termination occurs after or in connection with the occurrence of a Change of Control), or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to Executive and/or Executive’s family at least equal to those which would have been provided to them in accordance with the welfare plans, programs, practices and policies described in Section 5(c) of this Agreement if Executive’s employment had not been terminated or, if more favorable to Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility (“Welfare Benefits”); and

(iii) the Company shall, within 30 days of receipt of reasonably documented invoices therefor, reimburse Executive’s actual cost (not to exceed $15,000) for outplacement expenses incurred within one year after the Date of Termination; and

(iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to Executive any other amounts or benefits required to be paid or provided or which Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).

(b) Death. If Executive’s employment is terminated by reason of Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)), the timely payment or provision of Other Benefits, and a lump sum amount equal to one and one-half (1.5) months’ salary, based on Executive’s Base Salary in effect as of the date of death. Accrued Obligations shall be paid to Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination.

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With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(b) shall include, without limitation, and Executive’s estate and/or beneficiaries shall be entitled to receive, benefits under such plans, programs, practices and policies relating to death benefits, if any, as applicable generally to Peer Executives and their beneficiaries, and on the same basis as Peer Executives and their beneficiaries.

(c) Disability. If Executive’s employment is terminated by reason of Executive’s Disability during the Employment Period, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)) and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(c) shall include, without limitation, and Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits under such plans, programs, practices and policies relating to disability, if any, as applicable generally to Peer Executives and their families, and on the same basis as Peer Executives and their families.

(d) Retirement. If Executive’s employment is terminated by reason of Executive’s Retirement during the Employment Period, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)) and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(d) shall include, without limitation, and Executive shall be entitled after the Date of Termination to receive, retirement and other benefits under such plans, programs, practices and policies relating to retirement, if any, as applicable generally to Peer Executives and their families, and on the same basis as Peer Executives and their families.

(e) Cause or Voluntary Termination without Good Reason. If Executive’s employment shall be terminated for Cause during the Employment Period, or if Executive voluntarily terminates employment during the Employment Period without Good Reason, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)), the continuation of Welfare Benefits for a period of 30 days after the Date of Termination, and the timely payment or provision of Other Benefits, payment of a lump sum amount equal to 30 days’ salary, based on Executive’s Base Salary in effect as of the Date of Termination.

9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which Executive may qualify, nor, subject to Section 15(d), shall anything herein limit or otherwise affect such rights as Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or

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agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.

10. Certain Additional Payments by the Company.

(a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any benefit, payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 10) (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then: Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 10(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that Executive, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to Executive resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the “Reduced Amount”) such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. The Executive may select the Payments to be limited or reduced.

(b) Subject to the provisions of Section 10(c), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company’s regular independent accounting firm at the expense of the Company or, at the election and expense of Executive, another nationally recognized independent accounting firm (the “Accounting Firm”) which shall provide detailed supporting calculations. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 10(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.

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(c) Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall:

(i) give the Company any information reasonably requested by the Company relating to such claim,

(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

(iii) cooperate with the Company in good faith in order effectively to contest such claim, and

(iv) permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation of the foregoing provisions of this Section 10(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to

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issues with respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(d) If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 10(c), Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Company’s complying with the requirements of Section 10(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto).

11. Costs of Enforcement. In any action taken in good faith relating to the enforcement of this Agreement or any provision herein after the occurrence of a Change of Control, Executive shall be entitled to be paid any and all costs and expenses incurred by him in enforcing or establishing his rights thereunder, including, without limitation, reasonable attorneys’ fees, whether suit be brought or not, and whether or not incurred in trial, bankruptcy or appellate proceedings. In all other circumstances, each party in any such action shall pay his or its own such costs and expenses.

12. Representations and Warranties. Executive hereby represents and warrants to the Company that Executive is not a party to, or otherwise subject to, any covenant not to compete (other than as contained herein) with any person or entity, and Executive’s execution of this Agreement and performance of his obligations hereunder will not violate the terms or conditions of any contract or obligation, written or oral, between Executive and any other person or entity.

13. Restrictions on Conduct of Executive.

(a) General. Executive and the Company understand and agree that the purpose of the provisions of this Section 13 is to protect legitimate business interests of the Company, as more fully described below, and is not intended to eliminate Executive’s post-employment competition with the Company per se, nor is it intended to impair or infringe upon Executive’s right to work, earn a living, or acquire and possess property from the fruits of his labor. Executive hereby acknowledges that the post-employment restrictions set forth in this Section 13 are reasonable and that they do not, and will not, unduly impair his ability to earn a living after the termination of this Agreement. Therefore, subject to the limitations of reasonableness imposed by law upon the restrictions set forth herein, Executive shall be subject to the restrictions set forth in this Section 13.

(b) Definitions. The following capitalized terms used in this Section 13 shall have the meanings assigned to them below, which definitions shall apply to both the singular and the plural forms of such terms:

“Competitive Services” means any services provided by Company at the Determination Date, including, but not limited to the marketing, sale and distribution of medical supplies, equipment and pharmaceuticals to primary care and other office-based physicians; the marketing, sale and distribution of medical diagnostic imaging supplies,

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chemicals, equipment and service to the acute care and alternate care market; and the provisions of special group purchasing contract pricing and periodic cost analyses to help manage the supply needs of individual physicians or practices.

“Confidential Information” means any confidential or proprietary information possessed by the Company or its affiliated entities or relating to its or their business, including without limitation, any confidential “know-how”, customer lists, details of client or consultant contracts, current and anticipated customer requirements, pricing policies price lists, market studies, business plans, operational methods, marketing plans or strategies, product development techniques or plans, computer software programs (including object code and source code), data and documentation, data base technologies, systems, structures and architectures, inventions and ideas, past, current and planned research and development, compilations, devices, methods, techniques, processes, financial information and data, business acquisition plans, new personnel acquisition plans and any other information that would constitute a Trade Secret (as defined herein).

“Determination Date” means the date of termination of Executive’s employment with the Company for any reason whatsoever or any earlier date (during the Employment Period) of an alleged breach of the Restrictive Covenants by Executive.

“Person” means any individual or any corporation, partnership, joint venture, association or other entity or enterprise.

“Principal or Representative” means a principal, owner, partner, shareholder, joint venturer, investor, member, trustee, director, officer, manager, employee, agent, representative or consultant.

“Protected Clients” means any Person to whom the Company provided services or submitted a written proposal therefor, within eighteen (18) months prior to the Determination Date.

“Protected Employees” means employees of the Company who were employed by the Company at any time within six (6) months prior to the Determination Date.

“Restricted Period” means the term of Executive’s employment hereunder and a period extending until eighteen (18) months from the Date of Termination; provided, however that such period shall be extended by any length of time during which Executive is in breach of the Restricted Covenants.

“Restrictive Covenants” means the restrictive covenants contained in Section 13(c) hereof.

“Trade Secret” means any item of Confidential Information that constitutes a “trade secret(s)” under the common law or statutory law of the State of Florida.

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(c) Restrictive Covenants.

(i) Restriction on Disclosure and Use of Confidential Information. Executive understands and agrees that the Confidential Information constitutes a valuable asset of the Company and its affiliated entities, and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that Executive shall not, directly or indirectly, at any time during the Restricted Period reveal, divulge, or disclose to any Person not expressly authorized by the Company any Confidential Information, and Executive shall not, directly or indirectly, at any time during the Restricted Period use or make use of any Confidential Information in connection with any business activity other than that of the Company; provided, however, in the event the Confidential Information constitutes a Trade Secret, the Restricted Period referred to above shall be five (5) years. Notwithstanding the above, this covenant shall expire (except with respect to Trade Secrets) upon the occurrence of a Change of Control.

(ii) Nonsolicitation of Protected Employees. Executive understands and agrees that the relationship between the Company and each of its Protected Employees constitutes a valuable asset of the Company and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that during the Restricted Period Executive shall not directly or indirectly on Executive’s own behalf or as a Principal or Representative of any Person or otherwise solicit or induce any Protected Employee to terminate his or her employment relationship with the Company or to enter into any relationship of employment, agency or independent contractorship with any other Person. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

(iii) Restriction on Relationships with Protected Clients. Executive understands and agrees that the relationship between the Company and each of its Protected Clients constitutes a valuable asset of the Company and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that during the Restricted Period Executive shall not, without the prior written consent of the Company, become a Principal or Representative of a Protected Client or otherwise provide services to a Protected Client as a consultant or independent contractor. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

(iv) Noncompetition with the Company. During the Restricted Period Executive, unless acting in accordance with the Company’s prior written consent, will not directly provide any Competitive Services to, and will not, directly or indirectly, (i) own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or (ii) be connected as a Principal or Representative or otherwise with, or (iii) permit Executive’s name to be used by or in connection with, any Person engaged in providing Competitive Services to any Person conducting business activities within the territory in which the Company is or was engaged in the provision of the Competitive Services on the Determination Date; provided, however, that the provisions of this Agreement shall not be deemed to prohibit the ownership by Executive of any securities of the Company or its affiliated entities or not more than five percent (5%) of any class of securities of any corporation having a class of securities registered pursuant to the Securities Exchange Act of 1934, as amended. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

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(d) Exceptions from Disclosure Restrictions. Anything herein to the contrary notwithstanding, Executive shall not be restricted from disclosing or using Confidential Information that: (a) is or becomes generally available to the public other than as a result of an unauthorized disclosure by Executive or his agent; (b) becomes available to Executive in a manner that is not in contravention of applicable law from a source (other than the Company or its affiliated entities or one of its or their officers, employees, agents or representatives) that is not bound by a confidential relationship with the Company or its affiliated entities or by a confidentiality or other similar agreement; (c) was known to Executive on a non-confidential basis and not in contravention of applicable law or a confidentiality or other similar agreement before its disclosure to Executive by the Company or its affiliated entities or one of its or their officers, employees, agents or representatives; or (d) is required to be disclosed by law, court order or other legal process; provided, however, that in the event disclosure is required by law, Executive shall provide the Company with prompt notice of such requirement so that the Company may seek an appropriate protective order prior to any such required disclosure by Executive.

(e) Enforcement of Restrictive Covenants.

(i) Rights and Remedies Upon Breach. In the event Executive breaches, or threatens to commit a breach of, any of the provisions of the Restrictive Covenants, the Company shall have the following rights and remedies, which shall be independent of any others and severally enforceable, and shall be in addition to, and not in lieu of, any other rights and remedies available to the Company at law or in equity:

A. the right and remedy to enjoin, preliminarily and permanently, Executive from violating or threatening to violate the Restrictive Covenants and to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company; and

B. the right and remedy to require Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Executive as the result of any transactions constituting a breach of the Restrictive Covenants.

(ii) Severability of Covenants. Executive acknowledges and agrees that the Restrictive Covenants are reasonable and valid in time and scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, are invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions.

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14. Assignment and Successors.

(a) Executive. This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal representatives.

(b) The Company. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor to all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “the Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.

15. Miscellaneous.

(a) Waiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this Agreement or of the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver.

(b) Severability. If any provision or covenant, or any part thereof, of this Agreement should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Agreement, all of which shall remain in full force and effect.

(c) Other Agents. Nothing in this Agreement is to be interpreted as limiting the Company from employing other personnel on such terms and conditions as may be satisfactory to it.

(d) Entire Agreement Except as provided herein, this Agreement contains the entire agreement between the Company and Executive with respect to the subject matter hereof, and it supersedes and invalidates any previous agreements or contracts between them which relate to the subject matter hereof, including without limitation that certain Contract of Employment, dated as of May 30, 1992, by and between Executive and the Company. No representations, inducements, promises or agreements, oral or otherwise, which are not embodied herein shall be of any force or effect.

(e) Governing Law. Except to the extent preempted by federal law, and without regard to conflict of laws principles, the laws of the State of Florida shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.

(f) Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly

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given if delivered or three days after mailing if mailed, first class, certified mail, postage prepaid:

To Company:	PSS World Medical, Inc. 4345 Southpoint Boulevard Jacksonville, Florida 32216 Facsimile No. (904) 332-3209 Attention: Patrick Kelly and Fred Elefant
To Executive:	Jeffrey H. Anthony

Any party may change the address to which notices, requests, demands and other communications shall be delivered or mailed by giving notice thereof to the other party in the same manner provided herein.

(g) Amendments and Modifications. This Agreement may be amended or modified only by a writing signed by both parties hereto, which makes specific reference to this Agreement; provided, however, that if, in the opinion of the Corporation’s accountants, any provision of this Agreement would preclude the use of “pooling of interest” accounting treatment for a Change of Control transaction that (1) would otherwise qualify for such accounting treatment, and (2) is contingent upon qualifying for such accounting treatment, then Executive and the Company agree to negotiate in good faith to amend this Agreement so that it will not preclude the use of “pooling of interest” accounting treatment for such Change of Control transaction.

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Employment Agreement as of the date first above written.

PSS WORLD MEDICAL, INC.
By:	/s/ Patrick C. Kelly
	Patrick C. Kelly
	Chairman of the Board and CEO
EXECUTIVE
	/s/ Jeffrey Anthony

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EX-10.13A

Exhibit 10.13a

AMENDMENT to LEVEL 3

EMPLOYMENT AGREEMENT

THIS AMENDMENT (the “Amendment”), effective as of April 17, 2000, by and between PSS World Medical, Inc., a Florida corporation (the “Company”), and the officer of the Company whose signature appears below (“Executive”), amends that certain Employment Agreement, dated as of the date indicated below, by and between the Company and Executive, as heretofore amended (the “Employment Agreement”).

In consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows:

1. Section 3 of the Employment Agreement is hereby amended by adding the following sentence at the end thereof:

“Notwithstanding the foregoing, if a Change of Control occurs the Employment Period shall be automatically extended through the later of (i) the second anniversary of the Change of Control, or (ii) the normal expiration of the then-current term, including any prior extensions.”

2. Section 6 of the Employment Agreement is hereby amended by deleting in its entirety the definition of Change of Control and substituting therefor the following:

A “Change of Control” shall mean:

(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (ii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this definition; or

(b) Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent

Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 80% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of the combined voting power of the then outstanding voting securities of such corporation resulting from such Business Combination except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(d) If Executive’s employment responsibilities are primarily with Diagnostic Imaging, Inc., a disposition by the Company of a majority of the stock or substantially all of the assets of Diagnostic Imaging, Inc.; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of Diagnostic Imaging, Inc., then a Change of Control shall not be deemed to have occurred by virtue of this subsection (d); or

(e) If Executive’s employment responsibilities are primarily with Gulf South Medical Supply, Inc., a disposition by the Company of a majority of the stock or substantially all of the assets of Gulf South Medical Supply, Inc.; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of Gulf South Medical Supply, Inc., then a Change of Control shall not be deemed to have occurred by virtue of this subsection (e); or

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(f) If Executive’s employment responsibilities are primarily with the Physician Sales & Service division of the Company, a disposition by the Company of substantially all of the assets of such division; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of the Physician Sales & Service division, then a Change of Control shall not be deemed to have occurred by virtue of this subsection (f).

3. Notwithstanding the foregoing, if, in the opinion of the Company’s accountants, the foregoing amendments (or any portion thereof) would preclude the use of “pooling of interest” accounting treatment for a Change of Control transaction that (a) would otherwise qualify for such accounting treatment, and (b) is contingent upon qualifying for such accounting treatment, then such amendments (to the extent so determined to preclude such pooling of interests accounting treatment) will not be effective and the terms of the Employment Agreement will remain in effect as if such amendments (or portion thereof) had not been proposed.

4. As amended hereby, the Employment Agreement, as heretofore amended, shall be and remain in full force and effect.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.

PSS WORLD MEDICAL, INC.
By:	/s/ Patrick C. Kelly
	Patrick C. Kelly
	Chairman of the Board and CEO

By:	/s/ David A. Smith
	David A. Smith
	Executive Vice President and CFO

EXECUTIVE
	/s/ Jeffrey Anthony
	Date of original Employment Agreement: 4/1/98

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EX-10.16

Exhibit 10.16

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and effective this 1st day of April, 1998 by and between PSS WORLD MEDICAL, INC., a Florida corporation (hereinafter, the “Company” which term shall include the Company’s other subsidiaries, affiliates and successors), and EDWARD D. DIENES, (hereinafter, “Executive”).

BACKGROUND

The Company desires to engage Executive in Executive capacities set forth herein, in accordance with the terms and conditions of this Agreement. Executive is willing to serve as such in accordance with the terms and conditions of this Agreement.

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

1. Effective Date. This Agreement is effective as of April 1, 1998 (the “Effective Date”).

2. Employment. Executive is hereby employed on the Effective Date as the Senior Vice President Central Region of the Company. Executive’s responsibilities under this Agreement shall be in accordance with the policies and objectives established by the President or the Board of Directors of the Company and shall be consistent with the responsibilities of similarly situated executives of comparable companies in similar lines of business.

3. Employment Period. Unless earlier terminated herein in accordance with Section 7 hereof, Executive’s employment shall be for a two-year term (the “Employment Period”), beginning on the Effective Date. The Employment Period shall, without further action by Executive or the Company, be extended by an additional one-year period on each anniversary of the Effective Date; provided, however, that either party may, by notice to the other, cause the Employment Period to cease to extend automatically. Upon such notice, the Employment Period shall terminate upon the expiration of the then-current term, including any prior extensions.

4. Extent of Service. During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive agrees to

devote his business time, attention, skill and efforts exclusively to the faithful performance of his duties hereunder; provided, however, that it shall not be a violation of this Agreement for Executive to (i) devote reasonable periods of time to charitable and community activities and, with the approval of the Company, industry or professional activities, and/or (ii) manage personal business interests and investments, so long as such activities do not materially interfere with the performance of Executive’s responsibilities under this Agreement.

5. Compensation and Benefits.

(a) Base Salary. During the Employment Period, the Company will pay to Executive a base salary as previously agreed (“Base Salary”), less normal withholdings, payable in equal monthly or more frequent installments as are customary under the Company’s payroll practices from time to time. The Compensation Committee of the Board of Directors of the Company shall review Executive’s Base Salary annually and in its sole discretion, subject to approval of the Board of Directors of the Company, may increase Executive’s Base Salary from year to year. The annual review of Executive’s salary by the Board will consider, among other things, Executive’s own performance and the Company’s performance.

(b) Incentive, Savings and Retirement Plans. During the Employment Period, Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to peer executives of the Company and its affiliated companies (“Peer Executives”), and on the same basis as such other similarly situated officers.

(c) Welfare Benefit Plans. During the Employment Period, Executive and Executive’s family shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to Peer Executives.

(d) Expenses. During the Employment Period, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in accordance with the policies, practices and procedures of the Company and its affiliated companies to the extent applicable generally to Peer Executives.

(e) Fringe Benefits. During the Employment Period, Executive shall be entitled to fringe benefits in accordance with the plans, practices, programs and policies of the Company and its affiliated companies in effect for Peer Executives.

6. Change of Control. Subject to the last sentence of this Section 6, for the purposes of this Agreement, a “Change of Control” shall mean:

(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the

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“Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the combined voting power of the then outstanding voting securities of the Company ‘entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (ii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 6; or

(b) Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 80% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination.

Notwithstanding the above definition, a Change of Control will not be deemed to have occurred for purposes of this Agreement if, immediately after the event that otherwise would constitute a Change of Control, Patrick Kelly and a least a majority of the 12 next most highly

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compensated officers of the Company and its subsidiaries (as measured immediately prior to such transaction) shall have entered into employment agreements with by the Company, the resulting or surviving company, or its or their subsidiaries.

7. Termination of Employment.

(a) Death, Retirement or Disability. Executive’s employment shall terminate automatically upon Executive’s death or Retirement during the Employment Period. For purposes of this Agreement, “Retirement” shall mean normal retirement as defined in the Company’s then-current retirement plan, or there is no such retirement plan, “Retirement” shall mean voluntary termination after age 65 with ten years of service. If the Company determines in good faith that the Disability of Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to Executive written notice in accordance with Section 15(f) of this Agreement of its intention to terminate Executive’s employment. In such event, Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such written notice by Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties. For purposes of this Agreement, “Disability” shall mean a mental or physical disability as determined by the Board of Directors of the Company in accordance with standards and procedures similar to those under the Company’s employee long-term disability plan, if any. At any time that the Company does not maintain such a long-term disability plan, Disability shall mean the inability of Executive, as determined by the Board, to substantially perform the essential functions of his regular duties and responsibilities due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of six consecutive months.

(b) Termination by the Company. The Company may terminate Executive’s employment during the Employment Period with or without Cause. For purposes of this Agreement, “Cause” shall mean:

(i) the willful and continued failure of Executive to perform substantially Executive’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness, and specifically excluding any failure by Executive, after reasonable efforts, to meet performance expectations), after a written demand for substantial performance is delivered to Executive by the President or the Board of Directors of the Company which specifically identifies the manner in which such Board or the President believes that Executive has not substantially performed Executive’s duties, or

(ii) the willful engaging by Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or

(iii) Executive engages in any misconduct involving moral turpitude whether occurring in the performance of his duties or otherwise.

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For purposes of this provision, no act or failure to act, on the part of Executive, shall be considered “willful” unless it is done, or omitted to be done, by Executive in bad faith or without reasonable belief that Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company. The cessation of employment of Executive shall not be deemed to be for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board of the Company at a meeting of such Board called and held for such purpose (after reasonable notice is provided to Executive and Executive is given an opportunity, together with counsel, to be heard before such Board), finding that, in the good faith opinion of such Board, Executive is guilty of the conduct described in subparagraph (i), (ii) or (iii) above, and specifying the particulars thereof in detail.

(c) Termination by Executive. Executive’s employment may be terminated by Executive for Good Reason or no reason. For purposes of this Agreement, “Good Reason” shall mean:

(i) without the written consent of Executive, the assignment to Executive of any duties materially inconsistent with Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as in effect on the Effective Date, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose .an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by Executive;

(ii) a reduction by the Company in Executive’s Base Salary and benefits as in effect on the Effective Date or as the came may be increased from time to time, unless a similar reduction is made in salary and benefits of Peer Executives, or the failure by the Company to increase Executive’s Base Salary each year during the Employment Period by an amount which at least equals, on a percentage basis, the mean average percentage increase in base salary for Peer Executives, unless such failure to increase is based on nonarbitrary criteria applied to Executive and Peer Executives;

(iii) after the occurrence of a Change of Control, the Company’s requiring Executive to be based at any office or location other than in the greater Jacksonville, Florida metropolitan area or the Company’s requiring Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;

(iv) any failure by the Company to comply with and satisfy Section 14(b) of this Agreement; or

(v) any termination by Executive for any reason or no reason during the 30-day period beginning on the first anniversary of a Change of Control.

(d) Notice of Termination. Any termination by the Company for Cause, or by Executive for Good Reason, shall be communicated by Notice of Termination to the other

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party hereto given in accordance with Section 15(f) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company, respectively, hereunder or preclude Executive or the Company, respectively, from asserting such fact or circumstance in enforcing Executive’s or the Company’s rights hereunder.

(e) Date of Termination. “Date of Termination” means (i) if Executive’s employment is terminated by the Company for Cause, or by Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies Executive of such termination and (iii) if Executive’s employment is terminated by reason of death, Retirement or Disability, the Date of Termination shall be the date of death or Retirement of Executive or the Disability Effective Date, as the case may be.

8. Obligations of the Company upon Termination.

(a) Termination by Executive for Good Reason: Termination by the Company Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate Executive’s employment other than for Cause, death or Disability, or Executive shall terminate employment for Good Reason within a period of 30 days after the occurrence of the event giving rise to Good Reason, then in consideration of Executive’s services rendered prior to such termination and as reasonable compensation for his compliance with the Restrictive Covenants in Section 13 hereof:

(i) the Company shall pay to Executive in a lump sum in cash within 30 days after the Date of Termination or, with respect to the prorata bonus described in clause A(2) below, within 30 days after the determination of the bonus amount, the aggregate of the following amounts:

A. the sum of (1) Executive’s Base Salary through the Date of Termination to the extent not theretofore paid, (2) if the Date of Termination occurs after or in connection with the occurrence of a Change of Control, the product of (x) Executive’s annual bonus that would have been payable with respect to the fiscal year in which the Date of Termination occurs (determined at the end of such year based on actual performance results through the end of such year) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid

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(the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the “Accrued Obligations”); and

B. the amount equal to six times Executive’s monthly Base Salary in effect as of the Date of Termination (the “Severance Payment”); provided, however, that if the Date of Termination occurs after or in connection with the occurrence of a Change of Control, the Severance Payment shall be the amount equal to two times Executive’s annual Base Salary in effect as of the Date of Termination; and

(ii) for six months after Executive’s Date of Termination (or two years in the event that the Date of Termination occurs after or in connection with the occurrence of a Change of Control), or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to Executive and/or Executive’s family at least equal to those which would have been provided to them in accordance with the welfare plans, programs, practices and policies described in Section 5(c) of this Agreement if Executive’s employment had not been terminated or, if more favorable to Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility (“Welfare Benefits”); and

(iii) the Company shall, within 30 days of receipt of reasonably documented invoices therefor, reimburse Executive’s actual cost (not to exceed $15,000) for outplacement expenses incurred within one year after the Date of Termination; and

(iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to Executive any other amounts or benefits required to be paid or provided or which Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).

(b) Death. If Executive’s employment is terminated by reason of Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)), the timely payment or provision of Other Benefits, and a lump sum amount equal to one and one-half (1.5) months’ salary, based on Executive’s Base Salary in effect as of the date of death. Accrued Obligations shall be paid to Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(b) shall include, without limitation, and Executive’s estate and/or beneficiaries shall be entitled to receive, benefits under such plans, programs, practices and policies relating to death benefits, if any, as applicable generally to Peer Executives and their beneficiaries, and on the same basis as Peer Executives and their beneficiaries.

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(c) Disability. If Executive’s employment is terminated by reason of Executive’s Disability during the Employment Period, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)) and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(c) shall include, without limitation, and Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits under such plans, programs, practices and policies relating to disability, if any, as applicable generally to Peer Executives and their families, and on the same basis as Peer Executives and their families.

(d) Retirement. If Executive’s employment is terminated by reason of Executive’s Retirement during the Employment Period, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)) and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(d) shall include, without limitation, and Executive shall be entitled after the Date of Termination to receive, retirement and other benefits under such plans, programs, practices and policies relating to retirement, if any, as applicable generally to Peer Executives and their families, and on the same basis as Peer Executives and their families.

(e) Cause or Voluntary Termination without Good Reason. If Executive’s employment shall be terminated for Cause during the Employment Period, or if Executive voluntarily terminates employment during the Employment Period without Good Reason, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)), the continuation of Welfare Benefits for a period of 30 days after the Date of Termination, and the timely payment or provision of Other Benefits, payment of a lump sum amount equal to 30 days’ salary, based on Executive’s Base Salary in effect as of the Date of Termination.

9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which Executive may qualify, nor, subject to Section 15(d), shall anything herein limit or otherwise affect such rights as Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.

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10. Certain Additional Payments by the Company.

(a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any benefit, payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 10) (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then: Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 10(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that Executive, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to Executive resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the “Reduced Amount”) such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. The Executive may select the Payments to be limited or reduced.

(b) Subject to the provisions of Section 10(c), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company’s regular independent accounting firm at the expense of the Company or, at the election and expense of Executive, another nationally recognized independent accounting firm (the “Accounting Firm”) which shall provide detailed supporting calculations. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 10(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.

(c) Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up

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Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall:

(i) give the Company any information reasonably requested by the Company relating to such claim,

(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

(iii) cooperate with the Company in good faith in order effectively to contest such claim, and

(iv) permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation of the foregoing provisions of this Section 10(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

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(d) If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 10(c), Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Company’s complying with the requirements of Section 10(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto).

11. Costs of Enforcement. In any action taken in good faith relating to the enforcement of this Agreement or any provision herein after the occurrence of a Change of Control, Executive shall be entitled to be paid any and all costs and expenses incurred by him in enforcing or establishing his rights thereunder, including, without limitation, reasonable attorneys’ fees, whether suit be brought or not, and whether or not incurred in trial, bankruptcy or appellate proceedings. In all other circumstances, each party in any such action shall pay his or its own such costs and expenses.

12. Representations and Warranties. Executive hereby represents and warrants to the Company that Executive is not a party to, or otherwise subject to, any covenant not to compete (other than as contained herein) with any person or entity, and Executive’s execution of this Agreement and performance of his obligations hereunder will not violate the terms or conditions of any contract or obligation, written or oral, between Executive and any other person or entity.

13. Restrictions on Conduct of Executive.

(a) General. Executive and the Company understand and agree that the purpose of the provisions of this Section 13 is to protect legitimate business interests of the Company, as more fully described below, and is not intended to eliminate Executive’s post-employment competition with the Company per se, nor is it intended to impair or infringe upon Executive’s right to work, earn a living, or acquire and possess property from the fruits of his labor. Executive hereby acknowledges that the post-employment restrictions set forth in this Section 13 are reasonable and that they do not, and will not, unduly impair his ability to earn a living after the termination of this Agreement. Therefore, subject to the limitations of reasonableness imposed by law upon the restrictions set forth herein, Executive shall be subject to the restrictions set forth in this Section 13.

(b) Definitions. The following capitalized terms used in this Section 13 shall have the meanings assigned to them below, which definitions shall apply to both the singular and the plural forms of such terms:

“Competitive Services” means any services provided by Company at the Determination Date, including, but not limited to the marketing, sale and distribution of medical supplies, equipment and pharmaceuticals to primary care and other office-based physicians; the marketing, sale and distribution of medical diagnostic imaging supplies, chemicals, equipment and service to the acute care and alternate care market; and the provisions of special group purchasing contract pricing and periodic cost analyses to help manage the supply needs of individual physicians or practices.

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“Confidential Information” means any confidential or proprietary information possessed by the Company or its affiliated entities or relating to its or their business, including without limitation, any confidential “know-how”, customer lists, details of client or consultant contracts, current and anticipated customer requirements, pricing policies price lists, market studies, business plans, operational methods, marketing plans or strategies, product development techniques or plans, computer software programs (including object code and source code), data and documentation, data base technologies, systems, structures and architectures, inventions and ideas, past, current and planned research and development, compilations, devices, methods, techniques, processes, financial information and data, business acquisition plans, new personnel acquisition plans and any other information that would constitute a Trade Secret (as defined herein).

“Determination Date” means the date of termination of Executive’s employment with the Company for any reason whatsoever or any earlier date (during the Employment Period) of an alleged breach of the Restrictive Covenants by Executive.

“Person” means any individual or any corporation, partnership, joint venture, association or other entity or enterprise.

‘Principal or Representative” means a principal, owner, partner, shareholder, joint venturer, investor, member, trustee, director, officer, manager, employee, agent, representative or consultant.

“Protected Clients” means any Person to whom the Company provided services or submitted a written proposal therefor, within eighteen (18) months prior to the Determination Date.

“Protected Employees” means employees of the Company who were employed by the Company at any time within six (6) months prior to the Determination Date.

“Restricted Period” means the term of Executive’s employment hereunder and a period extending until eighteen (18) months from the Date of Termination; provided, however that such period shall be extended by any length of time during which Executive is in breach of the Restricted Covenants.

“Restrictive Covenants” means the restrictive covenants contained in Section 13(c) hereof.

‘Trade Secret” means any item of Confidential Information that constitutes a “trade secret(s)” under the common law or statutory law of the State of Florida.

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(c) Restrictive Covenants.

(i) Restriction on Disclosure and Use of Confidential Information. Executive understands and agrees that the Confidential Information constitutes a valuable asset of the Company and its affiliated entities, and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that Executive shall not, directly or indirectly, at any time during the Restricted Period reveal, divulge, or disclose to any Person not expressly authorized by the Company any Confidential Information, and Executive shall not, directly or indirectly, at any time during the Restricted Period use or make use of any Confidential Information in connection with any business activity other than that of the Company; provided, however, in the event the Confidential Information constitutes a Trade Secret, the Restricted Period referred to above shall be five (5) years. Notwithstanding the above, this covenant shall expire (except with respect to Trade Secrets) upon the occurrence of a Change of Control.

(ii) Nonsolicitation of Protected Employees. Executive understands and agrees that the relationship between the Company and each of its Protected Employees constitutes a valuable asset of the Company and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that during the Restricted Period Executive shall not directly or indirectly on Executive’s own behalf or as a Principal or Representative of any Person or otherwise solicit or induce any Protected Employee to terminate his or her employment relationship with the Company or to enter into any relationship of employment, agency or independent contractorship with any other Person. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

(iii) Restriction on Relationships with Protected Clients. Executive understands and agrees that the relationship between the Company and each of its Protected Clients constitutes a valuable asset of the Company and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that during the Restricted Period Executive shall not, without the prior written consent of the Company, become a Principal or Representative of a Protected Client or otherwise provide services to a Protected Client as a consultant or independent contractor. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

(iv) Noncompetition with the Company. During the Restricted Period Executive, unless acting in accordance with the Company’s prior written consent, will not directly provide any Competitive Services to, and will not, directly or indirectly, (i) own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or (ii) be connected as a Principal or Representative or otherwise with, or (iii) permit Executive’s name to be used by or in connection with, any Person engaged in providing Competitive Services to any Person conducting business activities within the territory in which the Company is or was engaged in the provision of the Competitive Services on the Determination Date; provided, however, that the provisions of this Agreement shall not be deemed to prohibit the ownership by Executive of any securities of the Company or its affiliated entities or not more than five percent (5%) of any class of securities of any corporation having a class of securities registered pursuant to the Securities Exchange Act of 1934, as amended. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

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(d) Exceptions from Disclosure Restrictions. Anything herein to the contrary notwithstanding, Executive shall not be restricted from disclosing or using Confidential Information that: (a) is or becomes generally available to the public other than as a result of an unauthorized disclosure by Executive or his agent; (b) becomes available to Executive in a manner that is not in contravention of applicable law from a source (other than the Company or its affiliated entities or one of its or their officers, employees, agents or representatives) that is not bound by a confidential relationship with the Company or its affiliated entities or by a confidentiality or other similar agreement; (c) was known to Executive on a non-confidential basis and not in contravention of applicable law or a confidentiality or other similar agreement before its disclosure to Executive by the Company or its affiliated entities or one of its or their officers, employees, agents or representatives; or (d) is required to be disclosed by law, court order or other legal process; provided, however, that in the event disclosure is required by law, Executive shall provide the Company with prompt notice of such requirement so that the Company may seek an appropriate protective order prior to any such required disclosure by Executive.

(e) Enforcement of Restrictive Covenants.

(i) Rights and Remedies Upon Breach. In the event Executive breaches, or threatens to commit a breach of, any of the provisions of the Restrictive Covenants, the Company shall have the following rights and remedies, which shall be independent of any others and severally enforceable, and shall be in addition to, and not in lieu of, any other rights and remedies available to the Company at law or in equity:

A. the right and remedy to enjoin, preliminarily and permanently, Executive from violating or threatening to violate the Restrictive Covenants and to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company; and

B. the right and remedy to require Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Executive as the result of any transactions constituting a breach of the Restrictive Covenants.

(ii) Severability of Covenants. Executive acknowledges and agrees that the Restrictive Covenants are reasonable and valid in time and scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, are invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions.

14. Assignment and Successors.

(a) Executive. This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal representatives.

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(b) The Company. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor to all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “the Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.

15. Miscellaneous.

(a) Waiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this Agreement or of the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver.

(b) Severability. If any provision or covenant, or any part thereof, of this Agreement should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Agreement, all of which shall remain in full force and effect.

(c) Other Agents. Nothing in this Agreement is to be interpreted as limiting the Company from employing other personnel on such terms and conditions as may be satisfactory to it.

(d) Entire Agreement. Except as provided herein, this Agreement contains the entire agreement between the Company and Executive with respect to the subject matter hereof, and it supersedes and invalidates any previous agreements or contracts between them which relate to the subject matter hereof, including without limitation that certain Contract of Employment, dated as of May 30, 1992, by and between Executive and the Company. No representations, inducements, promises or agreements, oral or otherwise, which are not embodied herein shall be of any force or effect.

(e) Governing Law. Except to the extent preempted by federal law, and without regard to conflict of laws principles, the laws of the State of Florida shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.

(f) Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered or three days after mailing if mailed, first class, certified mail, postage prepaid:

To Company:	PSS World Medical, Inc. 4345
	Southpoint Boulevard Jacksonville, Florida 32216 Facsimile No. (904) 332-3209 Attention: Patrick Kelly and Fred Elefant

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To Executive:	Edward D. Dienes
	115 Arlington Dr.
	Metairie, LA 70001

Any party may change the address to which notices, requests, demands and other communications shall be delivered or mailed by giving notice thereof to the other party in the same manner provided herein.

(g) Amendments and Modifications. This Agreement may be amended or modified only by a writing signed by both parties hereto, which makes specific reference to this Agreement; provided, however, that if, in the opinion of the Corporation’s accountants, any provision of this Agreement would preclude the use of “pooling of interest” accounting treatment for a Change of Control transaction that (1) would otherwise qualify for such accounting treatment, and (2) is contingent upon qualifying for such accounting treatment, then Executive and the Company agree to negotiate in good faith to amend this Agreement so that it will not preclude the use of-”pooling of interest” accounting treatment for such Change of Control transaction.

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Employment Agreement as of the date first above written.

PSS WORLD MEDICAL, INC.
By:	/s/ Patrick Kelly
	Patrick Kelly Chairman of the Board

EXECUTIVE:
By:	/s/ Edward Dienes
	EDWARD D. DIENES

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EX-10.16A

Exhibit 10.16a

AMENDMENT to LEVEL 3

EMPLOYMENT AGREEMENT

THIS AMENDMENT (the “Amendment”), effective as of April 17, 2000, by and between PSS World Medical, Inc., a Florida corporation (the “Company”), and the officer of the Company whose signature appears below (“Executive”), amends that certain Employment Agreement, dated as of the date indicated below, by and between the Company and Executive, as heretofore amended (the “Employment Agreement”).

In consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows:

1. Section 3 of the Employment Agreement is hereby amended by adding the following sentence at the end thereof:

“Notwithstanding the foregoing, if a Change of Control occurs the Employment Period shall be automatically extended through the later of (i) the second anniversary of the Change of Control, or (ii) the normal expiration of the then-current term, including any prior extensions.”

2. Section 6 of the Employment Agreement is hereby amended by deleting in its entirety the definition of Change of Control and substituting therefor the following:

A “Change of Control” shall mean:

(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (ii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this definition; or

(b) Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of

office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 80% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of the combined voting power of the then outstanding voting securities of such corporation resulting from such Business Combination except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(d) If Executive’s employment responsibilities are primarily with Diagnostic Imaging, Inc., a disposition by the Company of a majority of the stock or substantially all of the assets of Diagnostic Imaging, Inc.; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of Diagnostic Imaging, Inc., then a Change of Control shall not be deemed to have occurred by virtue of this subsection (d); or

(e) If Executive’s employment responsibilities are primarily with Gulf South Medical Supply, Inc., a disposition by the Company of a majority of the stock or substantially all of the assets of Gulf South Medical Supply, Inc.; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of Gulf South Medical Supply, Inc., then a Change of Control shall not be deemed to have occurred by virtue of this subsection (e); or

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(f) If Executive’s employment responsibilities are primarily with the Physician Sales & Service division of the Company, a disposition by the Company of substantially all of the assets of such division; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of the Physician Sales & Service division, then a Change of Control shall not be deemed to have occurred by virtue of this subsection (f).

3. Notwithstanding the foregoing, if, in the opinion of the Company’s accountants, the foregoing amendments (or any portion thereof) would preclude the use of “pooling of interest” accounting treatment for a Change of Control transaction that (a) would otherwise qualify for such accounting treatment, and (b) is contingent upon qualifying for such accounting treatment, then such amendments (to the extent so determined to preclude such pooling of interests accounting treatment) will not be effective and the terms of the Employment Agreement will remain in effect as if such amendments (or portion thereof) had not been proposed.

4. As amended hereby, the Employment Agreement, as heretofore amended, shall be and remain in full force and effect.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.

PSS WORLD MEDICAL, INC.
By:	/s/ Patrick C. Kelly
	Patrick C. Kelly
	Chairman of the Board and CEO

By:	/s/ David A. Smith
	David A. Smith
	Executive Vice President and CFO

EXECUTIVE

/s/ Edward D. Dienes

Date of original Employment Agreement: 8/8/88

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EX-10.16B

Exhibit 10.16b

AMENDMENT NO. 2 to

EMPLOYMENT AGREEMENT

THIS AMENDMENT NO. 2 (the “Amendment”), effective as of June 16, 2000, by and between PSS World Medical, Inc., a Florida corporation (the “Company”), and Edward D. Dienes (“Executive”), amends that certain Employment Agreement, dated as of April 1, 1998, by and between the Company and Executive, as heretofore amended (the “Employment Agreement”).

Executive is based in New Orleans, Louisiana. The parties desire to clarify his Employment Agreement to reflect this location as it affects the definition of “Good Reason” in the Employment Agreement.

Therefore, in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows:

1. Definition of Good Reason. The term “Good Reason” is defined in Section 7(c) of the Employment Agreement. Such definition is hereby amended by deleting clause (iii) thereof in its entirety and substituting therefor the following:

“(iii) after the occurrence of a Change of Control, the Company’s requiring Executive to be based at any office or location other than in the city in which he was based on the date of the Change in Control or the Company’s requiring Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;”

2. As amended hereby, the Employment Agreement, as heretofore amended, shall be and remain in full force and effect.

IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 as of the date first above written.

PSS WORLD MEDICAL, INC.
By:	/s/ Patrick Kelly
	Patrick C. Kelly
	Chairman of the Board and Chief Executive Officer

EXECUTIVE
	/s/ Edward Dienes
	Edward D. Dienes

EX-10.18

Level 3 Officer Exhibit 10.18

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into this 1st day of January, 2002 by and between PSS World Medical, Inc., a Florida corporation (hereinafter, the “Company” which term shall include the Company’s other subsidiaries, affiliates and successors), and Bradley J. Hilton (hereinafter, “Executive”).

BACKGROUND

The Company desires to engage Executive in Executive capacities set forth herein, in accordance with the terms and conditions of this Agreement. Executive is willing to serve as such in accordance with the terms and conditions of this Agreement.

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

1. Effective Date. This Agreement is effective as of January 1^st, 2002 (the “Effective Date”).

2. Employment. Executive is hereby employed on the Effective Date as the Senior Vice President of Operations of PSS. Executive’s responsibilities under this Agreement shall be in accordance with the policies and objectives established by the President or the Board of Directors of the Company and shall be consistent with the responsibilities of similarly situated executives of comparable companies in similar lines of business.

3. Employment Period. Unless earlier terminated herein in accordance with Section 7 hereof, Executive’s employment shall be for a two-year term (the “Employment Period”), beginning on the Effective Date. The Employment Period shall, without further action by Executive or the Company, be extended by an additional one-year period on each anniversary of the Effective Date; provided, however, that either party may, by notice to the other, cause the Employment Period to cease to extend automatically. Upon such notice, the Employment Period shall terminate upon the expiration of the then-current term, including any prior extensions. Notwithstanding the foregoing, if a Change of Control occurs the Employment Period shall be automatically extended through the later of (i) the second anniversary of the Change of Control, or (ii) the normal expiration of the then-current term, including any prior extensions.

4. Extent of Service. During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive agrees to devote his business time, attention, skill and efforts exclusively to the faithful performance of his duties hereunder; provided, however, that it shall not be a violation of performance of his duties hereunder; provided, however, that it shall not be a

violation of this Agreement for Executive to (i) devote reasonable periods of time to charitable and community activities and, with the approval of the Company, industry or professional activities, and/or (ii) manage personal business interests and investments, so long as such activities do not materially interfere with the performance of Executive’s responsibilities under this Agreement.

5. Compensation and Benefits.

(a) Base Salary. During the Employment Period, the Company will pay to Executive a base salary in an amount not less than that in effect for Executive on the Effective Date (“Base Salary”), less normal withholdings, payable in equal monthly or more frequent installments as are customary under the Company’s payroll practices from time to time. The Compensation Committee of the Board of Directors of the Company shall review Executive’s Base Salary annually and in its sole discretion, subject to approval of the Board of Directors of the Company, may increase Executive’s Base Salary from year to year. The annual review of Executive’s salary by the Board will consider, among other things, Executive’s own performance and the Company’s performance.

(b) Incentive, Savings and Retirement Plans. During the Employment Period, Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to peer executives of the Company and its affiliated companies (“Peer Executives”), and on the same basis as such Peer Executives.

(c) Welfare Benefit Plans. During the Employment Period, Executive and Executive’s family shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to Peer Executives.

(d) Expenses. During the Employment Period, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in accordance with the policies, practices and procedures of the Company and its affiliated companies to the extent applicable generally to Peer Executives.

(e) Fringe Benefits. During the Employment Period, Executive shall be entitled to fringe benefits in accordance with the plans, practices, programs and policies of the Company and its affiliated companies in effect for Peer Executives.

6. Change of Control. A “Change of Control” shall mean:

(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the

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“Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (ii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this definition; or

(b) Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 80% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of the combined voting power of the then outstanding voting securities of such corporation resulting from such Business Combination except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

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(d) If Executive’s employment responsibilities are primarily with Diagnostic Imaging, Inc., a disposition by the Company of a majority of the stock or substantially all of the assets of Diagnostic Imaging, Inc.; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of Diagnostic Imaging, Inc., then a Change of Control shall not be deemed to have occurred by virtue of this subsection (d); or

(e) If Executive’s employment responsibilities are primarily with Gulf South Medical Supply, Inc., a disposition by the Company of a majority of the stock or substantially all of the assets of Gulf South Medical Supply, Inc.; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of Gulf South Medical Supply, Inc., then a Change of Control shall not be deemed to have occurred by virtue of this subsection (e); or

(f) If Executive’s employment responsibilities are primarily with the Physician Sales & Service division of the Company, a disposition by the Company of substantially all of the assets of such division; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of the Physician Sales & Service division, then a Change of Control shall not be deemed to have occurred by virtue of this subsection (f).

7. Termination of Employment.

(a) Death, Retirement or Disability. Executive’s employment shall terminate automatically upon Executive’s death or Retirement during the Employment Period. For purposes of this Agreement, “Retirement” shall mean normal retirement as defined in the Company’s then-current retirement plan, or there is no such retirement plan, “Retirement” shall mean voluntary termination after age 65 with ten years of service. If the Company determines in good faith that the Disability of Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to Executive written notice in accordance with Section 15(f) of this Agreement of its intention to terminate Executive’s employment. In such event, Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such written notice by Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties. For purposes of this Agreement, “Disability” shall mean a mental or physical disability as determined by the Board of Directors of the Company in accordance with standards and procedures similar to those under the Company’s employee long-term disability plan, if any. At any time that the Company does not maintain such a long-term disability plan, Disability shall mean the inability of Executive, as determined by the Board, to perform the essential functions of his regular duties and responsibilities (with or without reasonable accommodation) due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of six consecutive months.

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(b) Termination by the Company. The Company may terminate Executive’s employment during the Employment Period with or without Cause. For purposes of this Agreement, “Cause” shall mean:

(i) the willful and continued failure of Executive to perform substantially Executive’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness, and specifically excluding any failure by Executive, after reasonable efforts, to meet performance expectations), after a written demand for substantial performance is delivered to Executive by the President or the Board of Directors of the Company which specifically identifies the manner in which such Board or the President believes that Executive has not substantially performed Executive’s duties, or

(ii) the willful engaging by Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or

(iii) Executive engages in any misconduct involving moral turpitude whether occurring in the performance of his duties or otherwise.

For purposes of this provision, no act or failure to act, on the part of Executive, shall be considered “willful” unless it is done, or omitted to be done, by Executive in bad faith or without reasonable belief that Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company. The cessation of employment of Executive shall not be deemed to be for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board of the Company at a meeting of such Board called and held for such purpose (after reasonable notice is provided to Executive and Executive is given an opportunity, together with counsel, to be heard before such Board), finding that, in the good faith opinion of such Board, Executive is guilty of the conduct described in subparagraph (i), (ii) or (iii) above, and specifying the particulars thereof in detail.

(c) Termination by Executive. Executive’s employment may be terminated by Executive for Good Reason or no reason. For purposes of this Agreement, “Good Reason” shall mean:

(i) without the written consent of Executive, the assignment to Executive of any duties materially inconsistent with Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as in effect on the Effective Date, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for

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this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by Executive;

(ii) a reduction by the Company in Executive’s Base Salary and benefits as in effect on the Effective Date or as the came may be increased from time to time, unless a similar reduction is made in salary and benefits of Peer Executives, or the failure by the Company to increase Executive’s Base Salary each year during the Employment Period by an amount which at least equals, on a percentage basis, the mean average percentage increase in base salary for Peer Executives, unless such failure to increase is based on nonarbitrary criteria applied to Executive and Peer Executives;

(iii) after the occurrence of a Change of Control, the Company’s requiring Executive to be based at any office or location other than in the greater Jacksonville, Florida metropolitan area or the Company’s requiring Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;

(iv) any failure by the Company to comply with and satisfy Section 14(b) of this Agreement; or

(v) any termination by Executive for any reason or no reason during the 30-day period beginning on the first anniversary of a Change of Control.

(d) Notice of Termination. Any termination by the Company for Cause, or by Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 15(f) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company, respectively, hereunder or preclude Executive or the Company, respectively, from asserting such fact or circumstance in enforcing Executive’s or the Company’s rights hereunder.

(e) Date of Termination. “Date of Termination” means (i) if Executive’s employment is terminated by the Company for Cause, or by Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies Executive of such termination and (iii) if Executive’s

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employment is terminated by reason of death, Retirement or Disability, the Date of Termination shall be the date of death or Retirement of Executive or the Disability Effective Date, as the case may be.

8. Obligations of the Company upon Termination.

(a) Termination by Executive for Good Reason; Termination by the Company Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate Executive’s employment other than for Cause, death or Disability, or Executive shall terminate employment for Good Reason within a period of 30 days after the occurrence of the event giving rise to Good Reason, then in consideration of Executive’s services rendered prior to such termination and as reasonable compensation for his compliance with the Restrictive Covenants in Section 13 hereof:

(i) the Company shall pay to Executive in a lump sum in cash within 30 days after the Date of Termination or, with respect to the prorata bonus described in clause A(2) below, within 30 days after the determination of the bonus amount, the aggregate of the following amounts:

A. the sum of (1) Executive’s Base Salary through the Date of Termination to the extent not theretofore paid, (2) if the Date of Termination occurs after or in connection with the occurrence of a Change of Control, the product of (x) Executive’s annual bonus that would have been payable with respect to the fiscal year in which the Date of Termination occurs (determined at the end of such year based on actual performance results through the end of such year) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the “Accrued Obligations”); and

B. the amount equal to twelve times Executive’s monthly Base Salary in effect as of the Date of Termination (the “Severance Payment”); provided, however, that if the Date of Termination occurs after or in connection with the occurrence of a Change of Control, the Severance Payment shall be the amount equal to two times Executive’s annual Base Salary in effect as of the Date of Termination; and

(ii) for twelve months after Executive’s Date of Termination (or two years in the event that the Date of Termination occurs after or in connection with the occurrence of a Change of Control), or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to Executive and/or Executive’s family at least equal to those which would have been provided to them in accordance with the welfare plans, programs, practices and

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policies described in Section 5(c) of this Agreement if Executive’s employment had not been terminated or, if more favorable to Executive, as in effect generally at any time thereafter with respect to Peer Executives and their families, provided, however, that if Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility (“Welfare Benefits”); and

(iii) the Company shall, within 30 days of receipt of reasonably documented invoices therefor, reimburse Executive’s actual cost (not to exceed $15,000) for outplacement expenses incurred within one year after the Date of Termination; and

(iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to Executive any other amounts or benefits required to be paid or provided or which Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).

(b) Death. If Executive’s employment is terminated by reason of Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)), the timely payment or provision of Other Benefits, and a lump sum amount equal to one and one half (1 V2 ) months’ salary, based on Executive’s Base Salary in effect as of the date of death. Accrued Obligations shall be paid to Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(b) shall include, without limitation, and Executive’s estate and/or beneficiaries shall be entitled to receive, benefits under such plans, programs, practices and policies relating to death benefits, if any, as applicable to Executive on the Date of Termination.

(c) Disability. If Executive’s employment is terminated by reason of Executive’s Disability during the Employment Period, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)) and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(c) shall include, without limitation, and Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits under such plans, programs, practices and policies relating to disability, if any, as applicable to Executive on the Date of Termination.

(d) Retirement. If Executive’s employment is terminated by reason of Executive’s Retirement during the Employment Period, this Agreement shall

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terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)) and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(d) shall include, without limitation, and Executive shall be entitled after the Date of Termination to receive, retirement and other benefits under such plans, programs, practices and policies relating to retirement, if any, as applicable to Executive on the Date of Termination.

(e) Cause or Voluntary Termination without Good Reason. If Executive’s employment shall be terminated for Cause during the Employment Period, or if Executive voluntarily terminates employment during the Employment Period without Good Reason, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)), the continuation of Welfare Benefits for a period of 30 days after the Date of Termination, payment of a lump sum amount equal to 30 days’ salary, based on Executive’s Base Salary in effect as of the Date of Termination, and the timely payment or provision of Other Benefits.

9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which Executive may qualify, nor, subject to Section 15(d), shall anything herein limit or otherwise affect such rights as Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.

10. Certain Additional Payments by the Company.

(a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any benefit, payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 10) (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then: Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by Executive of all taxes (including

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any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 10(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that Executive, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to Executive resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the “Reduced Amount”) such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. The Executive may select the Payments to be limited or reduced.

(b) Subject to the provisions of Section 10(c), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company’s regular independent accounting firm at the expense of the Company or, at the election and expense of Executive, another nationally recognized independent accounting firm (the “Accounting Firm”) which shall provide detailed supporting calculations. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder; it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 10(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.

(c) Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall:

(i) give the Company any information reasonably requested by the Company relating to such claim,

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(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

(iii) cooperate with the Company in good faith in order effectively to contest such claim, and

(iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation of the foregoing provisions of this Section 10(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(d) If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 10(c), Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Company’s complying with the requirements of Section 10(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto).

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11. Costs of Enforcement. In any action taken in good faith relating to the enforcement of this Agreement or any provision herein after the occurrence of a Change of Control, Executive shall be entitled to be paid any and all costs and expenses incurred by him in enforcing or establishing his rights thereunder, including, without limitation, reasonable attorneys’ fees, whether suit be brought or not, and whether or not incurred in trial, bankruptcy or appellate proceedings. In all other circumstances, each party in any such action shall pay his or its own such costs and expenses.

12. Representations and Warranties. Executive hereby represents and warrants to the Company that Executive is not a party to, or otherwise subject to, any covenant not to compete (other than as contained herein) with any person or entity, and Executive’s execution of this Agreement and performance of his obligations hereunder will not violate the terms or conditions of any contract or obligation, written or oral, between Executive and any other person or entity.

13. Restrictions on Conduct of Executive.

(a) General. Executive and the Company understand and agree that the purpose of the provisions of this Section 13 is to protect legitimate business interests of the Company, as more fully described below, and is not intended to eliminate Executive’s post-employment competition with the Company per se, nor is it intended to impair or infringe upon Executive’s right to work, earn a living, or acquire and possess property from the fruits of his labor. Executive hereby acknowledges that the post-employment restrictions set forth in this Section 13 are reasonable and that they do not, and will not, unduly impair his ability to earn a living after the termination of this Agreement. Therefore, subject to the limitations of reasonableness imposed by law upon the restrictions set forth herein, Executive shall be subject to the restrictions set forth in this Section 13.

(b) Definitions. The following capitalized terms used in this Section 13 shall have the meanings assigned to them below, which definitions shall apply to both the singular and the plural forms of such terms:

“Competitive Services” means any services provided by Company at the Determination Date, including, but not limited to the marketing, sale and distribution of medical supplies, equipment and pharmaceuticals to primary care and other office-based physicians; the marketing, sale and distribution of medical diagnostic imaging supplies, chemicals, equipment and service to the acute care and alternate care market; and the provisions of special group purchasing contract pricing and periodic cost analyses to help manage the supply needs of individual physicians or practices.

“Confidential Information” means any confidential or proprietary information possessed by the Company or its affiliated entities or relating to its or their business, including without limitation, any confidential “know-how”, customer lists,

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details of client or consultant contracts, current and anticipated customer requirements, pricing policies price lists, market studies, business plans, operational methods, marketing plans or strategies, product development techniques or plans, computer software programs (including object code and source code), data and documentation, data base technologies, systems, structures and architectures, inventions and ideas, past, current and planned research and development, compilations, devices, methods, techniques, processes, financial information and data, business acquisition plans, new personnel acquisition plans and any other information that would constitute a Trade Secret (as defined herein).

“Determination Date” means the date of termination of Executive’s employment with the Company for any reason whatsoever or any earlier date (during the Employment Period) of an alleged breach of the Restrictive Covenants by Executive.

“Person” means any individual or any corporation, partnership, joint venture, association or other entity or enterprise.

“Principal or Representative” means a principal, owner, partner, shareholder, joint venturer, investor, member, trustee, director, officer, manager, employee, agent, representative or consultant.

“Protected Clients” means any Person to whom the Company provided services or submitted a written proposal therefor, within eighteen (18) months prior to the Determination Date.

“Protected Employees” means employees of the Company who were employed by the Company at any time within six (6) months prior to the Determination Date.

“Restricted Period” means the term of Executive’s employment hereunder and a period extending until eighteen (18) months from the Date of Termination; provided, however that such period shall be extended by any length of time during which Executive is in breach of the Restricted Covenants.

“Restrictive Covenants” means the restrictive covenants contained in Section 13(c) hereof.

“Trade Secret” means any item of Confidential Information that constitutes a “trade secret(s)” under the common law or statutory law of the State of Florida.

(c) Restrictive Covenants.

(i) Restriction on Disclosure and Use of Confidential Information. Executive understands and agrees that the Confidential Information constitutes a valuable asset of the Company and its affiliated entities, and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that

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Executive shall not, directly or indirectly, at any time during the Restricted Period reveal, divulge, or disclose to any Person not expressly authorized by the Company any Confidential Information, and Executive shall not, directly or indirectly, at any time during the Restricted Period use or make use of any Confidential Information in connection with any business activity other than that of the Company; provided, however, in the event the Confidential Information constitutes a Trade Secret, the Restricted Period referred to above shall be five (5) years. Notwithstanding the above, this covenant shall expire (except with respect to Trade Secrets) upon the occurrence of a Change of Control.

(ii) Nonsolicitation of Protected Employees. Executive understands and agrees that the relationship between the Company and each of its Protected Employees constitutes a valuable asset of the Company and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that during the Restricted Period Executive shall not directly or indirectly on Executive’s own behalf or as a Principal or Representative of any Person or otherwise solicit or induce any Protected Employee to terminate his or her employment relationship with the Company or to enter into any relationship of employment, agency or independent contractorship with any other Person. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

(iii) Restriction on Relationships with Protected Clients. Executive understands and agrees that the relationship between the Company and each of its Protected Clients constitutes a valuable asset of the Company and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that during the Restricted Period Executive shall not, without the prior written consent of the Company, become a Principal or Representative of a Protected Client or otherwise provide services to a Protected Client as a consultant or independent contractor. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

(iv) Noncompetition with the Company. During the Restricted Period Executive, unless acting in accordance with the Company’s prior written consent, will not directly provide any Competitive Services to, and will not, directly or indirectly, (i) own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or (ii) be connected as a Principal or Representative or otherwise with, or (iii) permit Executive’s name to be used by or in connection with, any Person engaged in providing Competitive Services to any Person conducting business activities within the territory in which the Company is or was engaged in the provision of the Competitive Services on the Determination Date; provided, however, that the provisions of this Agreement shall not be deemed to prohibit the ownership by Executive of any securities of the Company or its affiliated entities or not more than five percent (5%) of any class of securities of any corporation having a class of securities registered pursuant to the Securities Exchange Act of 1934, as amended. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

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(d) Exceptions from Disclosure Restrictions. Anything herein to the contrary notwithstanding, Executive shall not be restricted from disclosing or using Confidential Information that: (a) is or becomes generally available to the public other than as a result of an unauthorized disclosure by Executive or his agent; (b) becomes available to Executive in a manner that is not in contravention of applicable law from a source (other than the Company or its affiliated entities or one of its or their officers, employees, agents or representatives) that is not bound by a confidential relationship with the Company or its affiliated entities or by a confidentiality or other similar agreement; (c) was known to Executive on a non-confidential basis and not in contravention of applicable law or a confidentiality or other similar agreement before its disclosure to Executive by the Company or its affiliated entities or one of its or their officers, employees, agents or representatives; or (d) is required to be disclosed by law, court order or other legal process; provided, however, that in the event disclosure is required by law, Executive shall provide the Company with prompt notice of such requirement so that the Company may seek an appropriate protective order prior to any such required disclosure by Executive.

(e) Enforcement of Restrictive Covenants.

(i) Rights and Remedies Upon Breach. In the event Executive breaches, or threatens to commit a breach of, any of the provisions of the Restrictive Covenants, the Company shall have the following rights and remedies, which shall be independent of any others and severally enforceable, and shall be in addition to, and not in lieu of, any other rights and remedies available to the Company at law or in equity:

A. the right and remedy to enjoin, preliminarily and permanently, Executive from violating or threatening to violate the Restrictive Covenants and to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company; and

B. the right and remedy to require Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Executive as the result of any transactions constituting a breach of the Restrictive Covenants.

(ii) Severability of Covenants. Executive acknowledges and agrees that the Restrictive Covenants are reasonable and valid in time and scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, are invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions.

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14. Assignment and Successors.

(a) Executive. This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal representatives.

(b) The Company. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor to all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “the Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.

15. Miscellaneous.

(a) Waiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this Agreement or of the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver.

(b) Severability. If any provision or covenant, or any part thereof, of this Agreement should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Agreement, all of which shall remain in full force and effect.

(c) Other Agents. Nothing in this Agreement is to be interpreted as limiting the Company from employing other personnel on such terms and conditions as may be satisfactory to it.

(d) Entire Agreement. Except as provided herein, this Agreement contains the entire agreement between the Company and Executive with respect to the subject matter hereof, and it supersedes and invalidates any previous agreements or contracts between them which relate to the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, which are not embodied herein shall be of any force or effect.

(e) Governing Law. Except to the extent preempted by federal law, and without regard to conflict of laws principles, the laws of the State of Florida shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.

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(f) Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered or three days after mailing if mailed, first class, certified mail, postage prepaid:

To Company:	PSS World Medical, Inc.
	4345 Southpoint Boulevard
	Jacksonville, Florida 32216
	Facsimile No. (904) 332-3209
	Attention: President
To Executive:	Bradley J. Hilton
	813 Mill Stream Road
	Ponte Vedra Beach, Fl. 32082

Any party may change the address to which notices, requests, demands and other communications shall be delivered or mailed by giving notice thereof to the other party in the same manner provided herein.

(g) Amendments and Modifications. This Agreement may be amended or modified only by a writing signed by both parties hereto, which makes specific reference to this Agreement; provided, however, that if, in the opinion of the Corporation’s accountants, any provision of this Agreement would preclude the use of “pooling of interest” accounting treatment for a Change of Control transaction that (1) would otherwise qualify for such accounting treatment, and (2) is contingent upon qualifying for such accounting treatment, then Executive and the Company agree to negotiate in good faith to amend this Agreement so that it will not preclude the use of “pooling of interest” accounting treatment for such Change of Control transaction.

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Employment Agreement as of the date first above written.

PSS WORLD MEDICAL, INC.
By:	/s/ David A. Smith
	David A. Smith President

EXECUTIVE:
	/s/ Bradley J. Hilton
	Bradley J. Hilton

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EX-10.19

Exhibit 10.19

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into this 1st day of April, 2001 by and between PSS World Medical, Inc., a Florida corporation (hereinafter, the “Company” which term shall include the Company’s other subsidiaries, affiliates and successors), and Mary M. Jennings (hereinafter, “Executive”).

BACKGROUND

The Company desires to engage Executive in Executive capacities set forth herein, in accordance with the terms and conditions of this Agreement. Executive is willing to serve as such in accordance with the terms and conditions of this Agreement.

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

1. Effective Date. This Agreement is effective as of April 1, 2001 (the “Effective Date”).

2. Employment. Executive is hereby employed on the Effective Date as the Vice President of Tax and Compliance of PSS World Medical, Inc. Executive’s responsibilities under this Agreement shall be in accordance with the policies and objectives established by the President or the Board of Directors of the Company and shall be consistent with the responsibilities of similarly situated executives of comparable companies in similar lines of business.

3. Employment Period. Unless earlier terminated herein in accordance with Section 7 hereof, Executive’s employment shall be for a one-year term (the “Employment Period”), beginning on the Effective Date. The Employment Period shall, without further action by Executive or the Company, be extended by an additional one-year period on each anniversary of the Effective Date; provided, however, that either party may, by notice to the other, cause the Employment Period to cease to extend automatically. Upon such notice, the Employment Period shall terminate upon the expiration of the then-current term, including any prior extensions. Notwithstanding the foregoing, if a Change of Control occurs the Employment Period shall be automatically extended through the later of (i) the first anniversary of the Change of Control, or (ii) the normal expiration of the then-current term, including any prior extensions.

4. Extent of Service. During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive agrees

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to devote his business time, attention, skill and efforts exclusively to the faithful performance of his duties hereunder; provided, however, that it shall not be a violation of this Agreement for Executive to (i) devote reasonable periods of time to charitable and community activities and, with the approval of the Company, industry or professional activities, and/or (ii) manage personal business interests and investments, so long as such activities do not materially interfere with the performance of Executive’s responsibilities under this Agreement.

5. Compensation and Benefits.

(a) Base Salary. During the Employment Period, the Company will pay to Executive a base salary in an amount not less than that in effect for Executive on the Effective Date (“Base Salary”), less normal withholdings, payable in equal monthly or more frequent installments as are customary under the Company’s payroll practices from time to time. The Compensation Committee of the Board of Directors of the Company shall review Executive’s Base Salary annually and in its sole discretion, subject to approval of the Board of Directors of the Company, may increase Executive’s Base Salary from year to year. The annual review of Executive’s salary by the Board will consider, among other things, Executive’s own performance and the Company’s performance.

(b) Incentive, Savings and Retirement Plans. During the Employment Period, Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to peer executives of the Company and its affiliated companies (“Peer Executives”), and on the same basis as such Peer Executives.

(c) Welfare Benefit Plans. During the Employment Period, Executive and Executive’s family shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to Peer Executives.

(d) Expenses. During the Employment Period, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in accordance with the policies, practices and procedures of the Company and its affiliated companies to the extent applicable generally to Peer Executives.

(e) Fringe Benefits. During the Employment Period, Executive shall be entitled to fringe benefits in accordance with the plans, practices, programs and policies of the Company and its affiliated companies in effect for Peer Executives.

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6. Change of Control. A “Change of Control” shall mean:

(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (ii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this definition; or

(b) Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 80% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of the combined voting power of the then outstanding voting securities of such corporation resulting from such Business Combination except to the extent

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that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(d) If Executive’s employment responsibilities are primarily with Diagnostic Imaging, Inc., a disposition by the Company of a majority of the stock or substantially all of the assets of Diagnostic Imaging, Inc.; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of Diagnostic Imaging, Inc., then a Change of Control shall not be deemed to have occurred by virtue of this subsection (d); or

(e) If Executive’s employment responsibilities are primarily with Gulf South Medical Supply, Inc., a disposition by the Company of a majority of the stock or substantially all of the assets of Gulf South Medical Supply, Inc.; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of Gulf South Medical Supply, Inc., then a Change of Control shall not be deemed to have occurred by virtue of this subsection (e); or

(f) If Executive’s employment responsibilities are primarily with the Physician Sales & Service division of the Company, a disposition by the Company of substantially all of the assets of such division; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of the Physician Sales & Service division, then a Change of Control shall not be deemed to have occurred by virtue of this subsection (f).

7. Termination of Employment.

(a) Death, Retirement or Disability. Executive’s employment shall terminate automatically upon Executive’s death or Retirement during the Employment Period. For purposes of this Agreement, “Retirement” shall mean normal retirement as defined in the Company’s then-current retirement plan, or there is no such retirement plan, “Retirement” shall mean voluntary termination after age 65 with ten years of service. If the Company determines in good faith that the Disability of Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to Executive written notice in accordance with Section 15(f) of this Agreement of its intention to terminate Executive’s employment. In such event, Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such written notice by Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties. For purposes of this Agreement, “Disability” shall mean a mental or physical disability as determined by the Board of Directors of the Company in accordance with standards and procedures

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similar to those under the Company’s employee long-term disability plan, if any. At any time that the Company does not maintain such a long-term disability plan, Disability shall mean the inability of Executive, as determined by the Board, to perform the essential functions of his regular duties and responsibilities (with or without reasonable accommodation) due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of six consecutive months.

(b) Termination by the Company. The Company may terminate Executive’s employment during the Employment Period with or without Cause. For purposes of this Agreement, “Cause” shall mean:

(i) the willful and continued failure of Executive to perform substantially Executive’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness, and specifically excluding any failure by Executive, after reasonable efforts, to meet performance expectations), after a written demand for substantial performance is delivered to Executive by the President or the Board of Directors of the Company which specifically identifies the manner in which such Board or the President believes that Executive has not substantially performed Executive’s duties, or

(ii) the willful engaging by Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or

(iii) Executive engages in any misconduct involving moral turpitude whether occurring in the performance of his duties or otherwise.

For purposes of this provision, no act or failure to act, on the part of Executive, shall be considered “willful” unless it is done, or omitted to be done, by Executive in bad faith or without reasonable belief that Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company. The cessation of employment of Executive shall not be deemed to be for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board of the Company at a meeting of such Board called and held for such purpose (after reasonable notice is provided to Executive and Executive is given an opportunity, together with counsel, to be heard before such Board), finding that, in the good faith opinion of such Board, Executive is guilty of the conduct described in subparagraph (i), (ii) or (iii) above, and specifying the particulars thereof in detail.

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(c) Termination by Executive. Executive’s employment may be terminated by Executive for Good Reason or no reason. For purposes of this Agreement, “Good Reason” shall mean:

(i) without the written consent of Executive, the assignment to Executive of any duties materially inconsistent with Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as in effect on the Effective Date, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by Executive;

(ii) a reduction by the Company in Executive’s Base Salary and benefits as in effect on the Effective Date or as the same may be increased from time to time, unless a similar reduction is made in salary and benefits of Peer Executives, or the failure by the Company to increase Executive’s Base Salary each year during the Employment Period by an amount which at least equals, on a percentage basis, the mean average percentage increase in base salary for Peer Executives, unless such failure to increase is based on nonarbitrary criteria applied to Executive and Peer Executives;

(iii) after the occurrence of a Change of Control, the Company’s requiring Executive to be based at any office or location other than in the greater Jacksonville, Florida metropolitan area or the Company’s requiring Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;

(iv) any failure by the Company to comply with and satisfy Section 14(b) of this Agreement; or

(v) any termination by Executive for any reason or no reason during the 30-day period beginning on the first anniversary of a Change of Control.

(d) Notice of Termination. Any termination by the Company for Cause, or by Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 15(f) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of

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Good Reason or Cause shall not waive any right of Executive or the Company, respectively, hereunder or preclude Executive or the Company, respectively, from asserting such fact or circumstance in enforcing Executive’s or the Company’s rights hereunder.

(e) Date of Termination. “Date of Termination” means (i) if Executive’s employment is terminated by the Company for Cause, or by Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies Executive of such termination and (iii) if Executive’s employment is terminated by reason of death, Retirement or Disability, the Date of Termination shall be the date of death or Retirement of Executive or the Disability Effective Date, as the case may be.

8. Obligations of the Company upon Termination.

(a) Termination by Executive for Good Reason; Termination by the Company Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate Executive’s employment other than for Cause, death or Disability, or Executive shall terminate employment for Good Reason within a period of 30 days after the occurrence of the event giving rise to Good Reason, then in consideration of Executive’s services rendered prior to such termination and as reasonable compensation for his compliance with the Restrictive Covenants in Section 13 hereof:

(i) the Company shall pay to Executive in a lump sum in cash within 30 days after the Date of Termination or, with respect to the prorata bonus described in clause A(2) below, within 30 days after the determination of the bonus amount, the aggregate of the following amounts:

A. the sum of (1) Executive’s Base Salary through the Date of Termination to the extent not theretofore paid, (2) if the Date of Termination occurs after or in connection with the occurrence of a Change of Control, the product of (x) Executive’s annual bonus that would have been payable with respect to the fiscal year in which the Date of Termination occurs (determined at the end of such year based on actual performance results through the end of such year) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the “Accrued Obligations”); and

B. the amount equal to six times Executive’s monthly Base Salary in effect as of the Date of Termination (the “Severance Payment”); provided, however, that if the Date of Termination occurs after or in

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connection with the occurrence of a Change of Control, the Severance Payment shall be the amount equal to two times Executive’s annual Base Salary in effect as of the Date of Termination; and

(ii) for six months after Executive’s Date of Termination (or two years in the event that the Date of Termination occurs after or in connection with the occurrence of a Change of Control), or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to Executive and/or Executive’s family at least equal to those which would have been provided to them in accordance with the welfare plans, programs, practices and policies described in Section 5(c) of this Agreement if Executive’s employment had not been terminated or, if more favorable to Executive, as in effect generally at any time thereafter with respect to Peer Executives and their families, provided, however, that if Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility (“Welfare Benefits”); and

(iii) the Company shall, within 30 days of receipt of reasonably documented invoices therefor, reimburse Executive’s actual cost (not to exceed $15,000) for outplacement expenses incurred within one year after the Date of Termination; and

(iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to Executive any other amounts or benefits required to be paid or provided or which Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).

(b) Death. If Executive’s employment is terminated by reason of Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)), the timely payment or provision of Other Benefits, and a lump sum amount equal to one (1) month’s salary, based on Executive’s Base Salary in effect as of the date of death. Accrued Obligations shall be paid to Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(b) shall include, without limitation, and Executive’s estate and/or beneficiaries shall be entitled to receive, benefits under such plans, programs, practices and policies relating to death benefits, if any, as applicable to Executive on the Date of Termination.

(c) Disability. If Executive’s employment is terminated by reason of Executive’s Disability during the Employment Period, this Agreement shall

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terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)) and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(c) shall include, without limitation, and Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits under such plans, programs, practices and policies relating to disability, if any, as applicable to Executive on the Date of Termination.

(d) Retirement. If Executive’s employment is terminated by reason of Executive’s Retirement during the Employment Period, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)) and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(d) shall include, without limitation, and Executive shall be entitled after the Date of Termination to receive, retirement and other benefits under such plans, programs, practices and policies relating to retirement, if any, as applicable to Executive on the Date of Termination.

(e) Cause or Voluntary Termination without Good Reason. If Executive’s employment shall be terminated for Cause during the Employment Period, or if Executive voluntarily terminates employment during the Employment Period without Good Reason, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)), the continuation of Welfare Benefits for a period of 30 days after the Date of Termination, payment of a lump sum amount equal to 30 days’ salary, based on Executive’s Base Salary in effect as of the Date of Termination, and the timely payment or provision of Other Benefits.

9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which Executive may qualify, nor, subject to Section 15(d), shall anything herein limit or otherwise affect such rights as Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.

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10. Certain Additional Payments by the Company.

(a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any benefit, payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 10) (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then: Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 10(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that Executive, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to Executive resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the “Reduced Amount”) such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. The Executive may select the Payments to be limited or reduced.

(b) Subject to the provisions of Section 10(c), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company’s regular independent accounting firm at the expense of the Company or, at the election and expense of Executive, another nationally recognized independent accounting firm (the “Accounting Firm”) which shall provide detailed supporting calculations. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 10(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.

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(c) Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall:

(i) give the Company any information reasonably requested by the Company relating to such claim,

(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

(iii) cooperate with the Company in good faith in order effectively to contest such claim, and

(iv) permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation of the foregoing provisions of this Section 10(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the

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Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(d) If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 10(c), Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Company’s complying with the requirements of Section 10(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto).

11. Costs of Enforcement. In any action taken in good faith relating to the enforcement of this Agreement or any provision herein after the occurrence of a Change of Control, Executive shall be entitled to be paid any and all costs and expenses incurred by him in enforcing or establishing his rights thereunder, including, without limitation, reasonable attorneys’ fees, whether suit be brought or not, and whether or not incurred in trial, bankruptcy or appellate proceedings. In all other circumstances, each party in any such action shall pay his or its own such costs and expenses.

12. Representations and Warranties. Executive hereby represents and warrants to the Company that Executive is not a party to, or otherwise subject to, any covenant not to compete (other than as contained herein) with any person or entity, and Executive’s execution of this Agreement and performance of his obligations hereunder will not violate the terms or conditions of any contract or obligation, written or oral, between Executive and any other person or entity.

13. Restrictions on Conduct of Executive.

(a) General. Executive and the Company understand and agree that the purpose of the provisions of this Section 13 is to protect legitimate business interests of the Company, as more fully described below, and is not intended to eliminate Executive’s post-employment competition with the Company per se, nor is it intended to impair or infringe upon Executive’s right to work, earn a living, or acquire and possess property from the fruits of his labor. Executive hereby acknowledges that the post-employment restrictions set forth in this Section 13 are reasonable and that they do not, and will not, unduly impair his ability to earn a living after the termination of this Agreement. Therefore, subject to the limitations of reasonableness imposed by law upon the restrictions set forth herein, Executive shall be subject to the restrictions set forth in this Section 13.

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(b) Definitions. The following capitalized terms used in this Section 13 shall have the meanings assigned to them below, which definitions shall apply to both the singular and the plural forms of such terms:

“Competitive Services” means any services provided by Company at the Determination Date, including, but not limited to the marketing, sale and distribution of medical supplies, equipment and pharmaceuticals to primary care and other office-based physicians; the marketing, sale and distribution of medical diagnostic imaging supplies, chemicals, equipment and service to the acute care and alternate care market; and the provisions of special group purchasing contract pricing and periodic cost analyses to help manage the supply needs of individual physicians or practices.

“Confidential Information” means any confidential or proprietary information possessed by the Company or its affiliated entities or relating to its or their business, including without limitation, any confidential “know-how”, customer lists, details of client or consultant contracts, current and anticipated customer requirements, pricing policies price lists, market studies, business plans, operational methods, marketing plans or strategies, product development techniques or plans, computer software programs (including object code and source code), data and documentation, data base technologies, systems, structures and architectures, inventions and ideas, past, current and planned research and development, compilations, devices, methods, techniques, processes, financial information and data, business acquisition plans, new personnel acquisition plans and any other information that would constitute a Trade Secret (as defined herein).

“Determination Date” means the date of termination of Executive’s employment with the Company for any reason whatsoever or any earlier date (during the Employment Period) of an alleged breach of the Restrictive Covenants by Executive.

“Person” means any individual or any corporation, partnership, joint venture, association or other entity or enterprise.

“Principal or Representative” means a principal, owner, partner, shareholder, joint venturer, investor, member, trustee, director, officer, manager, employee, agent, representative or consultant.

“Protected Clients” means any Person to whom the Company provided services or submitted a written proposal therefor, within eighteen (18) months prior to the Determination Date.

“Protected Employees” means employees of the Company who were employed by the Company at any time within six (6) months prior to the Determination Date.

“Restricted Period” means the term of Executive’s employment hereunder and a period extending until eighteen (18) months from the Date of Termination; provided, however that such period shall be extended by any length of time during which Executive is in breach of the Restricted Covenants.

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“Restrictive Covenants” means the restrictive covenants contained in Section 13(c) hereof.

“Trade Secret” means any item of Confidential Information that constitutes a “trade secret(s)” under the common law or statutory law of the State of Florida.

(c) Restrictive Covenants.

(i) Restriction on Disclosure and Use of Confidential Information. Executive understands and agrees that the Confidential Information constitutes a valuable asset of the Company and its affiliated entities, and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that Executive shall not, directly or indirectly, at any time during the Restricted Period reveal, divulge, or disclose to any Person not expressly authorized by the Company any Confidential Information, and Executive shall not, directly or indirectly, at any time during the Restricted Period use or make use of any Confidential Information in connection with any business activity other than that of the Company; provided, however, in the event the Confidential Information constitutes a Trade Secret, the Restricted Period referred to above shall be five (5) years. Notwithstanding the above, this covenant shall expire (except with respect to Trade Secrets) upon the occurrence of a Change of Control.

(ii) Nonsolicitation of Protected Employees. Executive understands and agrees that the relationship between the Company and each of its Protected Employees constitutes a valuable asset of the Company and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that during the Restricted Period Executive shall not directly or indirectly on Executive’s own behalf or as a Principal or Representative of any Person or otherwise solicit or induce any Protected Employee to terminate his or her employment relationship with the Company or to enter into any relationship of employment, agency or independent contractorship with any other Person. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

(iii) Restriction on Relationships with Protected Clients. Executive understands and agrees that the relationship between the Company and each of its Protected Clients constitutes a valuable asset of the Company and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that during the Restricted Period Executive shall not, without the prior written consent of the Company, become a Principal or Representative of a Protected Client or otherwise provide services to a Protected Client as a consultant or independent contractor. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

(iv) Noncompetition with the Company. During the Restricted Period Executive, unless acting in accordance with the Company’s prior written consent, will not directly provide any Competitive Services to, and will not,

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directly or indirectly, (i) own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or (ii) be connected as a Principal or Representative or otherwise with, or (iii) permit Executive’s name to be used by or in connection with, any Person engaged in providing Competitive Services to any Person conducting business activities within the territory in which the Company is or was engaged in the provision of the Competitive Services on the Determination Date; provided, however, that the provisions of this Agreement shall not be deemed to prohibit the ownership by Executive of any securities of the Company or its affiliated entities or not more than five percent (5%) of any class of securities of any corporation having a class of securities registered pursuant to the Securities Exchange Act of 1934, as amended. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

(d) Exceptions from Disclosure Restrictions. Anything herein to the contrary notwithstanding, Executive shall not be restricted from disclosing or using Confidential Information that: (a) is or becomes generally available to the public other than as a result of an unauthorized disclosure by Executive or his agent; (b) becomes available to Executive in a manner that is not in contravention of applicable law from a source (other than the Company or its affiliated entities or one of its or their officers, employees, agents or representatives) that is not bound by a confidential relationship with the Company or its affiliated entities or by a confidentiality or other similar agreement; (c) was known to Executive on a non-confidential basis and not in contravention of applicable law or a confidentiality or other similar agreement before its disclosure to Executive by the Company or its affiliated entities or one of its or their officers, employees, agents or representatives; or (d) is required to be disclosed by law, court order or other legal process; provided, however, that in the event disclosure is required by law, Executive shall provide the Company with prompt notice of such requirement so that the Company may seek an appropriate protective order prior to any such required disclosure by Executive.

(e) Enforcement of Restrictive Covenants.

(i) Rights and Remedies Upon Breach. In the event Executive breaches, or threatens to commit a breach of, any of the provisions of the Restrictive Covenants, the Company shall have the following rights and remedies, which shall be independent of any others and severally enforceable, and shall be in addition to, and not in lieu of, any other rights and remedies available to the Company at law or in equity:

A. the right and remedy to enjoin, preliminarily and permanently, Executive from violating or threatening to violate the Restrictive Covenants and to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company; and

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B. the right and remedy to require Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Executive as the result of any transactions constituting a breach of the Restrictive Covenants.

(ii) Severability of Covenants. Executive acknowledges and agrees that the Restrictive Covenants are reasonable and valid in time and scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, are invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions.

14. Assignment and Successors.

(a) Executive. This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal representatives.

(b) The Company. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor to all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “the Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.

15. Miscellaneous.

(a) Waiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this Agreement or of the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver.

(b) Severability. If any provision or covenant, or any part thereof, of this Agreement should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Agreement, all of which shall remain in full force and effect.

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(c) Other Agents. Nothing in this Agreement is to be interpreted as limiting the Company from employing other personnel on such terms and conditions as may be satisfactory to it.

(d) Entire Agreement. Except as provided herein, this Agreement contains the entire agreement between the Company and Executive with respect to the subject matter hereof, and it supersedes and invalidates any previous agreements or contracts between them which relate to the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, which are not embodied herein shall be of any force or effect.

(e) Governing Law. Except to the extent preempted by federal law, and without regard to conflict of laws principles, the laws of the State of Florida shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.

(f) Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered or three days after mailing if mailed, first class, certified mail, postage prepaid:

To Company:	PSS World Medical, Inc.
	4345 Southpoint Boulevard
	Jacksonville, Florida 32216
	Facsimile No. (904) 332-3209
	Attention: President
To Executive:	Mary M. Jennings
	1855 Lakotna Drive
	Orange Park, Florida 32073

Any party may change the address to which notices, requests, demands and other communications shall be delivered or mailed by giving notice thereof to the other party in the same manner provided herein.

(g) Amendments and Modifications. This Agreement may be amended or modified only by a writing signed by both parties hereto, which makes specific reference to this Agreement; provided, however, that if, in the opinion of the Corporation’s accountants, any provision of this Agreement would preclude the use of “pooling of interest” accounting treatment for a Change of Control transaction that (1) would otherwise qualify for such accounting treatment, and (2) is contingent upon qualifying for such accounting treatment, then Executive and the Company agree to negotiate in good faith to amend this Agreement so that it will not preclude the use of “pooling of interest” accounting treatment for such Change of Control transaction.

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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Employment Agreement as of the date first above written.

PSS WORLD MEDICAL, INC.
By:	/s/ David A. Smith
	David A. Smith
	President

EXECUTIVE:
	/s/ Mary M. Jennings
	Mary M. Jennings

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EX-10.20

Exhibit 10.20

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into this 21st day of February, 2000 by and between PSS World Medical, Inc., a Florida corporation (hereinafter, the “Company” which term shall include the Company’s other subsidiaries, affiliates and successors), and David D. Klarner (hereinafter, “Executive”).

BACKGROUND

The Company desires to engage Executive in Executive capacities set forth herein, in accordance with the terms and conditions of this Agreement. Executive is willing to serve as such in accordance with the terms and conditions of this Agreement.

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

1. Effective Date. This Agreement is effective as of October 1, 1999 (the “Effective Date”).

2. Employment. Executive is hereby employed on the Effective Date as the Vice President, Treasury and Financial Reporting, of the Company. Executive’s responsibilities under this Agreement shall be in accordance with the policies and objectives established by the President or the Board of Directors of the Company and shall be consistent with the responsibilities of similarly situated executives of comparable companies in similar lines of business.

3. Employment Period. Unless earlier terminated herein in accordance with Section 7 hereof, Executive’s employment shall be for a one-year term (the “Employment Period”), beginning on the Effective Date. The Employment Period shall, without further action by Executive or the Company, be extended by an additional one-year period on each anniversary of the Effective Date; provided, however, that either party may, by notice to the other, cause the Employment Period to cease to extend automatically. Upon such notice, the Employment Period shall terminate upon the expiration of the then-current term, including any prior extensions.

4. Extent of Service. During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive agrees to devote his business time, attention, skill and efforts exclusively to the faithful performance of his duties hereunder; provided, however, that it shall not be a violation of this Agreement for Executive to (i) devote reasonable periods of time to charitable and community activities and, with the approval of the Company, industry or professional

activities, and/or (ii) manage personal business interests and investments, so long as such activities do not materially interfere with the performance of Executive’s responsibilities under this Agreement.

5. Compensation and Benefits.

(a) Base Salary. During the Employment Period, the Company will pay to Executive a base salary in an amount not less than that in effect for Executive on the Effective Date (“Base Salary”), less normal withholdings, payable in equal monthly or more frequent installments as are customary under the Company’s payroll practices from time to time. The Compensation Committee of the Board of Directors of the Company shall review Executive’s Base Salary annually and in its sole discretion, subject to approval of the Board of Directors of the Company, may increase Executive’s Base Salary from year to year. The annual review of Executive’s salary by the Board will consider, among other things, Executive’s own performance and the Company’s performance.

(b) Incentive, Savings and Retirement Plans. During the Employment Period, Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to peer executives of the Company and its affiliated companies (“Peer Executives”), and on the same basis as such Peer Executives.

(c) Welfare Benefit Plans. During the Employment Period, Executive and Executive’s family shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to Peer Executives.

(d) Expenses. During the Employment Period, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in accordance with the policies, practices and procedures of the Company and its affiliated companies to the extent applicable generally to Peer Executives.

(e) Fringe Benefits. During the Employment Period, Executive shall be entitled to fringe benefits in accordance with the plans, practices, programs and policies of the Company and its affiliated companies in effect for Peer Executives.

6. Change of Control. Subject to the last sentence of this Section 6, for the purposes of this Agreement, a “Change of Control” shall mean:

(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the combined voting power of

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the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (ii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 6; or

(b) Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 80% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination.

Notwithstanding the above definition, a Change of Control will not be deemed to have occurred for purposes of this Agreement if, immediately after the event that

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otherwise would constitute a Change of Control, Patrick Kelly and a least a majority of the 12 next most highly compensated officers of the Company and its subsidiaries (as measured immediately prior to such transaction) remain employed by the Company, the resulting or surviving company, or its or their subsidiaries.

7. Termination of Employment.

(a) Death, Retirement or Disability. Executive’s employment shall terminate automatically upon Executive’s death or Retirement during the Employment Period. For purposes of this Agreement, “Retirement” shall mean normal retirement as defined in the Company’s then-current retirement plan, or there is no such retirement plan, “Retirement” shall mean voluntary termination after age 65 with ten years of service. If the Company determines in good faith that the Disability of Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to Executive written notice in accordance with Section 15(f) of this Agreement of its intention to terminate Executive’s employment. In such event, Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such written notice by Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties. For purposes of this Agreement, “Disability” shall mean a mental or physical disability as determined by the Board of Directors of the Company in accordance with standards and procedures similar to those under the Company’s employee long-term disability plan, if any. At any time that the Company does not maintain such a long-term disability plan, Disability shall mean the inability of Executive, as determined by the Board, to perform the essential functions of his regular duties and responsibilities (with or without reasonable accommodation) due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of six consecutive months.

(b) Termination by the Company. The Company may terminate Executive’s employment during the Employment Period with or without Cause. For purposes of this Agreement, “Cause” shall mean:

(i) the willful and continued failure of Executive to perform substantially Executive’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness, and specifically excluding any failure by Executive, after reasonable efforts, to meet performance expectations), after a written demand for substantial performance is delivered to Executive by the President or the Board of Directors of the Company which specifically identifies the manner in which such Board or the President believes that Executive has not substantially performed Executive’s duties, or

(ii) the willful engaging by Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or

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(iii) Executive engages in any misconduct involving moral turpitude whether occurring in the performance of his duties or otherwise.

For purposes of this provision, no act or failure to act, on the part of Executive, shall be considered “willful” unless it is done, or omitted to be done, by Executive in bad faith or without reasonable belief that Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company. The cessation of employment of Executive shall not be deemed to be for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board of the Company at a meeting of such Board called and held for such purpose (after reasonable notice is provided to Executive and Executive is given an opportunity, together with counsel, to be heard before such Board), finding that, in the good faith opinion of such Board, Executive is guilty of the conduct described in subparagraph (i), (ii) or (iii) above, and specifying the particulars thereof in detail.

(c) Termination by Executive. Executive’s employment may be terminated by Executive for Good Reason or no reason. For purposes of this Agreement, “Good Reason” shall mean:

(i) without the written consent of Executive, the assignment to Executive of any duties materially inconsistent with Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as in effect on the Effective Date, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by Executive;

(ii) a reduction by the Company in Executive’s Base Salary and benefits as in effect on the Effective Date or as the came may be increased from time to time, unless a similar reduction is made in salary and benefits of Peer Executives, or the failure by the Company to increase Executive’s Base Salary each year during the Employment Period by an amount which at least equals, on a percentage basis, the mean average percentage increase in base salary for Peer Executives, unless such failure to increase is based on nonarbitrary criteria applied to Executive and Peer Executives;

(iii) after the occurrence of a Change of Control, the Company’s requiring Executive to be based at any office or location other than in the greater Jacksonville, Florida metropolitan area or the Company’s requiring Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;

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(iv) any failure by the Company to comply with and satisfy Section 14(b) of this Agreement; or

(v) any termination by Executive for any reason or no reason during the 30-day period beginning on the first anniversary of a Change of Control.

(d) Notice of Termination. Any termination by the Company for Cause, or by Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 15(f) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company, respectively, hereunder or preclude Executive or the Company, respectively, from asserting such fact or circumstance in enforcing Executive’s or the Company’s rights hereunder.

(e) Date of Termination. “Date of Termination” means (i) if Executive’s employment is terminated by the Company for Cause, or by Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies Executive of such termination and (iii) if Executive’s employment is terminated by reason of death, Retirement or Disability, the Date of Termination shall be the date of death or Retirement of Executive or the Disability Effective Date, as the case may be.

8. Obligations of the Company upon Termination.

(a) Termination by Executive for Good Reason; Termination by the Company Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate Executive’s employment other than for Cause, death or Disability, or Executive shall terminate employment for Good Reason within a period of 30 days after the occurrence of the event giving rise to Good Reason, then in consideration of Executive’s services rendered prior to such termination and as reasonable compensation for his compliance with the Restrictive Covenants in Section 13 hereof:

(i) the Company shall pay to Executive in a lump sum in cash within 30 days after the Date of Termination or, with respect to the prorata bonus described in

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clause A(2) below, within 30 days after the determination of the bonus amount, the aggregate of the following amounts:

A. the sum of (1) Executive’s Base Salary through the Date of Termination to the extent not theretofore paid, (2) if the Date of Termination occurs after or in connection with the occurrence of a Change of Control, the product of (x) Executive’s annual bonus that would have been payable with respect to the fiscal year in which the Date of Termination occurs (determined at the end of such year based on actual performance results through the end of such year) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the “Accrued Obligations”); and

B. the amount equal to three times Executive’s monthly Base Salary in effect as of the Date of Termination (the “Severance Payment”); provided, however, that if the Date of Termination occurs after or in connection with the occurrence of a Change of Control, the Severance Payment shall be the amount equal to one times Executive’s annual Base Salary in effect as of the Date of Termination; and

(ii) for three months after Executive’s Date of Termination (or one year in the event that the Date of Termination occurs after or in connection with the occurrence of a Change of Control), or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to Executive and/or Executive’s family at least equal to those which would have been provided to them in accordance with the welfare plans, programs, practices and policies described in Section 5(c) of this Agreement if Executive’s employment had not been terminated or, if more favorable to Executive, as in effect generally at any time thereafter with respect to Peer Executives and their families, provided, however, that if Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility (“Welfare Benefits”); and

(iii) to the extent not theretofore paid or provided, the Company shall timely pay or provide to Executive any other amounts or benefits required to be paid or provided or which Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).

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(b) Death. If Executive’s employment is terminated by reason of Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)), the timely payment or provision of Other Benefits, and a lump sum amount equal to two (2) weeks’ salary, based on Executive’s Base Salary in effect as of the date of death. Accrued Obligations shall be paid to Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(b) shall include, without limitation, and Executive’s estate and/or beneficiaries shall be entitled to receive, benefits under such plans, programs, practices and policies relating to death benefits, if any, as applicable to Executive on the Date of Termination.

(c) Disability. If Executive’s employment is terminated by reason of Executive’s Disability during the Employment Period, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)) and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(c) shall include, without limitation, and Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits under such plans, programs, practices and policies relating to disability, if any, as applicable to Executive on the Date of Termination.

(d) Retirement. If Executive’s employment is terminated by reason of Executive’s Retirement during the Employment Period, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)) and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(d) shall include, without limitation, and Executive shall be entitled after the Date of Termination to receive, retirement and other benefits under such plans, programs, practices and policies relating to retirement, if any, as applicable to Executive on the Date of Termination.

(e) Cause or Voluntary Termination without Good Reason. If Executive’s employment shall be terminated for Cause during the Employment Period, or if Executive voluntarily terminates employment during the Employment Period without Good Reason, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)), the continuation of Welfare Benefits for a period of two weeks after the Date of Termination, payment of a lump sum amount equal to two (2) weeks’ salary,

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based on Executive’s Base Salary in effect as of the Date of Termination, and the timely payment or provision of Other Benefits.

9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which Executive may qualify, nor, subject to Section 15(d), shall anything herein limit or otherwise affect such rights as Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.

10. Certain Additional Payments by the Company.

(a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any benefit, payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 10) (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then: Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 10(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that Executive, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to Executive resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the “Reduced Amount”) such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. The Executive may select the Payments to be limited or reduced.

(b) Subject to the provisions of Section 10(c), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in

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arriving at such determination, shall be made by the Company’s regular independent accounting firm at the expense of the Company or, at the election and expense of Executive, another nationally recognized independent accounting firm (the “Accounting Firm”) which shall provide detailed supporting calculations. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 10(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.

(c) Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall:

(i) give the Company any information reasonably requested by the Company relating to such claim,

(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

(iii) cooperate with the Company in good faith in order effectively to contest such claim, and

(iv) permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation of the foregoing provisions of this Section 10(c), the Company shall control all proceedings

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taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(d) If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 10(c), Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Company’s complying with the requirements of Section 10(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto).

11. Costs of Enforcement. In any action taken in good faith relating to the enforcement of this Agreement or any provision herein after the occurrence of a Change of Control, Executive shall be entitled to be paid any and all costs and expenses incurred by him in enforcing or establishing his rights thereunder, including, without limitation, reasonable attorneys’ fees, whether suit be brought or not, and whether or not incurred in trial, bankruptcy or appellate proceedings. In all other circumstances, each party in any such action shall pay his or its own such costs and expenses.

12. Representations and Warranties. Executive hereby represents and warrants to the Company that Executive is not a party to, or otherwise subject to, any covenant not to compete (other than as contained herein) with any person or entity, and Executive’s execution of this Agreement and performance of his obligations hereunder will not violate the terms or conditions of any contract or obligation, written or oral, between Executive and any other person or entity.

13. Restrictions on Conduct of Executive.

(a) General. Executive and the Company understand and agree that the purpose of the provisions of this Section 13 is to protect legitimate business interests of the Company, as more fully described below, and is not intended to eliminate Executive’s

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post-employment competition with the Company per se, nor is it intended to impair or infringe upon Executive’s right to work, earn a living, or acquire and possess property from the fruits of his labor. Executive hereby acknowledges that the post-employment restrictions set forth in this Section 13 are reasonable and that they do not, and will not, unduly impair his ability to earn a living after the termination of this Agreement. Therefore, subject to the limitations of reasonableness imposed by law upon the restrictions set forth herein, Executive shall be subject to the restrictions set forth in this Section 13.

(b) Definitions. The following capitalized terms used in this Section 13 shall have the meanings assigned to them below, which definitions shall apply to both the singular and the plural forms of such terms:

“Competitive Services” means any services provided by Company at the Determination Date, including, but not limited to the marketing, sale and distribution of medical supplies, equipment and pharmaceuticals to primary care and other office-based physicians; the marketing, sale and distribution of medical diagnostic imaging supplies, chemicals, equipment and service to the acute care and alternate care market; and the provisions of special group purchasing contract pricing and periodic cost analyses to help manage the supply needs of individual physicians or practices.

“Confidential Information” means any confidential or proprietary information possessed by the Company or its affiliated entities or relating to its or their business, including without limitation, any confidential “know-how”, customer lists, details of client or consultant contracts, current and anticipated customer requirements, pricing policies price lists, market studies, business plans, operational methods, marketing plans or strategies, product development techniques or plans, computer software programs (including object code and source code), data and documentation, data base technologies, systems, structures and architectures, inventions and ideas, past, current and planned research and development, compilations, devices, methods, techniques, processes, financial information and data, business acquisition plans, new personnel acquisition plans and any other information that would constitute a Trade Secret (as defined herein).

“Determination Date” means the date of termination of Executive’s employment with the Company for any reason whatsoever or any earlier date (during the Employment Period) of an alleged breach of the Restrictive Covenants by Executive.

“Person” means any individual or any corporation, partnership, joint venture, association or other entity or enterprise.

“Principal or Representative” means a principal, owner, partner, shareholder, joint venturer, investor, member, trustee, director, officer, manager, employee, agent, representative or consultant.

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“Protected Clients” means any Person to whom the Company provided services or submitted a written proposal therefor, within eighteen (18) months prior to the Determination Date.

“Protected Employees” means employees of the Company who were employed by the Company at any time within six (6) months prior to the Determination Date.

“Restricted Period” means the term of Executive’s employment hereunder and a period extending until eighteen (18) months from the Date of Termination; provided, however that such period shall be extended by any length of time during which Executive is in breach of the Restricted Covenants.

“Restrictive Covenants” means the restrictive covenants contained in Section 13(c) hereof.

“Trade Secret” means any item of Confidential Information that constitutes a “trade secret(s)” under the common law or statutory law of the State of Florida.

(c) Restrictive Covenants.

(i) Restriction on Disclosure and Use of Confidential Information. Executive understands and agrees that the Confidential Information constitutes a valuable asset of the Company and its affiliated entities, and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that Executive shall not, directly or indirectly, at any time during the Restricted Period reveal, divulge, or disclose to any Person not expressly authorized by the Company any Confidential Information, and Executive shall not, directly or indirectly, at any time during the Restricted Period use or make use of any Confidential Information in connection with any business activity other than that of the Company; provided, however, in the event the Confidential Information constitutes a Trade Secret, the Restricted Period referred to above shall be five (5) years. Notwithstanding the above, this covenant shall expire (except with respect to Trade Secrets) upon the occurrence of a Change of Control.

(ii) Nonsolicitation of Protected Employees. Executive understands and agrees that the relationship between the Company and each of its Protected Employees constitutes a valuable asset of the Company and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that during the Restricted Period Executive shall not directly or indirectly on Executive’s own behalf or as a Principal or Representative of any Person or otherwise solicit or induce any Protected Employee to terminate his or her employment relationship with the Company or to enter into any relationship of employment, agency or independent contractorship with any other Person. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

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(iii) Restriction on Relationships with Protected Clients. Executive understands and agrees that the relationship between the Company and each of its Protected Clients constitutes a valuable asset of the Company and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that during the Restricted Period Executive shall not, without the prior written consent of the Company, become a Principal or Representative of a Protected Client or otherwise provide services to a Protected Client as a consultant or independent contractor. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

(iv) Noncompetition with the Company. During the Restricted Period Executive, unless acting in accordance with the Company’s prior written consent, will not directly provide any Competitive Services to, and will not, directly or indirectly, (i) own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or (ii) be connected as a Principal or Representative or otherwise with, or (iii) permit Executive’s name to be used by or in connection with, any Person engaged in providing Competitive Services to any Person conducting business activities within the territory in which the Company is or was engaged in the provision of the Competitive Services on the Determination Date; provided, however, that the provisions of this Agreement shall not be deemed to prohibit the ownership by Executive of any securities of the Company or its affiliated entities or not more than five percent (5%) of any class of securities of any corporation having a class of securities registered pursuant to the Securities Exchange Act of 1934, as amended. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

(d) Exceptions from Disclosure Restrictions. Anything herein to the contrary notwithstanding, Executive shall not be restricted from disclosing or using Confidential Information that: (a) is or becomes generally available to the public other than as a result of an unauthorized disclosure by Executive or his agent; (b) becomes available to Executive in a manner that is not in contravention of applicable law from a source (other than the Company or its affiliated entities or one of its or their officers, employees, agents or representatives) that is not bound by a confidential relationship with the Company or its affiliated entities or by a confidentiality or other similar agreement; (c) was known to Executive on a non-confidential basis and not in contravention of applicable law or a confidentiality or other similar agreement before its disclosure to Executive by the Company or its affiliated entities or one of its or their officers, employees, agents or representatives; or (d) is required to be disclosed by law, court order or other legal process; provided, however, that in the event disclosure is required by law, Executive shall provide the Company with prompt notice of such requirement so that the Company may seek an appropriate protective order prior to any such required disclosure by Executive.

(e) Enforcement of Restrictive Covenants.

(i) Rights and Remedies Upon Breach. In the event Executive breaches, or threatens to commit a breach of, any of the provisions of the Restrictive

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Covenants, the Company shall have the following rights and remedies, which shall be independent of any others and severally enforceable, and shall be in addition to, and not in lieu of, any other rights and remedies available to the Company at law or in equity:

A. the right and remedy to enjoin, preliminarily and permanently, Executive from violating or threatening to violate the Restrictive Covenants and to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company; and

B. the right and remedy to require Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Executive as the result of any transactions constituting a breach of the Restrictive Covenants.

(ii) Severability of Covenants. Executive acknowledges and agrees that the Restrictive Covenants are reasonable and valid in time and scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, are invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions.

14. Assignment and Successors.

(a) Executive. This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal representatives.

(b) The Company. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor to all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “the Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.

15. Miscellaneous.

(a) Waiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this

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Agreement or of the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver.

(b) Severability. If any provision or covenant, or any part thereof, of this Agreement should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Agreement, all of which shall remain in full force and effect.

(c) Other Agents. Nothing in this Agreement is to be interpreted as limiting the Company from employing other personnel on such terms and conditions as may be satisfactory to it.

(d) Entire Agreement. Except as provided herein, this Agreement contains the entire agreement between the Company and Executive with respect to the subject matter hereof, and it supersedes and invalidates any previous agreements or contracts between them which relate to the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, which are not embodied herein shall be of any force or effect.

(e) Governing Law. Except to the extent preempted by federal law, and without regard to conflict of laws principles, the laws of the State of Florida shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.

(f) Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered or three days after mailing if mailed, first class, certified mail, postage prepaid:

To Company:	PSS World Medical, Inc.
	4345 Southpoint Boulevard
	Jacksonville, Florida 32216
	Facsimile No. (904) 332-3209
	Attention: Patrick Kelly
To Executive:	David D. Klarner
	9566 Southbrook Drive
	Jacksonville, Florida 32256

Any party may change the address to which notices, requests, demands and other communications shall be delivered or mailed by giving notice thereof to the other party in the same manner provided herein.

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(g) Amendments and Modifications. This Agreement may be amended or modified only by a writing signed by both parties hereto, which makes specific reference to this Agreement; provided, however, that if, in the opinion of the Corporation’s accountants, any provision of this Agreement would preclude the use of “pooling of interest” accounting treatment for a Change of Control transaction that (1) would otherwise qualify for such accounting treatment, and (2) is contingent upon qualifying for such accounting treatment, then Executive and the Company agree to negotiate in good faith to amend this Agreement so that it will not preclude the use of “pooling of interest” accounting treatment for such Change of Control transaction.

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Employment Agreement as of the date first above written.

PSS WORLD MEDICAL, INC.
By:	/s/ Patrick Kelly
	Patrick Kelly Chairman of the Board and CEO

EXECUTIVE:
	/s/ David D. Klarner
	David D. Klarner

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EX-10.20A

Exhibit 10.20a

AMENDMENT to LEVEL 5

EMPLOYMENT AGREEMENT

THIS AMENDMENT (the “Amendment”), effective as of April 17, 2000, by and between PSS World Medical, Inc., a Florida corporation (the “Company”), and the officer of the Company whose signature appears below (“Executive”), amends that certain Employment Agreement, dated as of the date indicated below, by and between the Company and Executive, as heretofore amended (the “Employment Agreement”).

In consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows:

1. Section 3 of the Employment Agreement is hereby amended by adding the following sentence at the end thereof:

“Notwithstanding the foregoing, if a Change of Control occurs the Employment Period shall be automatically extended through the later of (i) the first anniversary of the Change of Control, or (ii) the normal expiration of the then-current term, including any prior extensions.”

2. Section 6 of the Employment Agreement is hereby amended by deleting in its entirety the definition of Change of Control and substituting therefor the following:

A “Change of Control” shall mean:

(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (ii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this definition; or

(b) Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent

Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 80% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of the combined voting power of the then outstanding voting securities of such corporation resulting from such Business Combination except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(d) If Executive’s employment responsibilities are primarily with Diagnostic Imaging, Inc., a disposition by the Company of a majority of the stock or substantially all of the assets of Diagnostic Imaging, Inc.; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of Diagnostic Imaging, Inc., then a Change of Control shall not be deemed to have occurred by virtue of this subsection (d); or

(e) If Executive’s employment responsibilities are primarily with Gulf South Medical Supply, Inc., a disposition by the Company of a majority of the stock or substantially all of the assets of Gulf South Medical Supply, Inc.; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of Gulf South Medical Supply, Inc., then a Change of Control shall not be deemed to have occurred by virtue of this subsection (e); or

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(f) If Executive’s employment responsibilities are primarily with the Physician Sales & Service division of the Company, a disposition by the Company of substantially all of the assets of such division; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of the Physician Sales & Service division, then a Change of Control shall not be deemed to have occurred by virtue of this subsection (f).

3. Notwithstanding the foregoing, if, in the opinion of the Company’s accountants, the foregoing amendments (or any portion thereof) would preclude the use of “pooling of interest” accounting treatment for a Change of Control transaction that (a) would otherwise qualify for such accounting treatment, and (b) is contingent upon qualifying for such accounting treatment, then such amendments (to the extent so determined to preclude such pooling of interests accounting treatment) will not be effective and the terms of the Employment Agreement will remain in effect as if such amendments (or portion thereof) had not been proposed.

4. As amended hereby, the Employment Agreement, as heretofore amended, shall be and remain in full force and effect.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.

PSS WORLD MEDICAL, INC.
By:	/s/ Patrick C. Kelly
	Patrick C. Kelly Chairman of the Board and CEO

By:	/s/ David A. Smith
	David A. Smith Executive Vice President and CFO

EXECUTIVE
	/s/ David D. Klarner
Date of original Employment Agreement: 2/21/00

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EX-10.22

Exhibit 10.22

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into this 1st day of April, 2000 by and between PSS World Medical, Inc., a Florida corporation (hereinafter, the “Company” which term shall include the Company’s other subsidiaries, affiliates and successors), and David H. Ramsey (hereinafter, “Executive”).

BACKGROUND

The Company desires to engage Executive in Executive capacities set forth herein, in accordance with the terms and conditions of this Agreement. Executive is willing to serve as such in accordance with the terms and conditions of this Agreement.

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

1. Effective Date. This Agreement is effective as of April 1, 2000 (the “Effective Date”).

2. Employment. Executive is hereby employed on the Effective Date as the Vice President and Chief Information Officer of the Company. Executive’s responsibilities under this Agreement shall be in accordance with the policies and objectives established by the President or the Board of Directors of the Company and shall be consistent with the responsibilities of similarly situated executives of comparable companies in similar lines of business.

3. Employment Period. Unless earlier terminated herein in accordance with Section 7 hereof, Executive’s employment shall be for a one-year term (the “Employment Period”), beginning on the Effective Date. The Employment Period shall, without further action by Executive or the Company, be extended by an additional one-year period on each anniversary of the Effective Date; provided, however, that either party may, by notice to the other, cause the Employment Period to cease to extend automatically. Upon such notice, the Employment Period shall terminate upon the expiration of the then-current term, including any prior extensions. Notwithstanding the foregoing, if a Change of Control occurs the Employment Period shall be automatically extended through the later of (i) the first anniversary of the Change of Control, or (ii) the normal expiration of the then-current term, including any prior extensions.

4. Extent of Service. During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive agrees to devote his business time, attention, skill and efforts exclusively to the faithful performance of his duties hereunder; provided, however, that it shall not be a violation of

this Agreement for Executive to (i) devote reasonable periods of time to charitable and community activities and, with the approval of the Company, industry or professional activities, and/or (ii) manage personal business interests and investments, so long as such activities do not materially interfere with the performance of Executive’s responsibilities under this Agreement.

5. Compensation and Benefits.

(a) Base Salary. During the Employment Period, the Company will pay to Executive a base salary in an amount not less than that in effect for Executive on the Effective Date (“Base Salary”), less normal withholdings, payable in equal monthly or more frequent installments as are customary under the Company’s payroll practices from time to time. The Compensation Committee of the Board of Directors of the Company shall review Executive’s Base Salary annually and in its sole discretion, subject to approval of the Board of Directors of the Company, may increase Executive’s Base Salary from year to year. The annual review of Executive’s salary by the Board will consider, among other things, Executive’s own performance and the Company’s performance.

(b) Incentive, Savings and Retirement Plans. During the Employment Period, Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to peer executives of the Company and its affiliated companies (“Peer Executives”), and on the same basis as such Peer Executives.

(c) Welfare Benefit Plans. During the Employment Period, Executive and Executive’s family shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to Peer Executives.

(d) Expenses. During the Employment Period, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in accordance with the policies, practices and procedures of the Company and its affiliated companies to the extent applicable generally to Peer Executives.

(e) Fringe Benefits. During the Employment Period, Executive shall be entitled to fringe benefits in accordance with the plans, practices, programs and policies of the Company and its affiliated companies in effect for Peer Executives.

6. Change of Control. A “Change of Control” shall mean:

(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3

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promulgated under the Exchange Act) of 35% or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (ii) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this definition; or

(b) Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 80% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding the Company or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of the combined voting power of the then outstanding voting securities of such corporation resulting from such Business Combination except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

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(d) If Executive’s employment responsibilities are primarily with Diagnostic Imaging, Inc., a disposition by the Company of a majority of the stock or substantially all of the assets of Diagnostic Imaging, Inc.; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of Diagnostic Imaging, Inc., then a Change of Control shall not be deemed to have occurred by virtue of this subsection (d); or

(e) If Executive’s employment responsibilities are primarily with Gulf South Medical Supply, Inc., a disposition by the Company of a majority of the stock or substantially all of the assets of Gulf South Medical Supply, Inc.; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of Gulf South Medical Supply, Inc., then a Change of Control shall not be deemed to have occurred by virtue of this subsection (e); or

(f) If Executive’s employment responsibilities are primarily with the Physician Sales & Service division of the Company, a disposition by the Company of substantially all of the assets of such division; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of the Physician Sales & Service division, then a Change of Control shall not be deemed to have occurred by virtue of this subsection (f).

7. Termination of Employment.

(a) Death, Retirement or Disability. Executive’s employment shall terminate automatically upon Executive’s death or Retirement during the Employment Period. For purposes of this Agreement, “Retirement” shall mean normal retirement as defined in the Company’s then-current retirement plan, or there is no such retirement plan, “Retirement” shall mean voluntary termination after age 65 with ten years of service. If the Company determines in good faith that the Disability of Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to Executive written notice in accordance with Section 15(f) of this Agreement of its intention to terminate Executive’s employment. In such event, Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such written notice by Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties. For purposes of this Agreement, “Disability” shall mean a mental or physical disability as determined by the Board of Directors of the Company in accordance with standards and procedures similar to those under the Company’s employee long-term disability plan, if any. At any time that the Company does not maintain such a long-term disability plan, Disability shall mean the inability of Executive, as determined by the Board, to perform the essential functions of his regular duties and responsibilities (with or without reasonable accommodation) due to a medically determinable physical or mental

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illness which has lasted (or can reasonably be expected to last) for a period of six consecutive months.

(b) Termination by the Company. The Company may terminate Executive’s employment during the Employment Period with or without Cause. For purposes of this Agreement, “Cause” shall mean:

(i) the willful and continued failure of Executive to perform substantially Executive’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness, and specifically excluding any failure by Executive, after reasonable efforts, to meet performance expectations), after a written demand for substantial performance is delivered to Executive by the President or the Board of Directors of the Company which specifically identifies the manner in which such Board or the President believes that Executive has not substantially performed Executive’s duties, or

(ii) the willful engaging by Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or

(iii) Executive engages in any misconduct involving moral turpitude whether occurring in the performance of his duties or otherwise.

For purposes of this provision, no act or failure to act, on the part of Executive, shall be considered “willful” unless it is done, or omitted to be done, by Executive in bad faith or without reasonable belief that Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company. The cessation of employment of Executive shall not be deemed to be for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board of the Company at a meeting of such Board called and held for such purpose (after reasonable notice is provided to Executive and Executive is given an opportunity, together with counsel, to be heard before such Board), finding that, in the good faith opinion of such Board, Executive is guilty of the conduct described in subparagraph (i), (ii) or (iii) above, and specifying the particulars thereof in detail.

(c) Termination by Executive. Executive’s employment may be terminated by Executive for Good Reason or no reason. For purposes of this Agreement, “Good Reason” shall mean:

(i) without the written consent of Executive, the assignment to Executive of any duties materially inconsistent with Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as in

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effect on the Effective Date, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by Executive;

(ii) a reduction by the Company in Executive’s Base Salary and benefits as in effect on the Effective Date or as the came may be increased from time to time, unless a similar reduction is made in salary and benefits of Peer Executives, or the failure by the Company to increase Executive’s Base Salary each year during the Employment Period by an amount which at least equals, on a percentage basis, the mean average percentage increase in base salary for Peer Executives, unless such failure to increase is based on nonarbitrary criteria applied to Executive and Peer Executives;

(iii) after the occurrence of a Change of Control, the Company’s requiring Executive to be based at any office or location other than in the greater Jacksonville, Florida metropolitan area or the Company’s requiring Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date;

(iv) any failure by the Company to comply with and satisfy Section 14(b) of this Agreement; or

(v) any termination by Executive for any reason or no reason during the 30-day period beginning on the first anniversary of a Change of Control.

(d) Notice of Termination. Any termination by the Company for Cause, or by Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 15(f) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company, respectively, hereunder or preclude Executive or the Company, respectively, from asserting such fact or circumstance in enforcing Executive’s or the Company’s rights hereunder.

(e) Date of Termination. “Date of Termination” means (i) if Executive’s employment is terminated by the Company for Cause, or by Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the

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case may be, (ii) if Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies Executive of such termination and (iii) if Executive’s employment is terminated by reason of death, Retirement or Disability, the Date of Termination shall be the date of death or Retirement of Executive or the Disability Effective Date, as the case may be.

8. Obligations of the Company upon Termination.

(a) Termination by Executive for Good Reason; Termination by the Company Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate Executive’s employment other than for Cause, death or Disability, or Executive shall terminate employment for Good Reason within a period of 30 days after the occurrence of the event giving rise to Good Reason, then in consideration of Executive’s services rendered prior to such termination and as reasonable compensation for his compliance with the Restrictive Covenants in Section 13 hereof:

(i) the Company shall pay to Executive in a lump sum in cash within 30 days after the Date of Termination or, with respect to the prorata bonus described in clause A(2) below, within 30 days after the determination of the bonus amount, the aggregate of the following amounts:

A. the sum of (1) Executive’s Base Salary through the Date of Termination to the extent not theretofore paid, (2) if the Date of Termination occurs after or in connection with the occurrence of a Change of Control, the product of (x) Executive’s annual bonus that would have been payable with respect to the fiscal year in which the Date of Termination occurs (determined at the end of such year based on actual performance results through the end of such year) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any compensation previously deferred by Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the “Accrued Obligations”); and

B. the amount equal to six times Executive’s monthly Base Salary in effect as of the Date of Termination (the “Severance Payment”); provided, however, that if the Date of Termination occurs after or in connection with the occurrence of a Change of Control, the Severance Payment shall be the amount equal to two times Executive’s annual Base Salary in effect as of the Date of Termination; and

(ii) for six months after Executive’s Date of Termination (or two years in the event that the Date of Termination occurs after or in connection with the occurrence of a Change of Control), or such longer period as may be provided by the

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terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to Executive and/or Executive’s family at least equal to those which would have been provided to them in accordance with the welfare plans, programs, practices and policies described in Section 5(c) of this Agreement if Executive’s employment had not been terminated or, if more favorable to Executive, as in effect generally at any time thereafter with respect to Peer Executives and their families, provided, however, that if Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility (“Welfare Benefits”); and

(iii) the Company shall, within 30 days of receipt of reasonably documented invoices therefor, reimburse Executive’s actual cost (not to exceed $15,000) for outplacement expenses incurred within one year after the Date of Termination; and

(iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to Executive any other amounts or benefits required to be paid or provided or which Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).

(b) Death. If Executive’s employment is terminated by reason of Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)), the timely payment or provision of Other Benefits, and a lump sum amount equal to one (1) month’s salary, based on Executive’s Base Salary in effect as of the date of death. Accrued Obligations shall be paid to Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(b) shall include, without limitation, and Executive’s estate and/or beneficiaries shall be entitled to receive, benefits under such plans, programs, practices and policies relating to death benefits, if any, as applicable to Executive on the Date of Termination.

(c) Disability. If Executive’s employment is terminated by reason of Executive’s Disability during the Employment Period, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)) and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(c) shall include, without limitation, and Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits under such plans, programs, practices and policies relating to disability, if any, as applicable to Executive on the Date of Termination.

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(d) Retirement. If Executive’s employment is terminated by reason of Executive’s Retirement during the Employment Period, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)) and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 8(d) shall include, without limitation, and Executive shall be entitled after the Date of Termination to receive, retirement and other benefits under such plans, programs, practices and policies relating to retirement, if any, as applicable to Executive on the Date of Termination.

(e) Cause or Voluntary Termination without Good Reason. If Executive’s employment shall be terminated for Cause during the Employment Period, or if Executive voluntarily terminates employment during the Employment Period without Good Reason, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)), the continuation of Welfare Benefits for a period of 30 days after the Date of Termination, payment of a lump sum amount equal to 30 days’ salary, based on Executive’s Base Salary in effect as of the Date of Termination, and the timely payment or provision of Other Benefits.

9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which Executive may qualify, nor, subject to Section 15(d), shall anything herein limit or otherwise affect such rights as Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.

10. Certain Additional Payments by the Company.

(a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any benefit, payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 10) (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively

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referred to as the “Excise Tax”), then: Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 10(a), if it shall be determined that Executive is entitled to a Gross-Up Payment, but that Executive, after taking into account the Payments and the Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000 (taking into account both income taxes and any Excise Tax) as compared to the net after-tax proceeds to Executive resulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount (the “Reduced Amount”) such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. The Executive may select the Payments to be limited or reduced.

(b) Subject to the provisions of Section 10(c), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company’s regular independent accounting firm at the expense of the Company or, at the election and expense of Executive, another nationally recognized independent accounting firm (the “Accounting Firm”) which shall provide detailed supporting calculations. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 10(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.

(c) Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall:

(i) give the Company any information reasonably requested by the Company relating to such claim,

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(ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

(iii) cooperate with the Company in good faith in order effectively to contest such claim, and

(iv) permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation of the foregoing provisions of this Section 10(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

(d) If, after the receipt by Executive of an amount advanced by the Company pursuant to Section 10(c), Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Company’s complying with the requirements of Section 10(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto).

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11. Costs of Enforcement. In any action taken in good faith relating to the enforcement of this Agreement or any provision herein after the occurrence of a Change of Control, Executive shall be entitled to be paid any and all costs and expenses incurred by him in enforcing or establishing his rights thereunder, including, without limitation, reasonable attorneys’ fees, whether suit be brought or not, and whether or not incurred in trial, bankruptcy or appellate proceedings. In all other circumstances, each party in any such action shall pay his or its own such costs and expenses.

12. Representations and Warranties. Executive hereby represents and warrants to the Company that Executive is not a party to, or otherwise subject to, any covenant not to compete (other than as contained herein) with any person or entity, and Executive’s execution of this Agreement and performance of his obligations hereunder will not violate the terms or conditions of any contract or obligation, written or oral, between Executive and any other person or entity.

13. Restrictions on Conduct of Executive.

(a) General. Executive and the Company understand and agree that the purpose of the provisions of this Section 13 is to protect legitimate business interests of the Company, as more fully described below, and is not intended to eliminate Executive’s post-employment competition with the Company per se, nor is it intended to impair or infringe upon Executive’s right to work, earn a living, or acquire and possess property from the fruits of his labor. Executive hereby acknowledges that the post-employment restrictions set forth in this Section 13 are reasonable and that they do not, and will not, unduly impair his ability to earn a living after the termination of this Agreement. Therefore, subject to the limitations of reasonableness imposed by law upon the restrictions set forth herein, Executive shall be subject to the restrictions set forth in this Section 13.

(b) Definitions. The following capitalized terms used in this Section 13 shall have the meanings assigned to them below, which definitions shall apply to both the singular and the plural forms of such terms:

“Competitive Services” means any services provided by Company at the Determination Date, including, but not limited to the marketing, sale and distribution of medical supplies, equipment and pharmaceuticals to primary care and other office-based physicians; the marketing, sale and distribution of medical diagnostic imaging supplies, chemicals, equipment and service to the acute care and alternate care market; and the provisions of special group purchasing contract pricing and periodic cost analyses to help manage the supply needs of individual physicians or practices.

“Confidential Information” means any confidential or proprietary information possessed by the Company or its affiliated entities or relating to its or their business, including without limitation, any confidential “know-how”, customer lists, details of client or consultant contracts, current and anticipated customer requirements, pricing

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policies price lists, market studies, business plans, operational methods, marketing plans or strategies, product development techniques or plans, computer software programs (including object code and source code), data and documentation, data base technologies, systems, structures and architectures, inventions and ideas, past, current and planned research and development, compilations, devices, methods, techniques, processes, financial information and data, business acquisition plans, new personnel acquisition plans and any other information that would constitute a Trade Secret (as defined herein).

“Determination Date” means the date of termination of Executive’s employment with the Company for any reason whatsoever or any earlier date (during the Employment Period) of an alleged breach of the Restrictive Covenants by Executive.

“Person” means any individual or any corporation, partnership, joint venture, association or other entity or enterprise.

“Principal or Representative” means a principal, owner, partner, shareholder, joint venturer, investor, member, trustee, director, officer, manager, employee, agent, representative or consultant.

“Protected Clients” means any Person to whom the Company provided services or submitted a written proposal therefor, within eighteen (18) months prior to the Determination Date.

“Protected Employees” means employees of the Company who were employed by the Company at any time within six (6) months prior to the Determination Date.

“Restricted Period” means the term of Executive’s employment hereunder and a period extending until eighteen (18) months from the Date of Termination; provided, however that such period shall be extended by any length of time during which Executive is in breach of the Restricted Covenants.

“Restrictive Covenants” means the restrictive covenants contained in Section 13(c) hereof.

“Trade Secret” means any item of Confidential Information that constitutes a “trade secret(s)” under the common law or statutory law of the State of Florida.

(c) Restrictive Covenants.

(i) Restriction on Disclosure and Use of Confidential Information. Executive understands and agrees that the Confidential Information constitutes a valuable asset of the Company and its affiliated entities, and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that Executive shall not, directly or indirectly, at any time during the Restricted Period reveal, divulge, or disclose to any

13

Person not expressly authorized by the Company any Confidential Information, and Executive shall not, directly or indirectly, at any time during the Restricted Period use or make use of any Confidential Information in connection with any business activity other than that of the Company; provided, however, in the event the Confidential Information constitutes a Trade Secret, the Restricted Period referred to above shall be five (5) years. Notwithstanding the above, this covenant shall expire (except with respect to Trade Secrets) upon the occurrence of a Change of Control.

(ii) Nonsolicitation of Protected Employees. Executive understands and agrees that the relationship between the Company and each of its Protected Employees constitutes a valuable asset of the Company and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that during the Restricted Period Executive shall not directly or indirectly on Executive’s own behalf or as a Principal or Representative of any Person or otherwise solicit or induce any Protected Employee to terminate his or her employment relationship with the Company or to enter into any relationship of employment, agency or independent contractorship with any other Person. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

(iii) Restriction on Relationships with Protected Clients. Executive understands and agrees that the relationship between the Company and each of its Protected Clients constitutes a valuable asset of the Company and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that during the Restricted Period Executive shall not, without the prior written consent of the Company, become a Principal or Representative of a Protected Client or otherwise provide services to a Protected Client as a consultant or independent contractor. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

(iv) Noncompetition with the Company. During the Restricted Period Executive, unless acting in accordance with the Company’s prior written consent, will not directly provide any Competitive Services to, and will not, directly or indirectly, (i) own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or (ii) be connected as a Principal or Representative or otherwise with, or (iii) permit Executive’s name to be used by or in connection with, any Person engaged in providing Competitive Services to any Person conducting business activities within the territory in which the Company is or was engaged in the provision of the Competitive Services on the Determination Date; provided, however, that the provisions of this Agreement shall not be deemed to prohibit the ownership by Executive of any securities of the Company or its affiliated entities or not more than five percent (5%) of any class of securities of any corporation having a class of securities registered pursuant to the Securities Exchange Act of 1934, as amended. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change of Control.

(d) Exceptions from Disclosure Restrictions. Anything herein to the contrary notwithstanding, Executive shall not be restricted from disclosing or using

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Confidential Information that: (a) is or becomes generally available to the public other than as a result of an unauthorized disclosure by Executive or his agent; (b) becomes available to Executive in a manner that is not in contravention of applicable law from a source (other than the Company or its affiliated entities or one of its or their officers, employees, agents or representatives) that is not bound by a confidential relationship with the Company or its affiliated entities or by a confidentiality or other similar agreement; (c) was known to Executive on a non-confidential basis and not in contravention of applicable law or a confidentiality or other similar agreement before its disclosure to Executive by the Company or its affiliated entities or one of its or their officers, employees, agents or representatives; or (d) is required to be disclosed by law, court order or other legal process; provided, however, that in the event disclosure is required by law, Executive shall provide the Company with prompt notice of such requirement so that the Company may seek an appropriate protective order prior to any such required disclosure by Executive.

(e) Enforcement of Restrictive Covenants.

(i) Rights and Remedies Upon Breach. In the event Executive breaches, or threatens to commit a breach of, any of the provisions of the Restrictive Covenants, the Company shall have the following rights and remedies, which shall be independent of any others and severally enforceable, and shall be in addition to, and not in lieu of, any other rights and remedies available to the Company at law or in equity:

A. the right and remedy to enjoin, preliminarily and permanently, Executive from violating or threatening to violate the Restrictive Covenants and to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company; and

B. the right and remedy to require Executive to account for and pay over to the Company all compensation, profits, monies, accruals, increments or other benefits derived or received by Executive as the result of any transactions constituting a breach of the Restrictive Covenants.

(ii) Severability of Covenants. Executive acknowledges and agrees that the Restrictive Covenants are reasonable and valid in time and scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, are invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions.

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14. Assignment and Successors.

(a) Executive. This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal representatives.

(b) The Company. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor to all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “the Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.

15. Miscellaneous.

(a) Waiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this Agreement or of the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver.

(b) Severability. If any provision or covenant, or any part thereof, of this Agreement should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Agreement, all of which shall remain in full force and effect.

(c) Other Agents. Nothing in this Agreement is to be interpreted as limiting the Company from employing other personnel on such terms and conditions as may be satisfactory to it.

(d) Entire Agreement. Except as provided herein, this Agreement contains the entire agreement between the Company and Executive with respect to the subject matter hereof, and it supersedes and invalidates any previous agreements or contracts between them which relate to the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, which are not embodied herein shall be of any force or effect.

(e) Governing Law. Except to the extent preempted by federal law, and without regard to conflict of laws principles, the laws of the State of Florida shall govern this Agreement in all respects, whether as to its validity, construction, capacity, performance or otherwise.

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(f) Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered or three days after mailing if mailed, first class, certified mail, postage prepaid:

To Company:	PSS World Medical, Inc.
	4345 Southpoint Boulevard
	Jacksonville, Florida 32216
	Facsimile No. (904) 332-3209
	Attention: Patrick Kelly
To Executive:	David H. Ramsey
	1968 Ibis Point Lane
	Jacksonville, Florida 32224

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Any party may change the address to which notices, requests, demands and other communications shall be delivered or mailed by giving notice thereof to the other party in the same manner provided herein.

(g) Amendments and Modifications. This Agreement may be amended or modified only by a writing signed by both parties hereto, which makes specific reference to this Agreement; provided, however, that if, in the opinion of the Corporation’s accountants, any provision of this Agreement would preclude the use of “pooling of interest” accounting treatment for a Change of Control transaction that (1) would otherwise qualify for such accounting treatment, and (2) is contingent upon qualifying for such accounting treatment, then Executive and the Company agree to negotiate in good faith to amend this Agreement so that it will not preclude the use of “pooling of interest” accounting treatment for such Change of Control transaction.

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Employment Agreement as of the date first above written.

PSS WORLD MEDICAL, INC.
By:	/s/ Patrick Kelly
	Patrick Kelly
	Chairman of the Board and CEO
EXECUTIVE:
	/s/ David H. Ramsey
	David H. Ramsey

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EX-10.25

Exhibit 10.25

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into this 19th day of November, 2002 by and between PSS World Medical, Inc., a Florida corporation (hereinafter, the “Company” which term shall include the Company’s other subsidiaries, affiliates and successors), and Robert C. Weiner (hereinafter, “Executive”).

BACKGROUND

The Company desires to engage Executive in the executive capacities set forth herein, in accordance with the terms and conditions of this Agreement. Executive is willing to serve as such in accordance with the terms and conditions of this Agreement.

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

1. Effective Date. This Agreement is effective as of June 1, 2002 (the “Effective Date”).

2. Employment. Executive is currently employed as Vice President of Investor Relations of PSS World Medical, Inc. The purpose of this Agreement is to set forth the terms of Executive’s employment. Executive’s responsibilities under this Agreement shall be in accordance with the policies and objectives established by the Chief Executive Officer or the Board of Directors of the Company (the “Board”) and shall be consistent with the responsibilities of similarly situated executives of comparable companies in similar lines of business.

3. Employment Period. Unless earlier terminated herein in accordance with Section 7 hereof, Executive’s employment shall be for a one-year term (the “Employment Period”), beginning on the Effective Date. The Employment Period shall, without further action by Executive or the Company, be extended by an additional one-year period on each anniversary of the Effective Date; provided, however, that either party may, by notice to the other, cause the Employment Period to cease to extend automatically. Upon such notice, the Employment Period shall terminate upon the expiration of the then-current term, including any prior extensions. Notwithstanding the foregoing, if a Change in Control occurs the Employment Period shall be automatically extended through the later of (i) the first anniversary of the Change in Control, or (ii) the normal expiration of the then-current term, including any prior extensions.

4. Extent of Service. During the Employment Period, and excluding any periods of vacation and sick leave to which Executive is entitled, Executive agrees to devote his business time, attention, skill and efforts exclusively to the faithful

performance of his duties hereunder; provided, however, that it shall not be a violation of this Agreement for Executive to (i) devote reasonable periods of time to charitable and community activities and, with the approval of the Company, industry or professional activities, and/or (ii) manage personal business interests and investments, so long as such activities do not materially interfere with the performance of Executive’s responsibilities under this Agreement.

5. Compensation and Benefits.

(a) Base Salary. During the Employment Period, the Company will pay to Executive a base salary in an amount not less than $110,000, which is the base salary in effect for Executive on the Effective Date (“Base Salary”), less normal withholdings, payable in equal monthly or more frequent installments as are customary under the Company’s payroll practices from time to time. The Compensation Committee of the Board shall review Executive’s Base Salary annually and in its sole discretion, subject to approval of the Board, may increase Executive’s Base Salary from year to year. The annual review of Executive’s salary by the Board will consider, among other things, Executive’s own performance and the Company’s performance.

(b) Incentive, Savings and Retirement Plans. During the Employment Period, Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to level 4 officers of the Company and its affiliated companies (“Peer Executives”), and on the same basis as such Peer Executives.

(c) Welfare Benefit Plans. During the Employment Period, Executive and Executive’s family shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to Peer Executives.

(d) Expenses. During the Employment Period, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in accordance with the policies, practices and procedures of the Company and its affiliated companies to the extent applicable generally to Peer Executives.

(e) Fringe Benefits. During the Employment Period, Executive shall be entitled to fringe benefits in accordance with the plans, practices, programs and policies of the Company and its affiliated companies in effect for Peer Executives.

6. Change in Control. A “Change in Control” shall mean:

(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the

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“Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of either (i) 25% or more of the then outstanding shares of common stock of the Company (“Company Common Stock”), or (ii) securities of the Company representing 25% or more of the combined voting power of the then outstanding securities of the Company eligible to vote for the election of directors (the “Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (w) an acquisition directly from the Company, (x) an acquisition by the Company or any corporation controlled by the Company, (y) an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (z) any acquisition pursuant to a Non-Qualifying Transaction (as defined in subsection (c) of this definition); or

(b) Individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to the election or removal of directors (“Election Contest”) or other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board (“Proxy Contest”), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest, shall be deemed an Incumbent Director; or

(c) Consummation of a reorganization, merger or consolidation, statutory share exchange or similar form of corporate transaction involving the Company or a corporation controlled by the Company, or the sale or other disposition of all or substantially all of the Company’s assets, or the acquisition by the Company of assets or stock of another corporation (any of such transactions, a “Business Transaction”), unless immediately following such Business Transaction, all of the following are true: (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Company Common Stock and outstanding Company Voting Securities immediately prior to such Business Transaction beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries, the “Surviving Corporation”) in substantially the same proportions as their ownership, immediately prior to such Business Transaction of the outstanding Company Common Stock and outstanding Company Voting Securities, as the case may be, and (ii) no Person (other than (x) the Company or any subsidiary of the Company, (y) the Surviving

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Corporation or its ultimate parent corporation, or (z) any employee benefit plan (or related trust) sponsored or maintained by any of the foregoing) beneficially owns, directly or indirectly, 25% or more of the total common stock of the Surviving Corporation or 25% or more of the combined voting power of the then outstanding voting securities eligible to elect directors of the Surviving Corporation, except to the extent that such ownership existed prior to the Business Transaction, and (iii) at least a majority of the members of the board of directors of the Surviving Corporation were members of the Incumbent Board at the time of the Board approval of the execution of the initial agreement providing for such Business Transaction (any Business Transaction which satisfies all of the criteria specified in (i), (ii) and (iii) above shall be deemed to be a “Non-Qualifying Transaction”).

(d) If Executive’s employment responsibilities are primarily with Diagnostic Imaging, Inc., a disposition by the Company of a majority of the stock or substantially all of the assets of Diagnostic Imaging, Inc.; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of Diagnostic Imaging, Inc., then a Change of Control shall not be deemed to have occurred by virtue of this subsection (d); or

(e) If Executive’s employment responsibilities are primarily with Gulf South Medical Supply, Inc., a disposition by the Company of a majority of the stock or substantially all of the assets of Gulf South Medical Supply, Inc.; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of Gulf South Medical Supply, Inc., then a Change of Control shall not be deemed to have occurred by virtue of this subsection (e); or

(f) If Executive’s employment responsibilities are primarily with the Physician Sales & Service division of the Company, a disposition by the Company of substantially all of the assets of such division; provided, however, that if Executive is offered and accepts a position with the Company or another subsidiary or division of the Company immediately following such disposition of the Physician Sales & Service division, then a Change of Control shall not be deemed to have occurred by virtue of this subsection (f).

7. Termination of Employment.

(a) Death, Retirement or Disability. Executive’s employment shall terminate automatically upon Executive’s death or Retirement during the Employment Period. For purposes of this Agreement, “Retirement” shall mean normal retirement as defined in the Company’s then-current retirement plan, or if there is no such retirement plan, “Retirement” shall mean voluntary termination after age 65 with ten years of service. If the Company determines in good faith that the Disability of Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it

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may give Executive written notice in accordance with Section 15(f) of this Agreement of its intention to terminate Executive’s employment. In such event, Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such written notice by Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, Executive shall not have returned to full-time performance of Executive’s duties. For purposes of this Agreement, “Disability” shall mean a mental or physical disability as determined by the Board in accordance with standards and procedures similar to those under the Company’s employee long-term disability plan, if any. At any time that the Company does not maintain such a long-term disability plan, Disability shall mean the inability of Executive, as determined by the Board, to perform the essential functions of his regular duties and responsibilities (with or without reasonable accommodation) due to a medically determinable physical or mental illness which has lasted (or can reasonably be expected to last) for a period of six consecutive months.

(b) Termination by the Company. The Company may terminate Executive’s employment during the Employment Period with or without Cause. For purposes of this Agreement, “Cause” shall mean:

(i) the willful and continued failure of Executive to perform substantially Executive’s duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness, and specifically excluding any failure by Executive, after reasonable efforts, to meet performance expectations), after a written demand for substantial performance is delivered to Executive by the Board which specifically identifies the manner in which the Board believes that Executive has not substantially performed Executive’s duties, or

(ii) the willful engaging by Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company.

For purposes of this provision, no act or failure to act, on the part of Executive, shall be considered “willful” unless it is done, or omitted to be done, by Executive in bad faith or without reasonable belief that Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company. The cessation of employment of Executive shall not be deemed to be for Cause unless and until there shall have been delivered to Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board (excluding Executive if Executive is a director) at a meeting of the Board called and held for such purpose (after reasonable notice is provided to Executive and Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail.

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(c) Termination by Executive. Executive’s employment may be terminated by Executive for Good Reason or no reason. For purposes of this Agreement, “Good Reason” shall mean:

(i) without the written consent of Executive, the assignment to Executive of any duties materially inconsistent with Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as in effect on the Effective Date, or any other action by the Company which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by Executive;

(ii) a reduction by the Company in Executive’s Base Salary and benefits as in effect on the Effective Date or as the same may be increased from time to time, unless a similar reduction is made in salary and benefits of Peer Executives generally; or

(iii) any failure by the Company to comply with and satisfy Section 14(b) of this Agreement.

(d) Notice of Termination. Any termination by the Company for Cause, or by Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 15(f) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice that (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company, respectively, hereunder or preclude Executive or the Company, respectively, from asserting such fact or circumstance in enforcing Executive’s or the Company’s rights hereunder.

(e) Date of Termination. “Date of Termination” means (i) if Executive’s employment is terminated by the Company for Cause, or by Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein (which date shall be not more than 30 days after the giving of such notice), as the case may be, (ii) if Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies Executive of such termination or any later date specified in the Notice of Termination

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(which date shall be not more than 30 days after the giving of such notice), and (iii) if Executive’s employment is terminated by reason of death, Retirement or Disability, the Date of Termination shall be the date of death or Retirement of Executive or the Disability Effective Date, as the case may be.

8. Obligations of the Company upon Termination.

(a) Termination by Executive for Good Reason; Termination by the Company Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate Executive’s employment other than for Cause, death or Disability, or Executive shall terminate employment for Good Reason within a period of 30 days after the occurrence of the event giving rise to Good Reason, then in consideration of Executive’s services rendered prior to such termination and as reasonable compensation for his compliance with the Restrictive Covenants in Section 13 hereof, and, with respect to the payments and benefits described in clauses (i)(B) and (ii) below, only if Executive executes a Release in substantially the form of Exhibit A hereto (the “Release”):

(i) the Company shall pay to Executive in a lump sum in cash within 30 days after the Date of Termination or, with respect to the prorata bonus described in clause A(2) below, within 30 days after the determination of the bonus amount, the aggregate of the following amounts:

A. the sum of (1) Executive’s Base Salary through the Date of Termination to the extent not theretofore paid, (2) if the Date of Termination occurs after or in connection with the occurrence of a Change in Control, the product of (x) Executive’s annual bonus that would have been payable with respect to the fiscal year in which the Date of Termination occurs (determined at the end of such year based on actual performance results through the end of such year) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (3) any accrued vacation pay, to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2) and (3) shall be hereinafter referred to as the “Accrued Obligations”); and

B. the amount equal to one-half (0.50) times the sum of (1) Executive’s annual Base Salary in effect as of the Date of Termination, and (2) Executive’s target annual bonus for the year in which the Date of Termination occurs (“Target Bonus”) (such amount is referred to as the “Severance Payment”); provided, however, that if the Date of Termination occurs after or in connection with the occurrence of a Change in Control, the Severance Payment shall be the amount equal to one and one-half (1.5) times the sum of (1) Executive’s annual Base Salary in effect as of the Date of Termination, and (2) Executive’s Target Bonus; and

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(ii) for six months after Executive’s Date of Termination (or eighteen months in the event that the Date of Termination occurs after or in connection with the occurrence of a Change in Control), or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to Executive and/or Executive’s family at least equal to those which would have been provided to them in accordance with the welfare plans, programs, practices and policies described in Section 5(c) of this Agreement if Executive’s employment had not been terminated or, if more favorable to Executive, as in effect generally at any time thereafter with respect to Peer Executives and their families, provided, however, that if Executive becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility (“Welfare Benefits”); and

(iii) the Company shall, within 30 days of receipt of reasonably documented invoices therefor, reimburse Executive’s actual cost (not to exceed $15,000) for outplacement expenses incurred within one year after the Date of Termination; and

(iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to Executive any other amounts or benefits required to be paid or provided or which Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).

(b) Death. If Executive’s employment is terminated by reason of Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to Executive’s legal representatives under this Agreement, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)) and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as used in this Section 8(b) shall include, without limitation, and Executive’s estate and/or beneficiaries shall be entitled to receive, benefits under such plans, programs, practices and policies relating to death benefits, if any, as applicable to Executive on the Date of Termination.

(c) Disability. If Executive’s employment is terminated by reason of Executive’s Disability during the Employment Period, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)) and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as used in this Section 8(c) shall include, without limitation, and Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits under such plans, programs, practices and

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policies relating to disability, if any, as applicable to Executive on the Date of Termination.

(d) Retirement. If Executive’s employment is terminated by reason of Executive’s Retirement during the Employment Period, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)) and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as used in this Section 8(d) shall include, without limitation, and Executive shall be entitled after the Date of Termination to receive, retirement and other benefits under such plans, programs, practices and policies relating to retirement, if any, as applicable to Executive on the Date of Termination.

(e) Cause or Voluntary Termination without Good Reason. If Executive’s employment shall be terminated for Cause during the Employment Period, or if Executive voluntarily terminates employment during the Employment Period without Good Reason, this Agreement shall terminate without further obligations to Executive, other than for payment of Accrued Obligations (excluding the pro-rata bonus described in clause 2 of Section 8(a)(i)(A)) and the timely payment or provision of Other Benefits.

9. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which Executive may qualify, nor, subject to Section 15(d), shall anything herein limit or otherwise affect such rights as Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement.

10. Mandatory Reduction of Payments in Certain Events.

(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any benefit, payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then, prior to the making of any Payment to Executive, a calculation shall be made comparing (i) the net benefit to Executive of all Payments after payment of the Excise Tax, to (ii) the net benefit to Executive if the Payments had been limited to the extent necessary to avoid being subject to the Excise Tax. If the amount calculated under (i) above is less than the

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amount calculated under (ii) above, then the Payments shall be limited to the extent necessary to avoid being subject to the Excise Tax (the “Reduced Amount”). In that event, Executive shall direct which Payments are to be modified or reduced.

(b) The determination of whether an Excise Tax would be imposed and the assumptions to be used in arriving at such determination, the amount of such Excise Tax, and the calculation of the amounts referred to Section 10(a)(i) and (ii) above shall be made by the Company’s regular independent accounting firm at the expense of the Company or, at the election and expense of Executive, another nationally recognized independent accounting firm (the “Accounting Firm”) which shall provide detailed supporting calculations. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Payments which Executive was entitled to, but did not receive pursuant to Section 10(a), could have been made without the imposition of the Excise Tax (“Underpayment”). In that event, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.

(c) In the event that the provisions of Code Section 280G and 4999 or any successor provisions are repealed without succession, this Section 10 shall be of no further force or effect.

11. Costs of Enforcement. In any action taken in good faith relating to the enforcement of this Agreement or any provision herein after the occurrence of a Change in Control, Executive shall be entitled to be paid any and all costs and expenses incurred by him in enforcing or establishing his rights thereunder, including, without limitation, reasonable attorneys’ fees, whether suit be brought or not, and whether or not incurred in trial, bankruptcy or appellate proceedings. In all other circumstances, each party in any such action shall pay his or its own such costs and expenses.

12. Representations and Warranties. Executive hereby represents and warrants to the Company that Executive is not a party to, or otherwise subject to, any covenant not to compete (other than as contained herein) with any person or entity, and Executive’s execution of this Agreement and performance of his obligations hereunder will not violate the terms or conditions of any contract or obligation, written or oral, between Executive and any other person or entity.

13. Restrictions on Executive’s Conduct.

(a) General. Executive and the Company understand and agree that the purpose of the provisions of this Section 13 is to protect legitimate business interests of the Company, as more fully described below, and is not intended to eliminate Executive’s post-employment competition with the Company per se, nor is it intended to impair or infringe upon Executive’s right to work, earn a living, or acquire and possess property

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from the fruits of his labor. Executive hereby acknowledges that Executive has received good and valuable consideration for the post-employment restrictions set forth in this Section 13 in the form of the compensation and benefits provided for herein. Executive hereby further acknowledges that the post-employment restrictions set forth in this Section 13 are reasonable and that they do not, and will not, unduly impair Executive’s ability to earn a living after the Date of Termination. Therefore, subject to the limitations of reasonableness imposed by law, Executive shall be subject to the restrictions set forth in this Section 13.

(b) Definitions. The following capitalized terms used in this Section 13 shall have the meanings assigned to them below, which definitions shall apply to both the singular and the plural forms of such terms:

“Competitive Position” means any position with a Competitor as a Principal or Representative in which Executive will use or is likely to use any Confidential Information or Trade Secrets of the Company, or in which Executive has duties for, provides services to, or otherwise assists such Competitor where such duties, services or assistance involve Competitive Services.

“Competitive Services” means any activities engaged in by the Company as of the Date of Termination that relate directly to (a) the distribution of medical supplies, equipment and pharmaceuticals to (i) primary care and other office-based physicians, or (ii) nursing homes, extended care facilities, assisted living facilities, or home care or visiting nurse associations or agencies, or (b) the distribution of medical diagnostic imaging supplies, chemicals, equipment and service to the acute care and alternate care market; provided, however, that Competitive Services shall not include (x) the manufacture of medical supplies, equipment or pharmaceuticals or medical diagnostic imaging supplies, chemicals or equipment (collectively “Medical Products”), (y) the provision of e-commerce or internet services with respect to the dissemination of information or services related to the distribution of Medical Products (but which is not the distribution of Medical Products), or (z) the provision of group purchasing, contract pricing or cost analyses for physicians or medical practices.

“Competitor” means any Person engaged, wholly or in material part, in Competitive Services.

“Confidential Information” means all information regarding the Company, its activities, business or clients that is the subject of reasonable efforts by the Company to maintain its confidentiality and that is not generally disclosed by practice or authority to persons not employed by the Company, but that does not rise to the level of a Trade Secret. “Confidential Information” shall include, but is not limited to, financial plans and data concerning the Company; management planning information; business plans; operational methods; market studies; marketing plans or strategies; product development techniques or plans; customer lists; details of customer contracts; current and anticipated customer requirements; past, current and planned research and

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development; business acquisition plans; and new personnel acquisition plans. “Confidential Information” shall not include information that has become generally available to the public by the act of one who has the right to disclose such information without violating any right or privilege of the Company. This definition shall not limit any definition of “confidential information” or any equivalent term under state or federal law.

“Person” means any individual or any corporation, partnership, joint venture, limited liability company, association or other entity or enterprise.

“Principal or Representative” means a principal, owner, partner, shareholder, joint venturer, investor, member, trustee, director, officer, manager, employee, agent, representative or consultant.

“Protected Customers” means any Person to whom the Company has sold its products or services or to whom the Company has submitted a written proposal to sell its products or services during the twelve (12) months prior to the Date of Termination.

“Protected Employees” means employees of the Company who were employed by the Company at any time within six (6) months prior to the Date of Termination.

“Restricted Period” means the term of Executive’s employment hereunder and a period extending until eighteen (18) months from the Date of Termination.

“Restricted Territory” means the territory in which Executive provided Competitive Services to the Company at any time during the twenty-four (24) month period prior to the Date of Termination.

“Restrictive Covenants” means the restrictive covenants contained in Section 13(d) hereof.

“Trade Secret” means all information, without regard to form, including, but not limited to, technical or nontechnical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, distribution lists or a list of actual or potential customers, advertisers or suppliers which is not commonly known by or available to the public and which information: (A) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Without limiting the foregoing, Trade Secret means any item of confidential information that constitutes a “trade secret(s)” under the common law or statutory law of the State of Florida.

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(c) Protectable Employer Interests. Executive and the Company acknowledge and agree as follows: (i) that Executive’s services on behalf of the Company require special expertise and talent in the provision of Competitive Services and, pursuant to Executive’s employment with the Company, the Company shall devote time and money to the enhancement of Executive’s professional skills and education through specialized training; (ii) that Executive is in a position of trust and responsibility and will have access to a substantial amount of Confidential Information and Trade Secrets belonging to the Company; (iii) that, during the term of Executive’s employment by the Company, Executive will develop substantial relationships with prospective and existing customers of the Company; and (iv) that as a manager of the Company, Executive will be the repository of a substantial portion of the goodwill of the Company.

(d) Restrictive Covenants.

(i) Restriction on Disclosure and Use of Confidential Information and Trade Secrets. Executive understands and agrees that the Confidential Information and Trade Secrets constitute valuable assets of the Company and its affiliated entities, and may not be converted to Executive’s own use. Accordingly, Executive hereby agrees that Executive shall not, directly or indirectly, at any time during the Restricted Period reveal, divulge, or disclose to any Person not expressly authorized by the Company any Confidential Information, and Executive shall not, directly or indirectly, at any time during the Restricted Period use or make use of any Confidential Information in connection with any business activity. For a period of five years after the date of Termination, Executive shall not directly or indirectly transmit or disclose any Trade Secret of the Company to any Person, and shall not make use of any such Trade Secret, directly or indirectly, for himself or for others, without the prior written consent of the Company. Executive and the Company acknowledge and agree that this Section 13 is not intended to, and does not, alter either the Company’s rights or Executive’s obligations under any state or federal statutory or common law regarding trade secrets and unfair trade practices. Notwithstanding the above, this covenant shall expire (except with respect to Trade Secrets) upon the occurrence of a Change in Control.

(ii) Nonsolicitation of Protected Employees. Executive understands and agrees that the relationship between the Company and each of its Protected Employees constitutes a valuable asset of the Company and may not be converted through Executive’s solicitation to Executive’s own use. Accordingly, Executive hereby agrees that during the Restricted Period, Executive will not, directly or indirectly, on his own behalf or as a Principal or Representative of any Person or otherwise, solicit or induce any Protected Employee to terminate his or her employment relationship with the Company or to enter into any relationship of employment, agency or independent contractorship with any other Person. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change in Control.

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(iii) Restriction on Relationships with Protected Customers. Executive understands and agrees that the relationship between the Company and each of its Protected Customers constitutes a valuable asset of the Company and may not be converted through Executive’s solicitation to Executive’s own use. Accordingly, Executive hereby agrees that, during the Restricted Period, Executive will not, without the prior written consent of the Company, directly or indirectly, on his own behalf or as a Principal or Representative of any Person, solicit, divert, or attempt to solicit or divert a Protected Customer for the purpose of providing or selling Competitive Services; provided, however, that the prohibition of this covenant shall apply only to Protected Customers with whom Executive had Material Contact on the Company’s behalf during the twelve (12) months immediately preceding the Date of Termination. For purposes of this Agreement, Executive had “Material Contact” with a Protected Customer if (a) Executive had business dealings with the Protected Customer on the Company’s behalf; (b) Executive was responsible for supervising or coordinating the dealings between the Company and the Protected Customer; or (c) Executive obtained Trade Secrets or Confidential Information about the customer as a result of Executive’s association with the Company. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change in Control.

(iv) Noncompetition with the Company. Executive understands and agrees that he is capable of obtaining gainful, lucrative and desirable employment that does not violate the restrictions contained in this Agreement. In consideration of the compensation and benefits being paid and to be paid by the Company to Executive hereunder, Executive hereby agree that, during the Restricted Period, Executive will not, without prior written consent of the Company, directly or indirectly seek or obtain a Competitive Position in the Restricted Territory with a Competitor; provided, however, that the provisions of this Agreement shall not be deemed to prohibit the ownership by Executive of any securities of the Company or its affiliated entities or not more than five percent (5%) of any class of securities of any corporation having a class of securities registered pursuant to the Securities Exchange Act of 1934, as amended. Notwithstanding the above, this covenant shall expire upon the occurrence of a Change in Control.

(e) Exceptions from Disclosure Restrictions. Anything herein to the contrary notwithstanding, Executive will not be restricted from disclosing or using Confidential Information that: (i) is or becomes generally available to the public other than as a result of an unauthorized disclosure by Executive or Executive’s agent; (ii) becomes available to Executive in a manner that is not in contravention of applicable law from a source (other than the Company or its affiliated entities or one of its or their officers, employees, agents or representatives) that is not bound by a confidential relationship with the Company or its affiliated entities or by a confidentiality or other similar agreement; (iii) was known to Executive on a non-confidential basis and not in contravention of applicable law or a confidentiality or other similar agreement before its disclosure to Executive by the Company or its affiliated entities or one of its or their officers, employees, agents or representatives; or (iv) is required to be disclosed by law,

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court order or other legal process; provided, however, that in the event disclosure is required by law, Executive will provide the Company with prompt notice of such requirement so that the Company may seek an appropriate protective order prior to any such required disclosure by Executive.

(f) Reasonableness. The covenants contained in this Section 13 are considered by the parties hereto to be fair, reasonable and necessary for the protection of the legitimate business interests of the Company.

(g) Enforcement of Restrictive Covenants.

(i) Rights and Remedies Upon Breach. In the event Executive breaches, or threatens to commit a breach of, any of the provisions of the Restrictive Covenants, the Company shall have the following rights and remedies, which shall be independent of any others and severally enforceable, and shall be in addition to, and not in lieu of, any other rights and remedies available to the Company at law or in equity: (1) the right and remedy to enjoin, preliminarily and permanently, Executive from violating or threatening to violate the Restrictive Covenants and to have the Restrictive Covenants specifically enforced, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company; and (2) the right and remedy to cease any further Severance Payment or provision of Welfare Benefits to Executive under Section 8 of this Agreement and to require Executive to account for and pay over to the Company any Severance Payment previously paid to Executive under Section 8.

(ii) Severability of Covenants. Executive acknowledges and agrees that the Restrictive Covenants are reasonable and valid in time and scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, are invalid or unenforceable, the remainder of the Restrictive Covenants will not thereby be affected and will be given full effect, without regard to the invalid portions.

(iii) Reformation. Executive and the Company agree that it is their mutual intention that the Restrictive Covenants be enforced in accordance with their terms to the maximum extent possible under applicable law. Executive and the Company further agree that, in the event any court of competent jurisdiction shall find that any provision hereof is not enforceable in accordance with its terms, the court shall reform the Restrictive Covenants such that they will be enforceable to the maximum extent permissible at law.

(iv) Survival of the Restrictive Covenants. Executive and the Company agree that the terms of this Section 13 shall survive the termination or expiration of the Employment Period, unless expressly terminated by a writing signed by both parties hereto, which makes specific reference to this Section 13.

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14. Assignment and Successors.

(a) Executive. This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive’s legal representatives.

(b) The Company. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. The Company will require any successor to all or substantially all of the business and/or assets of the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise) to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “the Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.

15. Miscellaneous.

(a) Waiver. Failure of either party to insist, in one or more instances, on performance by the other in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of any right granted in this Agreement or of the future performance of any such term or condition or of any other term or condition of this Agreement, unless such waiver is contained in a writing signed by the party making the waiver.

(b) Severability. If any provision or covenant, or any part thereof, of this Agreement should be held by any court to be invalid, illegal or unenforceable, either in whole or in part, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of the remaining provisions or covenants, or any part thereof, of this Agreement, all of which shall remain in full force and effect.

(c) Other Agents. Nothing in this Agreement is to be interpreted as limiting the Company from employing other personnel on such terms and conditions as may be satisfactory to it.

(d) Entire Agreement. Except as provided herein, this Agreement contains the entire agreement between the Company and Executive with respect to the subject matter hereof, and it supersedes and invalidates any previous agreements or contracts between them which relate to the subject matter hereof. No representations, inducements, promises or agreements, oral or otherwise, which are not embodied herein shall be of any force or effect.

(e) Choice of Law; Forum Selection. The validity, interpretation and performance of this Agreement shall be governed by and controlled in accordance with

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the laws of the State of Florida, including said State’s choice of law rules. The parties hereto voluntarily submit themselves to the jurisdiction of the state or federal district courts in the State of Florida which shall have exclusive jurisdiction over any case or controversy arising under or in connection with this Agreement, including with respect to an action to remedy any breach of or otherwise to enforce the terms and conditions of this Agreement.

(f) Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered or three days after mailing if mailed, first class, certified mail, postage prepaid:

To Company:	PSS World Medical, Inc.
	4345 Southpoint Boulevard
	Jacksonville, Florida 32216
	Facsimile No. (904) 332-3209
	Attention: Chief Executive Officer
To Executive:	Robert C. Weiner
	8161 Pine Lake Road
	Jacksonville, Florida 32256

Any party may change the address to which notices, requests, demands and other communications shall be delivered or mailed by giving notice thereof to the other party in the same manner provided herein.

(g) Amendments and Modifications. This Agreement may be amended or modified only by a writing signed by both parties hereto, which makes specific reference to this Agreement.

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Employment Agreement as of the date first above written.

PSS WORLD MEDICAL, INC.
By:	/s/ David A. Smith
	David A. Smith President and Chief Executive Officer

EXECUTIVE:
	/s/ Robert C. Weiner
	Robert C. Weiner

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EXHIBIT A

Form of Release of Claims

THIS RELEASE (“Release”) is granted effective as of the 19th day of November, 2002, by Robert C. Weiner (“Executive”) in favor of PSS World Medical, Inc. (the “Company”). This is the Release referred to that certain Employment Agreement dated effective as of June 1, 2002 by and between the Company and Executive (the “Employment Agreement”). Executive gives this Release in consideration of the Company’s promises and covenants as recited in the Employment Agreement, with respect to which this Release is an integral part.

1. Release of the Company. Executive, for himself, his successors, assigns, attorneys, and all those entitled to assert his rights, now and forever hereby releases and discharges the Company and its respective officers, directors, stockholders, trustees, employees, agents, parent corporations, subsidiaries, affiliates, estates, successors, assigns and attorneys (the “Released Parties”), from any and all claims, actions, causes of action, sums of money due, suits, debts, liens, covenants, contracts, obligations, costs, expenses, damages, judgments, agreements, promises, demands, claims for attorney’s fees and costs, or liabilities whatsoever, in law or in equity, which Executive ever had or now has against the Released Parties arising by reason of or in any way connected with any employment relationship which existed between the Company or any of its parents, subsidiaries, affiliates, or predecessors, and Executive. It is understood and agreed that this Release is intended to cover all actions, causes of action, claims or demands for any damage, loss or injury arising from the aforesaid employment relationship, or the termination of that relationship, that Executive has, had or purports to have, from the beginning of time to the date of this Release, whether known or unknown, that now exists related to the aforesaid employment relationship including but not limited to claims for employment discrimination under federal or state law, except as provided in Paragraph 2; claims arising under Title VII of the Civil Rights Act, 42 U.S.C. § 2002(e), et seq. or the Americans With Disabilities Act, 42 U.S.C. § 12101 et seq.; claims for statutory or common law wrongful discharge, including any claims arising under the Fair Labor Standards Act, 29 U.S.C. § 201 et seq.; claims for attorney’s fees, expenses and costs; claims for defamation; claims for wages or vacation pay; claims for benefits, including any claims arising under the Employee Retirement Income Security Act, 29 U.S.C. § 1001, et seq.; and provided, however, that nothing herein shall release the Company of their obligations to Executive under the Employment Agreement or any other contractual obligations between the Company or its affiliates and Executive, or any indemnification obligations to Executive under the Company’s bylaws, articles of incorporation, Florida law or otherwise.

2. Release of Claims Under Age Discrimination in Employment Act. Without limiting the generality of the foregoing, Executive agrees that by executing this Release, he has released and waived any and all claims he has or may have as of the date of this Release for age discrimination under the Age Discrimination in Employment Act,

29 U.S.C. § 621, et seq. It is understood that Executive is advised to consult with an attorney prior to executing this Release; that he in fact has consulted a knowledgeable, competent attorney regarding this Release; that he may, before executing this Release, consider this Release for a period of twenty-one (21) calendar days; and that the consideration he receives for this Release is in addition to amounts to which he was already entitled. It is further understood that this Release is not effective until seven (7) calendar days after the execution of this Release and that Executive may revoke this Release within seven (7) calendar days from the date of execution hereof.

Executive agrees that he has carefully read this Release and is signing it voluntarily. Executive acknowledges that he has had twenty one (21) days from receipt of this Release to review it prior to signing or that, if Executive is signing this Release prior to the expiration of such 21-day period, Executive is waiving his right to review the Release for such full 21-day period prior to signing it. Executive has the right to revoke this Release within seven (7) days following the date of its execution by him. However, if Executive revokes this Release within such seven (7) day period, no severance benefit will be payable to him under the Employment Agreement and he shall return to the Company any such payment received prior to that date.

EXECUTIVE HAS CAREFULLY READ THIS RELEASE AND ACKNOWLEDGES THAT IT CONSTITUTES A GENERAL RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS AGAINST THE COMPANY AND ITS AFFILIATES UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT. EXECUTIVE ACKNOWLEDGES THAT HE HAS HAD A FULL OPPORTUNITY TO CONSULT WITH AN ATTORNEY OR OTHER ADVISOR OF HIS CHOOSING CONCERNING HIS EXECUTION OF THIS RELEASE AND THAT HE IS SIGNING THIS RELEASE VOLUNTARILY AND WITH THE FULL INTENT OF RELEASING THE COMPANY AND ITS AFFILIATES FROM ALL SUCH CLAIMS.

Robert C. Weiner

Date:

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EX-10.35

Exhibit 10.35

***** Confidential Treatment Requested. Confidential portions of this document

have been redacted and have been separately filed with the Commission.

SOURCING SERVICES AGREEMENT

FOR CHINA

BY AND BETWEEN

WORLD MED SHARED SERVICES, INC.

AND

TIGER SPECIALTY SOURCING LIMITED

AND

TIGER SHANGHAI SPECIALTY SOURCING CO., LTD.

AND

MARK ENGEL, ELAINE FONG AND DR. GAO ZHAN

TABLE OF CONTENTS

RECITALS		6
Article 1. Definitions		7
1.1	“Agreement”	7
1.2	“COG”	7
1.3	“COG Savings”	7
1.4	“Effective Date”	7
1.5	“Final Buyout”	7
1.6	“Final Buyout Price”	7
1.7	“Initial Buyout”	7
1.8	“Interim Buyout”	7
1.9	“Interim Buyout Price”	7
1.10	“Parties”.	7
1.11	“POs”.	7
1.12	“Principals”	7
1.13	“Products”	7
1.14	“Profit”.	7
1.15	“Proprietary Information”	7
1.16	“PSS Group”	7
1.17	“PSS Ownership”	7
1.18	“PSSWM”	8
1.19	“Purchase Price”	8
1.20	“Reduced Interim Buyout Price”	8
1.21	“Suppliers”.	8
1.22	“Supply Contracts”	8
1.23	“Targeted Sales (Landed Costs)”	8
1.24	“Term”	8
1.25	“Tiger Group”	8
1.26	“Tiger Medical”	8
1.27	“Tiger SS”	8
1.28	“Total Purchase Price”	8
1.29	“Trademarks”	8
1.30	“TIGER WFOE”.	8
Article 2. Recitals, Acceptance of Terms and Term		8
2.1	Recitals.	8
2.2	Acceptance of Terms.	8
2.3	Term	8
Article 3. Exclusivity, Non-Competition and Transparency		8
3.1	Exclusivity to Tiger SS	8
3.2	Exclusivity to PSSWM.	9
3.3	Non-Competition	10
3.4	Transparency	10
Article 4. Board Seat, Buyouts		10
4.1	Board Seat	10
4.2	Initial Buyout	10

4.3	Interim Buyouts	11
4.4	Final Buyout	11
4.5	Early Trigger of Final Buyout	12
4.6	Adjustments to the Final Buyout Price	12
4.7	Closing Documents for the Final Buyout	12
4.8	Landed Cost of Goods	12
4.9	Payments of Interim and Final Buyout Price	13
4.10	Minimum COG Savings and Actual Sales	13
Article 5. Sourcing Services; Contracts with Supplier		13
5.1	Sourcing Services	13
5.2	Contracts with Suppliers	13
5.3	Supply Contracts and Pos	13
Article 6. Additional Rights and Obligations of Parties		14
6.1	Tiger SS Shareholders	14
6.2	No Transfer of Beneficial Interest	14
6.3	Role of Mark Engel	14
6.4	Employee Retention Plan	14
6.5	Costs of Formation and Operation	14
6.6	Working Capital	14
6.7	Distributions	15
6.8	Operational Expenses	15
6.9	Holdback	15
6.10	Indemnity.	16
Article 7. Products, Product Design, Product Development		16
7.1	Products	16
7.2	Product Quality	16
7.3	New Product Design Ownership.	16
7.4	New Product Development Assistance	17
7.5	Product Innovations	17
7.6	Exclusive Right to Market and Sell	17
Article 8. Commissions, Payments and Taxes		17
8.1	Commissions	17
8.2	Product Cost	17
8.3	Product Cost Transparency	18
8.4	Commission Payments	18
8.5	Product Payments	18
8.6	Taxes	18
Article 9. Authority, Representations and Warranties		18
9.1	No Authority to Contract	18
9.2	Signatories to the Supply Contract	18
9.3	Mutual Representations and Warranties	19
9.4	Representations and Warranties of the Principals	19
Article 10. Audit Books and Records		20
10.1	Audit Books and Records	20

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Article 11. Confidentiality, Non-compete		20
11.1	Proprietary Information	20
11.2	Confidentiality of Proprietary Information	21
11.3	Non-compete from Suppliers	21
11.4	Confidentiality Agreement from Target Suppliers	21
11.5	Confidentiality of this Agreement	21
Article 12. Trademarks		21
12.1	Trademarks	21
12.2	Trademark Cooperation	21
Article 13. Default, Termination, Remedies		22
13.1	Default	22
13.2	Default Remedy for PSSWM	22
13.3	Default Remedy for Tiger SS	22
13.4	TIGER SS Default Options	22
13.5	PSSWM’s Default Option	23
13.6	No Sale by Principals	23
Article 14. Dispute Resolution		23
14.1	Consultation or Mediation	23
14.2	Arbitration	23
14.3	Litigation	23
14.4	No Public Disclosure	24
Article 15. Notices		24
Article 16. General		24
16.1	510(k) Filings	24
16.2	Contingency Plans	24
16.3	Assignment	25
16.4	Independent Contractor	25
16.5	Patent Markings	25
16.6	Survival	25
16.7	Waiver	25
16.8	Interpretation	25
16.9	Governing Law	25
16.10	Severability	25
16.11	Counterparts	25
16.12	U.N. Convention on Contracts	26
16.13	Governing Language	26
16.14	Translations	26
16.15	Entire Agreement	26
16.16	Exhibits	26

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EXHIBITS

Exhibit A:	Customer List for Tiger Medical and the Principals	1 of 2
Exhibit B(1):	Calculation of Purchase Price	1 of 1
Exhibit B(2):	Volume of Purchases	1 of 1
Exhibit C:	Services Level Agreement	1 of 6
Exhibit D:	Purchase Order	1 of 1
Exhibit E:	Master Supply Agreement	1 of 9
Exhibit F:	Confidentiality Agreement	1 of 2

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***** Confidential Treatment Requested. Confidential portions of this document have

been redacted and have been separately filed with the Commission.

SOURCING SERVICES AGREEMENT FOR

CHINA

Effective Date: January 19, 2005

THIS SOURCING SERVICES AGREEMENT (the “Agreement”) is made and entered into as of the Effective Date by and between:

WORLD MED SHARED SERVICES, INC. (“PSSWM”), a Florida corporation located at 4345 Southpoint Blvd., Suite 300, Jacksonville, Florida 32216, USA, and a subsidiary of PSS WORLD MEDICAL, INC., (“PSS”) and an affiliate of GULF SOUTH MEDICAL SUPPLY, INC., (“GSMS”) and PHYSICIAN SALES AND SERVICE, INC., (hereinafter collectively referred to as the “PSS Group”);

TIGER SPECIALTY SOURCING LIMITED (“Tiger SS”), a Hong Kong company to be organized and existing under the laws of Hong Kong, SAR, People’s Republic of China with a legal address located at 4Fl., Hong Kong Macau Building, 156-157 Connaught Road, Central, Hong Kong; and

TIGER SHANGHAI SPECIALTY SOURCING CO. LTD. (“TIGER WFOE”), a wholly owned subsidiary to be organized and existing under the laws of People’s Republic of China located at Liu Lin Tower, Suite 1910, 1 Huai Hai Zhong Road, Shanghai, China 200021; and

MARK ENGEL, ELAINE FONG and Dr. GAO ZHAN, the principals of Tiger SS (the “Principals”), and shareholders of Tiger Medical Products Ltd., a Hong Kong company with a legal address located at 4Fl., Hong Kong Macau Building, 156-157 Connaught Road, Central, Hong Kong with a representative office in Shanghai located at Liu Lin Tower, Suite 1909, 1 Huai Hai Zhong Road, Shanghai, China 200021 (“TIGER MEDICAL”); and

TIGER MEDICAL will be a party to this Agreement in all respects until Tiger SS and TIGER WFOE are fully established and operational.

RECITALS

WHEREAS, PSSWM procures medical products and equipment for PSS Group which is in the business of marketing and distributing medical products and equipment to physicians, long-term care providers, home care providers, and other alternate site healthcare providers for customers in all 50 states in the United States; and

WHEREAS, PSSWM and the Principals of the Tiger SS wish to enter into a business relationship wherein Tiger SS and TIGER WFOE exclusively furnish China sourcing services to PSSWM; and

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WHEREAS, PSSWM wishes to purchase medical products and other goods related to PSS Group’s business that are mutually selected by the parties (“Products”) from Chinese suppliers and manufacturers (“Suppliers”) using the exclusive sourcing services of Tiger SS and TIGER WFOE for China and to establish supply contracts with Chinese Suppliers for the Products; and

WHEREAS, Tiger SS, TIGER WFOE and the Principals represent that they are qualified and have the capacity to locate, select, and negotiate with Suppliers based upon the needs and specifications of PSSWM and to recommend the Suppliers offering the best price, quality and delivery of the Products to the PSSWM.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants set forth herein, Parties agree as follows:

Article 1. Definitions

1.1 “Agreement” has the meaning ascribed in the Preamble.

1.2 “COG” means the landed cost of goods, as defined in Section 4.8.

1.3 “COG Savings” means the net sum equivalent to the difference between the net Product cost or Landed Cost of Goods for a Product as of the date when a Product is agreed to be sourced from China compared to the new Landed Cost of Goods for the Product from China, as defined in Section 4.8

1.4 “Effective Date” is the date set forth above.

1.5 “Final Buyout” has the meaning ascribed in Section 4.4.

1.6 “Final Buyout Price” has the meaning ascribed in Section 4.4.

1.7 “Initial Buyout” has the meaning ascribed in Section 4.2.

1.8 “Interim Buyout” has the meaning ascribed in Section 4.3.

1.9 “Interim Buyout Price” has the meaning ascribed in Section 4.3.

1.10 “Parties” shall mean PSSWM, Tiger SS, TIGER WFOE and the Principals collectively.

1.11 “POs” have the meaning ascribed in Section 5.2.

1.12 “Principals” are the individuals identified in the Preamble.

1.13 “Products” have the meaning ascribed in the Recitals and Section 7.1.

1.14 “Profit” is set forth in Exhibit B(2).

1.15 “Proprietary Information” has the meaning given in Section 11.1.

1.16 “PSS Group” consists of the companies identified in the Preamble.

1.17 “PSS Ownership” is set forth in Exhibit B(1).

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1.18 “PSSWM” is the company identified in the Preamble.

1.19 “Purchase Price” is set forth in Exhibit B(1).

1.20 “Reduced Interim Buyout Price” is set forth in Exhibit B(1) and in Section 4.3.

1.21 “Suppliers” have the meaning ascribed in the Recitals.

1.22 “Supply Contracts” have the meaning ascribed in Sections 5.2 and 5.3.

1.23 “Targeted Sales (Landed Costs)” are set forth in Exhibit B(1).

1.24 “Term” is set forth in Section 2.3.

1.25 “Tiger Group” shall mean the Principals, Tiger Medical, and any company owned in whole or in part or under the control of any one or more of the Principals and any other owners, directors, officers, employees or agents of any of the foregoing companies. When appropriate Tiger SS and TIGER WFOE will be deemed a member of the Tiger Group prior to the Final Buyout

1.26 “Tiger Medical” is the company identified in the Preamble.

1.27 “Tiger SS” is the company identified in the Preamble.

1.28 “Total Purchase Price” has the meaning ascribed in Section 4.4.

1.29 “Trademarks” has the meaning ascribed in Section 12.1.

1.30 “TIGER WFOE” is the company identified in the Preamble, which will be formed shortly prior to or shortly after the Initial Buyout. For purposes of the documents and Exhibits hereto, a translation of the legal Chinese name is used herein.

Article 2. Recitals, Acceptance of Terms and Term

2.1 Recitals. The recitals constitute a part of this Agreement.

2.2 Acceptance of Terms. The acceptance of these terms by PSSWM is subject to board approval which may be withheld or conditioned at the Board’s sole discretion (which PSSWM will seek to be obtained by January 15, 2005). .

After the execution of this Agreement, these terms may be added to, modified or superseded only by written agreement or modification signed by all Parties.

2.3 Term. The term of this Agreement shall commence on the Effective Date when executed by all Parties and continue until the closing date of the Final Buyout pursuant to Section 4.4 or Section 4.5 (the “Term”).

Article 3. Exclusivity, Non-Competition and Transparency

3.1 Exclusivity to Tiger SS. PSSWM grants to Tiger SS and TIGER WFOE the exclusive first right to source all Products from China (except as limited below), including but not limited to, negotiating the terms of purchase and arranging for the manufacture,

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***** Confidential portions of this document have been redacted and have been separately filed with the Commission.

inspection, packaging, shipment, and delivery of all Products from China for PSSWM, subject only to a transition period and any exceptions set forth in this Agreement. PSSWM agrees to exclusively use Tiger SS and TIGER WFOE for its sourcing activities from China and to use the sourcing services of other companies in China only if Tiger SS and TIGER WFOE cannot meet all of the conditions for exclusivity outlined below.

Tiger SS and TIGER WFOE’s exclusive right shall be limited to China and subject to following conditions: (i) the quality of sourced Products must match or exceed previous product quality; (ii) Tiger SS and TIGER WFOE must beat existing US net product cost, as compared with the landed cost of goods as defined in Section 4.8 for China sourced Products, by at least ***** or in the case of vinyl gloves by at least *****, or in the case of U.S.-branded or U.S.-manufactured Products by at least ***** and offer the best possible pricing; (iii) Tiger SS and TIGER WFOE must assure sufficient Product quantities and timely deliveries to meet PSSWM’s demands; and (iv) Tiger SS and TIGER WFOE’s sourcing exclusivity for China does not result in a breach of any existing supplier agreements of PSSWM.

The exclusivity to Tiger SS and TIGER WFOE in China covers third party sourcing relationships in China and does not extend to US or other non-Chinese suppliers that own 50% or more of Chinese manufacturing joint ventures and WFOEs or have exclusive contract manufacturing relationships with Chinese factories.

After Tiger SS and TIGER WFOE have started to source a Product in China from a single or multiple suppliers, PSSWM may only switch to a new vendor in China if: (i) the quality of sourced Product deteriorates as determined by PSSWM in its sole discretion and Tiger SS and TIGER WFOE do not correct such problems within a reasonable period after written notice; (ii) existing or another supplier for that Product beats existing net product cost by *****, or in the case of vinyl gloves by *****, or in the case of U.S.-branded or U.S.-manufactured products by *****, or offers greater cost savings; or (iii) Tiger SS and TIGER WFOE cannot assure sufficient Product quantities and timely deliveries to meet PSSWM’s demands.

3.2 Exclusivity to PSSWM. PSSWM shall be Tiger SS and TIGER WFOE’s exclusive client. In the event that any company within the Tiger Group wishes to conduct sourcing activities for any new or existing clients that potentially conflict with either business, clients or Products of PSS Group, the Principals shall first obtain the written consent of PSSWM.

PSSWM’s approval shall not be unreasonably withheld if: (i) there is no reasonable competition with PSS Group’s business, clients or Products; and (ii) the additional business does not significantly reduce the time and resources devoted to the sourcing activities for PSSWM by Tiger SS, TIGER WFOE or its Principals. In no event shall the employees of Tiger SS or TIGER WFOE devote time and effort to sourcing activities that are not for PSSWM without the explicit prior written approval of PSSWM in each instance.

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***** Confidential portions of this document have been redacted and have been separately filed with the Commission.

A list of all existing companies for whom the Tiger Group and the Principals conduct sourcing activities with brief descriptions of the products which are sourced is attached hereto as Exhibit A.

3.3 Non-Competition. The Principals and all companies in or related to the Tiger Group shall not, directly or indirectly, compete with the business, clients or Products of the PSS Group and PSSWM. A company will be deemed to be related to the Tiger Group (i) if the company is, directly or indirectly, in whole or in part, owned by all or any one of the Principals, or has a business or contractual relationship with a member of the Tiger Group; or (ii) if the company is directly or indirectly, in whole or in part, owned by an owner, director, officer, employee or agent of any member of the Tiger Group or a family member of an owner, director, officer, employee or agent of any member of the Tiger Group.

This non-compete obligation is effective for the Term of the Agreement and for five (5) years after any expiration or termination of the Agreement. A separate Non-competition Agreement with a five (5) year term will be signed by all the members of the Tiger Group at the time of the Final Buyout and delivered to PSSWM as a condition precedent to the Final Buyout.

3.4 Transparency. Tiger SS, TIGER WFOE and the Principals will allow total transparency of its procurement process, costs and revenues, including identity of Suppliers, any direct or indirect financial relationships with Suppliers, purchasing or other local incentives provided by raw material suppliers, factories, local governments, or any person or entity involved directly or indirectly in PSSWM’s supply chain in China. Tiger SS and TIGER WFOE shall facilitate direct contact between PSSWM and Suppliers in China.

Article 4. Board Seat, Buyouts

4.1 Board Seat. Tiger SS shall allow PSSWM to appoint two (2) directors (out of a total of 5) to the Board of Directors of Tiger SS and TIGER WFOE concurrently with the Initial Buyout. At all times until the Final Buyout, the maximum number of directors on the Board of Directors of Tiger SS and TIGER WFOE shall be five (5) directors. PSSWM shall have the right to review, approve and amend the Articles of Association of Tiger SS and TIGER WFOE and all formation and corporate governance documents, including any shareholders agreement, to ensure that these documents are consistent with and permit the Parties to carry out the terms and conditions of this Agreement. If no shareholders agreement exists among the shareholders of Tiger SS, PSSWM may require one at any time that it determines the need to have one.

4.2 Initial Buyout. PSSWM shall purchase shares equivalent to ***** ownership of Tiger SS (the “Initial Buyout”). PSSWM will close on the Initial Buyout on the closing date which is the later of January 17, 2005, or the date when all of the following conditions precedents have occurred: (i) the approval by PSSWM of the Articles of Association and other formation and corporate governance documents of Tiger SS and TIGER WFOE; (ii) the initiation of the process for the issuance of a business license by the appropriate Chinese government entity to operate TIGER WFOE as a consulting and sourcing *****

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***** Confidential portions of this document have been redacted and have been separately filed with the Commission.

company (with formal documentation issued either shortly before or shortly after the Initial Buyout); and (iii) the issuance of China and Hong Kong tax opinions from a big four accounting firm on the contemplated structure and transactions flow between the Parties, in form and substance satisfactory to PSSWM in its sole business judgment, which PSSWM will seek to obtain at its expense by January 17, 2005.

The Initial Buyout purchase price shall be US$1 million which shall be paid to the Principals in proportion to the number of shares being conveyed by each Principal. The total number of shares being conveyed shall be equivalent to ***** ownership of Tiger SS.

4.3 Interim Buyouts. PSSWM has the right to buy additional shares of Tiger SS from the Principals under terms and conditions set forth and attached hereto as Exhibits B(1) and B(2) (the “Interim Buyouts”). The Parties contemplate Interim Buyouts based on the financial performance of Tiger SS for the fiscal years ending 2006, 2007 and 2008. PSSWM will pay to the Principals the purchase price for the additional shares of Tiger SS as specified below (the “Interim Buyout Price”):

(a) If the actual sales amount achieved by PSSWM for the relevant fiscal year is met by greater than ***** of the projected targeted sales amount specified as “Targeted Sales (Landed Costs)” in Exhibit B(1) for that year, the Interim Buyout Price for that year set forth as “Purchase Price” in Exhibit B(1); or

(b) If the actual sales amount achieved by PSSWM for the relevant fiscal year is between ***** and ***** of the projected targeted sales amount specified as “Targeted Sales (Landed Costs)” in Exhibit B(1) for that fiscal year, ***** of the Interim Buyout Price (the “Reduced Interim Buyout Price”) for that fiscal year in Exhibit B(1).

Concurrently with a payment under (a) or (b) for any given year, PSSWM shall receive the ownership percentage of Tiger SS specified as “PSS Ownership” in Exhibit B(1).

4.4 Final Buyout. PSSWM shall have the right to buy all remaining shares of Tiger SS based on the financial performance of Tiger SS for the fiscal year ending 2009 (the “Final Buyout”), unless the Final Buyout has already taken place as provided for in Section 4.5 below. The total purchase price for 100% ownership of all the shares of the Tiger SS will range between ***** to ***** based on a calculation of COG Savings to PSSWM of between ***** to ***** for the fiscal year ending 2009 (the “Total Purchase Price”). The COG Savings is estimated and set forth as “Profit” in Exhibit B(2).

PSSWM shall calculate the COG Savings to determine the Total Purchase Price as contemplated in Exhibit B(2).

The Total Purchase Price shall be determined in accordance with (a), (b), (c) and (d) below.

(a) If at fiscal year-end 2009, PSSWM achieves COG Savings, specified as “Profit” in Exhibit B(2), of *****, the Total Purchase Price shall be ***** as specified in Exhibit B(2); or

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***** Confidential portions of this document have been redacted and have been separately filed with the Commission.

(b) If at fiscal year-end 2009, PSSWM achieves COG Savings, specified as “Profit” in Exhibit B(2), of ***** or more, the Total Purchase Price shall be ***** as specified in Exhibit B(2); or

(c) If at fiscal year-end 2009, PSSWM does achieve COG Savings of at least ***** and achieves more than ***** in actual sales but less than ***** in actual sales for 2009, the Total Purchase Price shall be the amount specified in Exhibit B(2) that corresponds most closely with the actual COG Savings achieved and the actual sales achieved in 2009, namely, an amount between ***** and *****.

(d) If at fiscal year-end 2009, PSSWM does not achieve COG Savings of at least ***** but does achieve more than ***** in actual sales and less than ***** in actual sales volume for that fiscal year, the Total Purchase Price shall be the amount specified in Exhibit B(2) for the actual sales achieved in fiscal year 2009, namely, an amount between ***** and *****.

The “Final Buyout Price” shall be the Total Purchase Price specified in Exhibit B(2) under (a), (b), (c) or (d) above minus all payments made to the Principals for the Initial Buyout and all Interim Buyouts and adjustments in accordance with Sections 4.6, 6.4 and 6.9.

4.5 Early Trigger of Final Buyout. If at any time during the Term of this Agreement, PSSWM achieves COG Savings in any twelve (12) month period of ***** prior to reaching ***** in actual sales, then either Party has the option of triggering an early Final Buyout. The Total Purchase Price for purposes of calculating the Final Buyout Price shall be determined as set forth in Section 4.4.

4.6 Adjustments to the Final Buyout Price. To the extent that any loan remains unpaid at the time of the Final Buyout, such loan amount and all interest paid or payable, all liabilities, accounts payable, employee retention amount under Section 6.4, holdback amount under Section 6.9 and the like, shall be deducted from the Total Purchase Price. Similarly, upon Final Buyout, all receivables and available cash shall be added to the Total Purchase Price. All appropriate adjustments and actions will be made and taken to transfer the shares of Tiger SS and all the assets of Tiger SS and TIGER WFOE totally debt-free and unencumbered.

4.7 Closing Documents for the Final Buyout. The Principals, Tiger SS and TIGER WFOE all covenant to prepare and execute all documents requested by PSSWM at the time of the Final Buyout to ensure that PSSWM receives good and marketable title to all shares of Tiger SS and to all the assets of Tiger SS and TIGER WFOE free and clear of liens, encumbrances, liabilities and claims of any kind.

4.8 Landed Cost of Goods. The projected targeted sales amount and the actual sales amount for each year shall be based on landed cost of goods. U.S. landed costs shall include all costs associated with the Product, including the cost of the good, insurance, freight, China customs duties and fees, China taxes on the good, U.S. customs duties and fees, and U.S. taxes on the good, and any other direct costs such as sterilization, plus a redistribution fee equal to ***** of the product cost.

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***** Confidential portions of this document have been redacted and have been separately filed with the Commission.

4.9 Payments of Interim and Final Buyout Price. The payments for the Interim Buyout Price and the Final Buyout Price, subject to adjustments pursuant to Sections 4.6, 6.4 and 6.9, will be made within 30 calendar days after: (i) the Parties have calculated, verified and confirmed the actual sales and compared it with the targeted sales amount for the relevant fiscal year; and (ii) Tiger SS has submitted and PSSWM has approved the audited financial statements for Tiger SS and TIGER WFOE for the relevant fiscal year which shall have been prepared and delivered in a form satisfactory to PSSWM. Parties shall endeavor to complete these tasks on or before sixty (60) days after the end of the fiscal year, if possible, and in any event within ninety (90) days after the end of the subsequent fiscal year (or in the case of an early trigger of Final Buyout under Section 4.5, then within 60 days from the trigger date).

4.10 Minimum COG Savings and Actual Sales. If at fiscal year-end 2009, PSSWM does not achieve COG Savings of at least ***** and actual sales of at least *****, PSSWM shall have no obligation to purchase the remaining shares of Tiger SS, and Tiger SS’s failure to achieve these financial benchmarks shall constitute a default.

Article 5. Sourcing Services; Contracts with Supplier

5.1 Sourcing Services. Tiger SS and TIGER WFOE shall perform all the sourcing services described in this Agreement, as further elaborated in the Services Level Agreement attached hereto and incorporated herein as Exhibit C.

5.2 Contracts with Suppliers. The contracts with Suppliers for the purchase of Products shall be entered into directly by and between PSSWM and each of the Suppliers. Tiger SS and TIGER WFOE shall recommend Suppliers based on pricing, quality and performance and submit to PSSWM: (i) draft Purchase Orders (the “POs”) between PSSWM and each Supplier on PSSWM’s PO template, attached hereto as Exhibit D; (ii) draft supply contracts between PSSWM and each Supplier on PSSWM’s supply contract form (also known as Master Supply Agreement), attached hereto as Exhibit E; (iii) draft quality assurance agreements between PSSWM and each Supplier; (iv) draft product packaging specifications for each Product; (v) draft product specifications for each Product; and (vi) draft such other materials as PSSWM may from time to time may require to make product or sourcing decisions.

5.3 Supply Contracts and POs. Once PSSWM has received and approved the above, PSSWM shall execute a supply contract (also known as Master Supply Agreement) with each Supplier (the “Supply Contract”), issue POs to that Supplier in accordance with the Supply Contract with that Supplier. Tiger SS and TIGER WFOE will enforce all the terms and conditions of the Supply Contract with each Suppler and all POs issued pursuant to the Supply Contracts, including quality inspections and timely deliveries to PSSWM by Suppliers.

The Supply Contracts shall contain an acknowledgement that PSSWM has contracted with Tiger SS for Tiger SS and TIGER WFOE to identify, interview, select and recommend Chinese suppliers, negotiate the terms and conditions of each and every purchase and manage and coordinate all its purchasing activity in China and that the Buyer will only purchase and pay for Product based on the terms and conditions of purchase which have been negotiated by Tiger SS and TIGER WFOE for and on behalf of PSSWM.

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***** Confidential portions of this document have been redacted and have been separately filed with the Commission.

Article 6. Additional Rights and Obligations of Parties

6.1 Tiger SS Shareholders. The only shareholders in the Tiger SS shall be the Principals and PSSWM.

6.2 No Transfer of Beneficial Interest. The Principals represent and warrant that they are the sole shareholders of Tiger Medical. The Principals covenant not to sell, convey, transfer or encumber their legal or beneficial interest in Tiger SS to any entity or person except to PSSWM in accordance with this Agreement.

6.3 Role of Mark Engel. Mark Engel covenants to serve as the senior executive of Tiger SS and TIGER WFOE with responsibility for the general oversight and management of PSSWM’s sourcing needs. The Principals covenant, in consultation with PSSWM, to train successors who can manage and operate the business of the Tiger SS and TIGER WFOE for PSSWM by the time of the Final Buyout.

6.4 Employee Retention Plan. The Principals covenant to implement and pay for an employee retention plan to bind and motivate the employees of Tiger SS and TIGER WFOE to remain employed with Tiger SS or TIGER WFOE for a minimum of two years after the Final Buyout. For this purpose, the Principals shall reserve at a minimum two years salary for the top five executives and additional employees identified by PSSWM, inclusive of new employees that may be hired at the time of the Final Buyout to replace the Principals, from the Total Purchase Price as stay bonuses for the employees and hire bonuses for new recruits of the Tiger SS and TIGER WFOE. At the closing of the Final Buyout, this cash reserve will be placed into a separate bank account held by Tiger SS to be disbursed as agreed with PSSWM and the employees over a three year period following the Final Buyout.

6.5 Costs of Formation and Operation. The Principals shall be responsible for adequately capitalizing and funding all costs and expenses of forming and operating Tiger SS and TIGER WFOE and conducting the sourcing services, whether performed by Tiger SS or TIGER WFOE, until Tiger SS and TIGER WFOE become cash flow self sufficient and profitable.

6.6 Working Capital. The Principals acknowledge that (i) sourcing operation conducted by Tiger SS and TIGER WFOE will require adequate capitalization and additional working capital; and (ii) the fees earned by Tiger SS and the TIGER WFOE may not be sufficient to provide the needed working capital. The Principals of Tiger SS shall lend Tiger SS and TIGER WFOE up to a maximum ***** from proceeds received from PSSWM to build capacity and capability to serve PSSWM’s sourcing needs, generally in keeping with a mutually agreed business schedule. The Principals have scheduled the first loan of ***** to Tiger SS and TIGER WFOE, as the case may be, to occur within 5 working days of the Initial Buyout. (replaces Jan. 20, 2005).

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***** Confidential portions of this document have been redacted and have been separately filed with the Commission.

The adequate capitalization and working capital requirements shall be measured against a five-year business plan for the operation of Tiger SS and TIGER WFOE which will include pro forma P&L and cash flow projections prepared by the Principals, as adjusted each year by mutual agreement of the Parties. To the extent that Tiger SS’s and TIGER WFOE’s cash flows are not sufficient to carry on the sourcing activities adequately, the Principals shall ensure that both Tiger SS and TIGER WFOE are adequately funded at all times.

6.7 Distributions. After the fiscal year-end audited financial statements have been approved by the Board of Directors of Tiger SS, TIGER WFOE and PSSWM, (i) the profits of the TIGER WFOE, after Chinese taxes and sufficient reserves for working capital shall be declared and distributed to Tiger SS on an annual basis; and (ii) the profits of Tiger SS, after taxes if any shall be declared and distributed in accordance with shareholder equity on an annual basis.

The Principals will receive their pro rata share of any after tax profits of Tiger SS, if any, for the period of their ownership in the fiscal year in which the Final Buyout occurs. This final distribution of after tax profits to the Principals will occur after the fiscal year-end or any partial fiscal year financial statements of Tiger SS and TIGER WFOE have been prepared, audited and approved by the Board of Directors of Tiger SS, TIGER WFOE and PSSWM.

6.8 Operational Expenses. The Principals covenant to maintain the expenses of operating Tiger SS and TIGER WFOE at reasonable levels as specified and approved in the business plan. PSSWM shall have the right to object to any expenses that it deems to be unreasonable and excessive in its reasonable discretion and may deduct any portion of any expense that it deems unreasonable and excessive from the proceeds of the Interim Buyout and Final Buyout Price.

6.9 Holdback. PSSWM shall hold back ***** of the proceeds of the Total Purchase Price for 24 months from the date of the closing of the Final Buyout in an interest bearing escrow account to be held jointly by PSSWM and the Principals. At the end of the 24 months, the Principals will receive payment of the holdback amount if (i) the actual sales during the first 12-month portion of the holdback period is comparable (within *****) of the actual sales of the preceding 12-month period prior to the closing of the Final Buyout; (ii) at least ***** of the key employees of the TIGER WFOE are still employed with the company at the end of the 24-month holdback period (any employees that did not leave voluntarily, or leave for medical reasons including pregnancy or death, will be included in the headcount of retained employees); and (iii) there has been and are no claims, losses, liabilities or receivable write-offs of any kind which relate back to the time period prior to the closing date of the Final Buyout, or to an indemnification adjustment as set forth in Section 6.10.

If (i) above is not achieved, the holdback amount shall be retained by PSSWM.

If (i) above is met but (ii) above is not met, PSSWM shall make a good faith effort to determine a reasonable offset against the holdback amount and only the remaining balance will be paid to the Principals.

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If (i) and (ii) above are achieved but there is a claim, loss, liability, receivable write-off or adjustment under (iii) above, the amount of the claim, loss, liability, receivable write-off or adjustment will be offset against the holdback amount and only the remaining balance will be paid to the Principals. If the amount of the claim, loss, liability, receivable write-off or adjustment is not known or unresolved at the end of the holdback period, the entire holdback amount will continue to be retained by PSSWM until the issue is finally resolved and the amount can be quantified.

6.10 Indemnity. The Principals shall indemnify, defend and hold harmless PSSWM, its shareholders, affiliates, subsidiaries, directors, officers, employees and Tiger SS and TIGER WFOE from and against all claims, losses, or liabilities of whatever kind arising directly or indirectly from (i) the inaccuracy or breach of any representation or warranty of the Principals, Tiger SS or TIGER WFOE, (ii) the breach of any covenant of the Principals or Tiger SS or TIGER WFOE, or (iii) the management and operation of Tiger SS or TIGER WFOE which relate back to the time period prior to the closing date of the Final Buyout. In the event that an indemnity obligation arises during the holdback period, an indemnification adjustment in an amount equal to the amount of the claim, loss or liability shall be deducted from the holdback amount before the holdback amount is released to the Principals. If the holdback amount is insufficient to cover the full amount of the indemnity obligation, the Principals shall be personally liable for any amounts in excess of the holdback amount.

Article 7. Products, Product Design, Product Development

7.1 Products. The Products to be sourced from China shall be agreed to by Parties. Parties acknowledge that Tiger SS has received an initial target list from PSSWM and that PSSWM has discussed certain profit expectations from the anticipated cost savings derived from sourcing those Products on that list from China. The prices applicable to the Products to be sourced from China shall be mutually agreed to by Parties.

7.2 Product Quality. PSSWM has the right to validate and verify the quality of Products or to request a third-party to evaluate the quality of Products. The Parties acknowledge that price, product quality and timely deliveries are of paramount importance to PSSWM and that PSSWM’s grant of exclusivity is conditioned on significant cost savings, product quality equivalent to or better than PSSWM’s current supply sources and timely deliveries. To the extent that price, quality or timely delivery fails to meet PSSWM’s requirements, and Tiger SS or TIGER WFOE fails to cure such failure within a reasonable period, such failure shall constitute a default under this Agreement. The parties shall mutually develop procedures and SOPs that clarify the responsibilities of each party in reaching delivery timeliness.

7.3 New Product Design Ownership. New Products sourced from China could be based on a Party’s product design and specifications, a Supplier’s product design and specifications, or joint product design and specifications of a Party and a Supplier. The product design and specifications and all intellectual property related to these new Products shall be owned by PSSWM unless the new Product results from Supplier’s sole effort or intellectual property. Tiger SS and Tiger WFOE shall identify issues related to any IP ownership with the Suppliers depending on the circumstances. Tiger SS and TIGER WFOE shall instruct Suppliers (a) to supply and deliver to PSSWM design prototypes and samples of new Products for PSSWM’s consideration, and (b) to cooperate in the new Product development process if requested to do so by PSSWM.

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***** Confidential portions of this document have been redacted and have been separately filed with the Commission.

7.4 New Product Development Assistance. Consistent with its rights under Section 7.3, PSSWM may at its sole discretion:

(a) Undertake or fund new product development by whatever means it chooses, including paying or reimbursing Suppliers for designs, drawings, specifications, samples and the like;

(b) Purchase of molds, tooling and equipment for new Products and providing the same to Suppliers on terms and conditions to be agreed to with Suppliers; and

(c) Secure the exclusive rights to market and sell in the US market new Products that have been developed and are owned, or may be developed and are owned, by Chinese Suppliers.

All decisions on new product development and Supplier assistance with molds, tooling or equipment shall be made by PSSWM on a case by case basis, with the advice and consultation of Tiger SS and TIGER WFOE. Any and all information on new product development by Suppliers shall be provided by Tiger SS and TIGER WFOE to PSSWM.

7.5 Product Innovations. Innovations to existing Products, including those made by Tiger SS or TIGER WFOE, and those made by Suppliers if financed by PSSWM, shall be owned by PSSWM. Tiger SS and TIGER WFOE will make its best efforts to develop Product innovations, at PSSWM’s request and on its own initiative, particularly when a need arises to make modifications to the Product design or specifications to prevent any possible infringement of a US patent, trademark or copyright. Tiger SS and TIGER WFOE shall at all times, in conjunction with PSSWM, conduct due diligence on each Product supplied to PSSWM to ensure that the imported Product does not infringe any US patent, trademark or copyright. Tiger SS, TIGER WFOE and the Principals shall not knowingly source Products that infringe on any US patents, trademarks or copyrights.

7.6 Exclusive Right to Market and Sell. PSSWM shall have the sole and exclusive right market, sell, brand and re-brand any new Products and Product innovations to which it owns the intellectual property rights.

Article 8. Commissions, Payments and Taxes

8.1 Commissions. Tiger SS shall be paid by PSSWM a commission equivalent to ***** of the product cost. Tiger SS shall enter into a consultancy agreement with TIGER WFOE to provide all the sourcing services described in this Agreement under a cost plus arrangement. Tiger SS shall pay TIGER WFOE for all sourcing services it is required to provide under the consultancy agreement and this Agreement.

8.2 Product Cost. The product cost figure used for calculating the commission is the product cost (FOB port of departure in China), exclusive of insurance, freight, U.S. customs duties and fees, U.S. taxes on the goods, and other similar costs and charges. The commissions shall be calculated on the product cost of the Products that have been delivered to and accepted by PSSWM. The product cost of any Products that do not

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***** Confidential portions of this document have been redacted and have been separately filed with the Commission.

meet PSSWM’s quality specifications (except to the extent that such Products were accepted with a discount in which case the commission is due on the discounted value), or were damaged in transit (except to the extent that such Products were covered by insurance to the extent of ***** or more of value) will not be included in the product cost used to calculate the commission.

8.3 Product Cost Transparency. PSSWM will allow total transparency of its procurement process, costs and revenues that effect the calculation of commission.

8.4 Commission Payments. PSSWM shall wire transfer the commission payments to Tiger SS to a bank account specified by Tiger SS on a monthly basis. The commissions will be due and payable on each shipment when the invoice from the Supplier for that shipment becomes due and payable and the terms of payment of the commission shall be the same as those of the relevant Supplier.

8.5 Product Payments. All payments for the Products will be paid directly to the Supplier by PSSWM.

8.6 Taxes. Tiger SS shall be responsible for and covenants to pay all Hong Kong and China taxes on all commissions and other earnings. TIGER WFOE shall be responsible for and covenants to pay all China taxes on its earnings, profits and operations. Tiger SS shall be responsible for and covenants to pay all Hong Kong taxes on its earnings, profits and operations and if applicable, China taxes as well. The Principals are responsible for and covenants to pay all taxes wherever owed on any payments it receives from PSSWM for the Buyouts and Tiger SS and TIGER WFOE.

To the extent that any taxes are assessed on Tiger SS, TIGER WFOE or Principals relative to the period before, or as a result of, the Final Buyout, the Principals shall pay those taxes and if they remain unpaid, PSSWM may pay them and seek reimbursement from the Principals. This obligation of the Principals to be responsible for and to pay all taxes relative to the period of their ownership and operation of Tiger SS and TIGER WFOE is an obligation that will become extinguished only upon the expiration of the statute of limitation applicable to the tax liability in question in the jurisdiction in which the tax liability is assessed. Similarly, the right of PSSWM to seek reimbursement from the Principals for any taxes it may have paid that relate to the period on or before the Final Buyout shall expire only when the obligation of the Principals expire as described above. Reimbursements for taxes may be deducted from the Holdback amount set forth in Section 6.9.

Article 9. Authority, Representations and Warranties

9.1 No Authority to Contract. Tiger SS and TIGER WFOE shall have no authority to contract with Suppliers for PSSWM. Tiger SS’s and TIGER WFOE’s business and legal relationship with PSSWM is that of an independent contractor. Only PSSWM shall have the right to contract to buy from Suppliers.

9.2 Signatories to the Supply Contract. Notwithstanding Section 9.1, the role of Tiger SS shall be set forth as described in Section 5.3 and a signature block for Tiger SS at the

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end of the Supply Contract will be included so that the Buyer and Seller in the Supply Contract recognize the role to be performed by Tiger SS and so that Tiger SS will have acknowledged and accepted its management and coordination role for each Supply Contract.

9.3 Mutual Representations and Warranties. Each Party represents, warrants and covenants to the other for the Term of the Agreement as follows:

(a) It has the full and unrestricted right, power and authority to enter into, and to perform the terms, covenants and conditions of this Agreement, and to be bound thereby during the entire Term of this Agreement and any extension thereof; this Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with the provisions of the Agreement;

(b) There is no action, suit or proceeding by or before any court, arbitrator or other government body pending or threatened against it which questions the validity or legality of this Agreement or any act to be performed or taken by it in connection with this Agreement;

(c) None of the representations or warranties made by it in this Agreement and no other information provided by it to the other contains an untrue statement of material fact, or omits to state a material fact necessary to make the statements herein or therein not misleading; and

(d) No consent, approval or authorization of, or filing or registration with, any third party or governmental body is required in connection with the execution, delivery and performance by it of this Agreement.

9.4 Representations and Warranties of the Principals. The Principals represent, warrant and covenant as follows:

(a) The Tiger Group has no ownership or financial interest in, nor any control of, (i) any Suppliers or the factories manufacturing any Product, (ii) any supplier or vendor of any components or raw materials utilized in any Product, or (iii) any agent representing any of the parties reference in clauses (i) and (ii) of this sentence. No member of the Tiger Group, for its own account or the account of any of its agents or affiliates, sell raw materials or components to the factories manufacturing any Products and none of these factories, or any agents, have any ownership interest in, or any control over, any member of the Tiger Group. Notwithstanding the foregoing, the Parties acknowledge that the Principals and Tiger Medical have business relationships with certain raw materials companies in China which are permitted exceptions to this Subsection (a).

(b) To the best of the knowledge of the Principals, all members of the Tiger Group are in compliance with all applicable laws, regulations and orders of China, Hong Kong and United States.

(c) The Principals are and shall be at all times during their ownership and operation of Tiger SS and TIGER WFOE be in compliance with the Foreign Corrupt Practices Act of the United States (“FCPA”) and all other applicable US anti-bribery laws. Additionally, the Principals shall institute a FCPA compliance program for TIGER WFOE and cause all employees of TIGER WFOE to adhere to the FCPA compliance program.

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***** Confidential portions of this document have been redacted and have been separately filed with the Commission.

(d) *****, a former representative of Tiger Medical in the United States has no title, right or interest of any kind, directly or indirectly, in Tiger SS and TIGER WFOE.

Article 10. Audit Books and Records

10.1 Audit Books and Records. Tiger SS and TIGER WFOE shall maintain its books and records in accordance with United States Generally Accepted Accounting Principles. Tiger SS and TIGER WFOE shall audit its books and records once each year and provide year-end audited financial statements to PSSWM by January 20th of the subsequent year. The audits will be conducted by an accounting firm mutually agreed by the Parties.

PSSWM shall have the right to audit the books and records of Tiger SS and TIGER WFOE on a quarterly basis in accordance with United States Generally Accepted Accounting Principles. Tiger SS and TIGER WFOE agree to cooperate fully with PSSWM for each such audit and shall provide PSSWM with any and all documents or records required by PSSWM, upon PSSWM’s request. To the extent PSSWM conducts quarterly audits, PSSWM will pay for the first, second and third quarter audits and Tiger SS and TIGER WFOE will pay for year-end audits.

Similarly, TIGER SS shall have the right, at its sole cost and expense, on a quarterly basis to audit such books and records of PSSWM as are necessary to verify actual COGs savings.

For purposes of US tax reporting, Tiger SS and TIGER WFOE shall cooperate with PSSWM in all respects and provide all information and documentation requested by PSSWM.

Article 11. Confidentiality, Non-compete

11.1 Proprietary Information. All tools, tooling, equipment, molds, materials, samples, writings, design drawings, artwork, specifications, technical knowledge, manufacturing knowledge and other tangibles, intellectual property (inclusive of patents, trademarks, copyrights and trade secrets), all information of any nature and in any form which is owned by the Parties and their affiliates and which is not publicly available or generally known to persons engaged in businesses similar to that of PSSWM and Tiger Medical during the Term of this Agreement, including, but not limited to, research techniques; patents and patent applications; inventions and improvements, whether patentable or not; development projects; computer software and related documentation and materials; designs, practices, equipment, processes, methods, know-how and other facts relating to the business of the Parties; practices, processes, methods, know-how and other facts related to supply, suppliers, vendors, supplier lists or suppliers’ purchases of raw materials and components, sales, advertising, promotions, financial matters, customers, target lists, customer lists or customers’ purchases of goods or services; and all other secrets and information of a confidential and proprietary nature, information about the business, clients and Products of the Parties or other methods, processes, scheduling, sources of supply, customers, marketing, financial information and the like which the Parties disclose to each other and to Suppliers (the “Proprietary Information”) shall

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remain the sole and exclusive property of PSSWM and possession of all such Proprietary Information shall be turned over to PSSWM when the Final Buyout occurs. No part of the Proprietary Information, inclusive of tooling, designs, drawings, iterations, scrap production and samples, can be sold or distributed to any entity or person.

11.2 Confidentiality of Proprietary Information. The Proprietary Information shall be deemed to have been disclosed and exchanged as part of the consideration under this Agreement and shall be held in strict confidence by the Parties and their related entities and their owners, directors, officers, employees and agents and shall not be used to benefit any Party except in connection with this Agreement or any other person, entity or third-party. Each Party shall be under a duty to prevent any disclosure or use inconsistent with PSSWM’s rights in the Proprietary Information.

11.3 Non-compete from Suppliers. The Principals, Tiger SS and TIGER WFOE covenant to monitor and ensure that Suppliers and their owners, directors, officers and employees do not disclose or use the Proprietary Information except in connection with the applicable Supply Contract with PSSWM.

11.4 Confidentiality Agreement from Target Suppliers. Tiger SS and TIGER WFOE shall bind each target Supplier to the confidentiality of the Proprietary Information by having each target Supplier sign a Confidentiality Agreement, using the form attached as Exhibit F. This Confidentiality Agreement shall be required of all target Suppliers, even when PSSWM and the target Supplier do not come to an agreement and no Supply Contract is entered into with the target Supplier.

11.5 Confidentiality of this Agreement. All financial terms and conditions of this Agreement, except those that relate to Tiger SS and TIGER WFOE’s sourcing activities for PSSWM, shall be held in strict confidence by the Principals and all members of the Tiger Group at all times during the term of the Agreement and for five (5) years thereafter. In no event shall the Principals or any member of the Tiger Group publicize or disclose its contractual relationship with PSSWM except to Suppliers and target Suppliers to perform its sourcing activities as provided in the Master Supply Agreement.

Article 12. Trademarks

12.1 Trademarks. PSSWM, for itself and its customers, shall determine the trademarks and style names (the “Trademarks”) to be used exclusively on or in connection with the Products. Tiger SS, TIGER WFOE, the Principals and the Suppliers are not granted any right to use any corporate names, trade names, trademarks, trade dress, markings or other intellectual property of PSSWM or its customers. The Principals covenant to ensure that all members of the Tiger Group shall not, anywhere in the world, register, attempt to register or attempt to obtain any interest in, any trademarks or intellectual property owned or licensed by PSS Group, PSSWM and its customers, nor make any claims inconsistent with the rights of PSS Group, PSSWM and its customers.

12.2 Trademark Cooperation. At the request of PSSWM, Tiger SS, TIGER WFOE and the Principals shall perform whatever acts PSSWM reasonably deems necessary or desirable to preserve and protect, and to vest in PSSWM or its designee the right, title and interest to any Proprietary Information, trademarks or other intellectual property. PSSWM will reimburse Tiger SS, TIGER WFOE and the Principals for all pre-approved expenses related to such performance.

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***** Confidential portions of this document have been redacted and have been separately filed with the Commission.

Article 13. Default, Termination, Remedies

13.1 Default. Any one of the following shall constitute an event of default:

(a) A Party defaults in the performance of any covenant, warranty, representation or other obligation under this Agreement and the default is not cured after 30 days’ written notice to the defaulting Party by the non-defaulting Party; or

(b) A Party is subject to any administrative or governmental action which suspends or terminates its business; or

(c) A Party makes a general assignment for the benefit of creditors, suspends business or commits any act amounting to business failure, or makes a voluntary assignment or transfer of all or substantially all of its property; or

(d) A voluntary petition in bankruptcy is filed by the Party, or any involuntary petition to obtain an order for relief against the Party is filed under the bankruptcy laws applicable to the Party; or

(e) Failure by Tiger SS and TIGER WFOE to achieve the financial performance benchmarks set forth in Section 4.10 for the Final Buyout and less than ***** of the targeted sales amount specified in Exhibit B(1) for the Interim Buyouts; or

(f) Failure by PSSWM or any successor in interest to continue this Agreement when Tiger SS and TIGER WFOE are not in default and the actual sales amount for the previous fiscal year and the current fiscal year are met by at least ***** of the projected targeted sales amount specified in Exhibit B(1).

13.2 Default Remedy for PSSWM. In the event of a material default by the Principals, Tiger SS or TIGER WFOE (“TIGER Default”), PSSWM shall have the right and remedy:

(a) to terminate the Agreement and compel the Principals to elect one of TIGER Default options set forth in Section 13.4 below; or

c) to pursue any and all of its legal and equitable remedies.

13.3 Default Remedy for Tiger SS. In the event of a material default by PSSWM, Tiger SS shall have the right and remedy:

(a) to terminate the Agreement and to compel PSSWM to sell the shares of Tiger SS owned by PSSWM in accordance with Section 13.5 below; or

(b) to pursue any and all of its legal and equitable remedies.

13.4 TIGER SS Default Options. If the PSSWM opts to terminate this Agreement upon TIGER Default, the Principals shall have the option to repurchase all of PSSWM’s shares of Tiger SS for the sum of the payments made by PSSWM to Principals for the Initial Buyout and the Interim Buyouts, net of the taxes paid by the Principals on such

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Buyouts. If the Principals do not within thirty (30) days after written notice of Tiger SS’ default elect to exercise its default repurchase option, PSSWM will have the option to purchase all of the remaining shares of TIGER SS for a nominal purchase price to be determined solely by PSSWM in its absolute discretion.

13.5 PSSWM’s Default Option. If the Tiger SS opts to terminate this Agreement upon material default by PSSWM, the Principals shall have the right to compel the PSSWM to sell all of PSSWM’s shares of Tiger SS at the lesser of: (a) the sum of the amounts paid by PSSWM to Principals for the Initial Buyout and the Interim Buyouts, net of taxes paid by the Principals on such Buyouts; or (b) the fair market value of the shares based on a valuation of Tiger SS as an ongoing operating company with earnings and profits extrapolated to a full year of financial performance based on the last six full months of operation of Tiger SS and Tiger WFOE prior to the issuance of a notice of a default or an occurrence of an event of default.

13.6 No Sale by Principals. In any situation where the Principals end up with all the shares of Tiger SS, whether due to a TIGER Default or a PSSWM default, the Principals covenant for 24 months from the date of their acquisition of all the shares of Tiger SS not to sell all or a controlling interest in Tiger SS, or all or controlling equity interest in TIGER WFOE, without duly disclosing such sale to PSSWM and paying to PSSWM a prorata portion of the proceeds from the sale based on the maximum ownership percentage owned by PSSWM prior to the acquisition of all the shares of Tiger SS by the Principals.

Article 14. Dispute Resolution

14.1 Consultation or Mediation. In the event any dispute arises out of or in relation to this Agreement, Parties shall attempt in the first instance to resolve such dispute through friendly consultations or mediation. If the dispute is not resolved in this manner within sixty (60) days after the date on which one Party has served written notice on the other Party for the commencement of consultations or mediation, then either Party may refer the dispute to arbitration in accordance with the provisions of Section 14.2. The fees and costs of a mediator shall be split between Parties.

14.2 Arbitration. Either Party may submit the dispute for arbitration which shall be conducted in Jacksonville, Florida, and administered by the American Arbitration Association in accordance with its International Arbitration Rules with instructions that: (i) all proceedings in any arbitration shall be conducted in the English language and (ii) there shall be one (1) arbitrator jointly selected by Parties or absent agreement, selected by the American Arbitration Association from a list of six candidates with each Party proposing three of those candidates. The arbitration award shall be final and binding on Parties, and Parties agree to be bound by the arbitral award and to act accordingly. The fees and costs of the arbitrator shall be split between Parties and the arbitrator may award reasonable attorneys fees and costs to the prevailing Party.

14.3 Litigation. Parties have selected binding arbitration as the sole means to resolve a dispute between them over monetary claims that cannot be resolved through consultation or mediation. Concurrently with or without an arbitration, either Party may pursue through litigation at any time: (a) claims for injunctive or other non-monetary relief; (b) claims that also involve third-parties who have not consented to arbitration; and (c) claims in litigation commenced by third-parties. The prevailing Party shall be entitled to reasonable attorneys fees and costs.

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14.4 No Public Disclosure. The existence and resolution of the arbitration proceedings shall be kept confidential by Parties and by the arbitrator, except as required by law, regulation or a court of competent jurisdiction. All disputes between Parties concerning the representations, warranties, covenants and agreements contained in this Agreement shall be exclusively and finally resolved in accordance with the provisions of this Article 14.

Article 15. Notices

Any notice under this Agreement shall be in writing, shall be effective upon receipt and shall be transmitted by personal delivery, U.S. mail, or national or international air courier services (Federal Express, UPS, DHL and the like), facsimile transmission if receipt is confirmed, or by email upon confirmation of both delivery and opening and with a hard copy sent by U.S. Mail, and addressed as follows:

If to PSSWM:

If to Tiger SS and TIGER WFOE:

Attn: Mr. Kevin English PSS Worldwide Medical 4345 Southpoint Blvd. Jacksonville, FL 32216 USA Phone: 904.332.3364 Facsimile: 904.332.3214 Email: kenglish@pssd.com With a copy to: Attn: Ms. Grace Parke Fremlin Foley & Lardner, LLP 3000 K Street, NW, Suite 500. Washington, DC 20007-5101 USA Phone: 202.672.5598 Facsimile: 202.672.5399 Email: gfremlin@foley.com

Attn: Mark Engel Company: Tiger WFOE Street: Liu Lin Tower, Suite 1910, 1 Huai Hai Zhong Road City State Zip: Shanghai, 200021 Country: China Phone: 86.21.6386.6300 Facsimile: 86.21.5383.5200 Email: markcengel@yahoo.com With a copy to: Attn: Mr. Edward E. Lehman Lehman Lee & Xu Dongwai Diplomatic Office Building 6th Fl. 23 Dongzhimenwai Dajie Beijing 100600 China Phone: 86.10.8532.1919 Facsimile: 86.10.8532.1999 Email: elehman@lehmanlaw.com

Article 16. General

16.1 510(k) Filings. Parties acknowledge that (i) certain products will require 510 (k) filings with the US FDA before importation of these products into the United States; (ii) the completion of these filings could take six months or more; and consequently, the parties will work diligently to make these filings. PSSWM will take primary responsibility for making the filings with the full cooperation and assistance of Tiger SS and WFOE.

16.2 Contingency Plans. The parties shall on their own initiatives furnish to the other (a) any information concerning matters the presence or absence of which could result in delays or non-performance, and (b) assurance or contingency plans, in such form as may be satisfactory to the other party, with respect to those matters and covenants to diligently implement such plans.

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16.3 Assignment. Assignments, subcontracts and transfers, in whole or in part, of this Agreement by the Principals, Tiger SS or TIGER WFOE are prohibited. Assignments of this Agreement by PSSWM to a company owned, controlled by or affiliated with PSS Group, or PSSWM are permitted in PSSWM’s sole discretion.

16.4 Independent Contractor. The Principals, Tiger SS and TIGER WFOE are independent contractors, not agents, licensees, distributors or employees of PSSWM, and are not authorized to assume or create any obligation on behalf of or in the name of the PSS Group or PSSWM.

16.5 Patent Markings. Each Product manufactured pursuant to this Agreement in accordance with any patent rights and licensed rights shall bear appropriate patent markings, either by fixing thereon the word “patent” or the abbreviation “pat.”, together with the number of patent, in accordance with Title 35 United States Code Section 287.

16.6 Survival. Unless otherwise agreed in writing, the obligations, liabilities, warranties, representations, covenants, rights and remedies of each of the Parties accrued, made or incurred prior to or at the time of any termination or expiration of this Agreement, including Articles 6 and 11, shall survive such termination or expiration for three (3) years.

16.7 Waiver. The failure of either Party at any time or times to demand strict performance by the other of any of the terms, covenants or conditions, or any right or remedy shall not be construed as a continuing waiver or relinquishment of that provision, and each may at any time demand strict and complete performance by the other of all terms, covenants, conditions, and any right or remedy.

16.8 Interpretation. Headings are solely for the purpose of aiding in speedy location of subject matter and have no meaning under this Agreement. When used in this Agreement, “including” means “including without limitation” and terms defined in the singular include the plural and vice versa. The Agreement consists of negotiated documents and each Party has cooperated in the drafting of the Agreement and its exhibits. If any construction is to be made of any provision, it shall not be construed against either Party on grounds that such Party was the drafter of the document or any particular provision.

16.9 Governing Law. This Agreement shall be governed by the laws of the State of Florida and the United States without reference to principles of conflicts of law.

16.10 Severability. If any provision becomes invalid or unenforceable under any law, Parties intend that such provision will be deemed severed and omitted from this Agreement and the remaining portions shall remain in full force and effect as written.

16.11 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be a duplicate original, but all of which, taken together, constitute a single document.

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16.12 U.N. Convention on Contracts. The United Nations Convention on Contracts for the International Sale of Goods will not apply to this Agreement.

16.13 Governing Language. Parties agree that all notices, consents, approvals, records and other communications required or permitted to be held or delivered under this Agreement and all disputes to be resolved in connection with this Agreement shall be held, delivered and resolved in the English language.

16.14 Translations. This Agreement is executed in English. Any translation of this Agreement into Mandarin Chinese or any other language shall be for reference and informational purposes only and shall not be legally binding.

16.15 Entire Agreement. This Agreement constitute the entire agreement between Parties, with respect to its subject matter and supersedes all prior oral and written agreements, understandings, negotiations, promises, representations of any kind and there are no conditions to this Agreement which are not expressed therein. All modifications of this Agreement must be made in accordance with Section 2.2.

16.16 Exhibits. Exhibit A shall be updated by the Principals as necessary during the term of this Agreement. Exhibit C may be modified and updated by mutual agreement of PSSWM and Tiger SS. Exhibits D, E, and F may be modified and updated as necessary at the sole discretion of PSSWM at any time during the term of this Agreement.

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the Effective Date by their undersigned, duly authorized representatives.

PSS WORLD MED SHARED SERVICES, INC.		TIGER SPECIALTY SOURCING LTD.
By:	/s/ Kevin P. English	By:	/s/ Mark Engel
Name:	Kevin P. English	Name:	Mark Engel
Title:	Senior Vice President of Finance	Title:	President and CEO
PRINCIPALS:		TIGER SHANGHAI SPECIALTY SOURCING CO. LTD.:
/s/ Mark Engel		By:	/s/ Mark Engel
Mark Engel		Name:	Mark Engel
/s/ Elaine Fong		Title:	Chief Representative
Elaine Fong
/s/ Gao Zhan		TIGER MEDICAL PRODUCTS LTD.:
Dr. Gao Zhan
		By:	/s/ Mark Engel
		Name:	Mark Engel
		Title:	Chairman

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Exhibit A of 10.35

*****Confidential portions of this document have been redacted and have been

separately filed with the Commission.

Companies for whom the Tiger Group and the Principals conduct sourcing activities

The following is a list of companies that the Principals own, along with a list of their customers and products and services being provided. In the event that any company listed below, or any new company the Tiger Group or the Principals own or are affiliated with, conducts sourcing activities, the principals shall first obtain the written consent of PSSWM.:

I. Tiger Medical Products: Tiger supplies disposable and medical products to Asian and US markets. Ownership: Gao Zhan *****; Mark Engel *****; Elaine Fong *****. The following is a complete list of existing clients and the status thereof.

*****: Provide ***** with a variety of enema products. We have also committed to work with them on several consumer products including: feminine wipes, spray products, and similar products expanding or outsourcing existing lines. Going forward, we will not accept additional products without PSSWM’s consent. PSSWM recognizes that Tiger Medical and its Principals have an existing obligation to service this client.

*****: Sourcing a specialty vaginal collector and related products. We will seek approval for all other products. PSSWM recognizes that Tiger Medical and its Principals have an existing obligation to service this client

*****: Sourcing a specialty vaginal collector and related products (same product as ***** but for different international markets). Ownership: *****, but diminishing as additional investors are brought into company. We will seek approval for all other products. PSSWM recognizes that Tiger Medical and its Principals have an existing obligation to service this client

*****: Various customized lab products. We will seek PSSWM’s approval for all other products.

*****: We have an obligation to complete orders in one product if required *****. We will seek PSSWM’s approval for all other products.

*****: We have from time to time sold to these companies a variety of Chinese made disposable products. We will not sell any further products without PSSWM’s approval.

*****: Tiger is awaiting final approval of a 510(k) for ***** (we are still waiting for a few final test results on which FDA has conditioned approval). We have spent considerably on obtaining this 510(k) and would like to recover costs on this product. However, no commitments have been made to any potential customers except to ***** (which provided us with certain support in obtaining the 510(k) and for which on a hand shake we promised sale at a certain price). Once approved, no additional customers will be obtained without the approval of PSSWM.

*****Confidential portions of this document have been redacted and have been

separately filed with the Commission.

II. *****: This company is in the business of developing with US inventors novel new products in the device and pharmaceutical field. Ownership: *****. Products will be licensed to third party major distributors once prototypes and proof of concept is developed. Products currently under development now include: *****. Any expansion of business activities related to sourcing medical supplies that require the time and attention of the Principals will require the approval of PSSWM.

III. *****: This company trades in publishing and various consumer products. Key US buyers include ***** (books and associated consumer products) and ***** (plastic hangers). Ownership: *****. Total 2004 revenue is under *****. Any expansion of business activities related to sourcing medical supplies that require the time and attention of the Principals will require the approval of PSSWM.

IV. *****: This company provides some regulatory and clinical trial services to possible multinational suppliers of raw materials to factories of some products for PSSWM. Ownership: *****. Any expansion of business activities related to sourcing medical supplies that require the time and attention of the Principals will require the approval of PSSWM.

V. *****: This company provides some marketing services to possible vendors of raw materials to factories that might produce some products for PSSWM. Ownership: *****. Any expansion of business activities that potentially might have any conflict with the PSSWM will require the approval of PSSWM.

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Exhibit B of 10.35

*****Confidential portions of this document have been redacted and have been

separately filed with the Commission.

CALCULATION OF INTERIM BUYOUT PRICE

OF TIGER SS STOCK

Fiscal Year	Targeted Sales (Landed Costs)	Interim Buyout Price	Reduced Interim Buyout Price	Percentage PSSWM Ownership	Cumulative PSSWM Ownership Percentage
2005	*****	USD 1 million	*****	*****	*****
2006	*****	*****	*****	*****	*****
2007	*****	*****	*****	*****	*****
2008	*****	*****	*****	*****	*****
2009	*****	See Exhibit B(2)	See Exhibit B(2)	*****	*****

Payment Matrix (Fiscal Year 2009) See Exhibit B(2)

Notes:

1. Sales for New Programs:. From time to time, there may be a new initiative or non-routine, non-repetitive and unusually large purchase by PSSWM that should be excluded from the Targeted Sales amount. These types of new initiatives or non-routine and non-repetitive purchases are not intended to be included in the Targeted Sales amount for purposes of calculating the Interim Buyout Price or the Final Buyout Price. The parties agree to subsequently negotiate how to split the benefits from such purchases.

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*****Confidential portions of this document have been redacted and have been separately filed with the Commission.

Exhibit B(2)

Volume of Purchases

Profit

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Note: The Total Purchase Price reflected in the table above will be netted against any amounts previously paid to Tiger Principals in consideration for shares and all adjustments described in the Sourcing Services Agreement.

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Exhibit C of 10.35

SERVICES LEVEL AGREEMENT

Date:                     

THIS SERVICES LEVEL AGREEMENT (the “SLA”), is an exhibit to the SOURCING SERVICES AGREEMENT of the same date.

Article 1. Sourcing Services; Contracts with Suppliers

1.1 Outline of Sourcing Services. For purposes of this SLA, all references to TIGER SS shall collectively refer to TIGER SS and TIGER WFOE. For and on behalf of PSSWM, TIGER SS shall:

(a) Identify, interview, select and recommend factories suitable for the manufacture of Product after conducting reasonable financial and business due diligence on each Supplier, factory, owners, directors and officers (all due diligence results shall be provided to PSSWM in writing);

(b) After careful review of PSSWM’s Order Request, draft Product specifications and Product packaging specifications for each Product; draft other materials as PSSWM may require to make Product or sourcing decisions. PSSWM’s approval of all drafts of Product specifications and other materials drafted for PSSWM shall be obtained;

(c) Solicit bids and negotiate the most favorable terms and best prices for the Product; and whenever possible, deal directly with the factories and avoid going through agents;

(d) Solicitation for bids and negotiations shall take place after: (i) Supplier due diligence has been completed, resulting in a favorable assessment on Supplier; and (ii) a confidentiality agreement, using the form confidentiality agreement set forth in Exhibit F, has been signed by the target Supplier;

(e) For each Supplier with whom PSSWM has agreed to source, prepare a Supply Contract (or alternatively called a Master Supply Agreement), using the form set forth in Exhibit E, for PSSWM to review, approve and execute;

(f) Draft Purchase Order, using the form set forth in Exhibit D, for PSSWM to review, approve and issue; Draft Purchase Order to include all details of the order such as design and product specifications, sizes, quantities, prices, packaging instructions, labeling requirements, branding, shipping dates, delivery dates and country of destination, payment terms and other terms of purchase specified by PSSWM

(g) .Arrange for the manufacture, inspection, packing and shipment of Product;

(h) Monitor, ensure and enforce compliance and performance of each Supplier and timely deliveries with each PO and all the terms and conditions of the Supply Contract;

(i) Monitor, ensure and enforce quality assurance with each Supplier and draft a Quality Assurance instructions and agreements for PSSWM to review, approve and execute if it is deemed to be necessary;

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(k) Obtain documentation necessary for the exportation of the Product in China and importation of Product to the United States or other country, clearly specifying the country of origin and destination;

(l) Provide PSSWM with the relevant Supplier’s original invoices for Products, it being understood that TIGER SS will never act as a seller of any Product to PSSWM;

(m) Maintain complete and accurate records of all Products ordered, in progress, finished and in transit for the account of PSSWM and, at the request of PSSWM, provide PSSWM with access to and copies of the records;

(n) Reserve and maintain PSSWM’s right to collect and retrieve for PSSWM all tooling, designs, specifications, drawings, renderings, artwork, models, iterations, scrap production, samples and other items of Proprietary Information at the end of a production cycle or the Supply Contract.

1.2 Contracts with Suppliers. TIGER SS must ensure that each Supplier and PSSWM have agreed and signed a Supply Contract, using the Master Supply Agreement set forth in Exhibit E, before preparing any draft POs to be issued by PSSWM with that Supplier. The contract terms with the Suppliers shall consist of the Master Supply Agreement, POs, Supplier acknowledgements and a Quality Assurance Agreement if any. TIGER SS may provide Chinese translations of documents to the Suppliers with a clear understanding and agreement by the Supplier that the Chinese translation is for convenience only and is not legally binding on PSSWM.

Article 2. Supply Chain Requirements

2.1 PO and Acknowledgement. PSSWM will issue and submit fax or electronic purchase orders to Supplier and TIGER SS. Supplier will provide electronic order acknowledgement via EDI or TIGER SS’s vendor web portal within five (5) business days from the receipt of the PO. PO will include (i) verification at the item level of shipment date, ship-from location, and shipment mode, (ii) order number, (iii) price, (iv) backorders and expected backorder release dates and acknowledgement will confirm the same. In the event that such order acknowledgment is not possible as above then the parties will determine another acceptable method.

2.2 Fill Rates. TIGER SS will monitor and ensure that each Supplier provides an average first-pass line fill rate of at least ninety five percent (95%), measured monthly. Fill rates are calculated at the purchase order line level as quantity received on the first pass (initial receipt) divided by quantity ordered. Each purchase order line first pass fill rate is weighted equally in the calculation of an average first pass fill rate for all purchase order lines received during the month.

2.3 Production Closures. TIGER SS shall provide PSSWM with annual calendars indicating Chinese holidays and other closures of shipping and customer service operations, and will provide at least thirty (30) days advance notice, in writing, of any changes to this calendar.

2.4 Packaging List. TIGER SS shall monitor and ensure that each Supplier provides a packaging list with PSSWM’s purchase order number, PSSWM’s item number, quantity shipped, and date shipped with each shipment. If applicable, the packaging list should

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also provide serial number, lot or batch number, NDC or UPC number, and expiration date. Except for combined contain loads, there should be no more than one PSSWM purchase order number per Supplier packaging list, and all packaging lists should be printed in PSSWM part number sequence indicating split shipments and backorders, as applicable.

2.5 Packing and Labeling. TIGER SS shall monitor and ensure that each Supplier (i) preserves, packages, handles, and packs Products so as to protect the Products from loss or damage, in conformance with good commercial practice, government regulations, and other applicable requirements; (ii) marks the exterior of the boxes with the associated PSSWM item number and serial number, lot or batch number, NDC or UPC number as applicable, of the contents; (iii) provides this information on the exterior of the boxes in bar-code format; (iv) ships Products as specified by PSSWM; and (v) is responsible for any loss or damage due to its failure to properly preserve, package, handle or pack Products.

2.6 No Excess Charges. TIGER SS shall monitor and ensure that each Supplier does not apply any miscellaneous, transportation, handling, HAZMAT, accessorial, minimum order or pallet charges, surcharges or fees to any PSSWM purchase orders or deliveries unless specifically approved by PSSWM in the PO acknowledgement.

Article 3. Forecasts, Production Schedules, and Quantity Variations

3.1 Forecasts. PSSWM shall provide to TIGER SS a forecast of the requests for proposal to source Products that PSSWM expects to order from Suppliers during each six-month periods. The forecasts and updates furnished to TIGER SS shall be entirely non-binding and for planning purposes only.

3.2 Production Schedule. At PSSWM’s request, TIGER SS shall use best efforts to arrange for the Suppliers to agree to schedule share and allow PSSWM to determine Suppliers’ production schedule and to share materials, capacity or other information necessary to meet PSSWM’s production needs.

3.3 Quantity Variations. If the quantity delivered varies from the quantity specified in a PO, then TIGER SS shall arrange for Supplier to ship additional Products at the earliest possible moment and by the fastest practicable and available means, but without any increase in costs to PSSWM if the quantity delivered varies from the quantity supplied. In the case of excess Products above approved PO variations, PSSWM may treat the excess amount as a separate purchase order and agree on a payment date to be communicated to Supplier or reject the excess amount and return it to Supplier at Supplier’s cost.

3.4 Shipping Container Capacity Constraints. If quantity variations are a function of shipping container capacity constraints, TIGER SS shall so inform PSSWM promptly prior to shipment. In each PO, PSSWM shall indicate which SKU(s) shall absorb any quantity variance(s).

Article 4. Shipping

4.1 Drop Shipment. At PSSWM’s request, TIGER SS shall arrange to have either the Supplier or UPS (or such other shipping company as designated by PSSWM) drop ship

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any order for Products directly to a location designated by PSSWM. Upon delivery, the bill of lading shall be presented to PSSWM or its designee/consignee for signature. The bill of lading shall be in such form, and shall contain such information, as shall be approved by PSSWM. Promptly following delivery of each drop shipment, TIGER SS shall or arrange Supplier or UPS (or such other shipping company as designated by PSSWM) to send a copy of the signed bill of lading bearing the designee/consignee’s signature to PSSWM.

4.2 Costs of Non-conformity. TIGER SS shall ensure that additional expenses, charges or claims incurred as a result of Supplier’s failure to make delivery in conformity with the agreed time, quality, quantity or deviation from the specified route, other shipping instructions or improper description of the shipment in shipping documents shall be Supplier’s responsibility and if any of these additional costs are incurred by PSSWM, TIGER SS shall ensure that PSSWM has the right to offset these costs against any amounts owed to Supplier.

Article 5. Quality, Non-Conforming Products

5.1 Quality. TIGER SS shall inspect for quality, condition and specifications of the Products at Supplier’s factory and reject non-conforming Products. PSSWM and its designee shall have the same inspection rights upon receipt of the Products at the final destination. Adherence to quality, condition and specifications will be determined on many factors. Specifications adherence includes all accepted design drawings, renderings, artwork, specifications, models, samples, written procedures, or other guidelines for the Products, all as furnished, replaced, substituted, updated or amended by PSSWM or TIGER SS, as applicable.

5.2 Non-Conforming Products. For non-conforming Products, consult with PSSWM and instruct Supplier as to the means and methods of cure and cover. PSSWM shall have no obligation to pay for non-conforming Products or for transportation costs of and may cancel all unshipped POs for the same Products unless TIGER SS reassures PSSWM that Supplier has taken immediate corrective measures to cure the quality or specifications variations.

5.3 Destruction of Non-Conforming Products. All non-conforming Products shall be destroyed by PSSWM if discovered after receipt of the shipment, with independent third party verification, or by TIGER SS or Supplier if the non-conformance is discovered before shipment. If the destruction is being conducted by Supplier, TIGER SS shall arrange with Supplier to witness and verify the destruction of the non-conforming Products and ensure that all labels, trademarks and markings identifying or belonging to PSSWM or its customers are destroyed.

5.4 Random Quality Testing. TIGER SS shall (i) reserve the right with each Supplier to select Product randomly during production or after arrival at destination for quality inspections by PSSWM, TIGER SS or third-party testing and to conduct random inspections during the production process to assure that the quality and workmanship of the Product in process strictly complies with the relevant approved samples and design and manufacturing specifications; (ii) promptly advise PSSWM in writing of any problems affecting the completion of POs for Product in accordance with the specified quality and delivery terms; and (iii) certify to PSSWM in writing (in the form of a signed certificate of inspection) that each order meets all quality specifications for that particular Product in accordance with the all quality specifications and sales samples.

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Article 6. Quality Assurance

6.1 US FDA Compliance. If required, TIGER SS shall cause Supplier to maintain appropriate certification status and compliance with the US Food and Drug Administration’s (FDA) Quality System Regulation, the Medical Device Directive and all other applicable regulations.

6.2 Chinese SFDA or Other Legal Compliance. If applicable, TIGER SS shall cause Supplier to comply with all applicable Chinese laws, regulations, orders and standards that pertain to the Products or to the manufacturers of the Products.

6.3 US Compliance by PSSWM. Upon request, TIGER SS shall cause Supplier to furnish to PSSWM information required to enable PSSWM to comply with all applicable US law, regulations, orders and standards that pertain to the Products in the United States and to distributors for the Products.

Article 7. Modification of Products

7.1 Right to Alter Packaging. TIGER SS shall reserve to PSSWM the right to add notations or markings to the Product packaging after receipt of the Products.

7.2 Changes to Products and Packaging. TIGER SS shall cause Supplier to consult with PSSWM on new Products and design changes or modifications to Products and the packaging.

7.3 Notice of Discontinuance of Products. TIGER SS shall provide or cause Supplier to provide PSSWM with written notice of all Product discontinuance no less than sixty (60) days prior to the last order date.

Article 8. Customs

8.1 Product Registration. Upon mutual agreement, PSSWM may provide and the TIGER SS may be requested to assist with Product registration and localization assistance. In the case of documentation localization, all master documentation will be maintained and controlled, for the purpose of quality system compliance, by Supplier.

8.2 Country of Origin Certification. Upon PSS’s request, TIGER SS shall cause Supplier to provide an appropriate certification stating the country of origin for Products, sufficient to satisfy the requirements of (i) the customs authorities of the country of ultimate destination; (ii) any applicable export licensing regulations, if any, including those of the United States; and (iii) requirements for duty drawback, if any.

8.3 Country of Origin Markings. TIGER SS shall cause Supplier to mark every Product (or the Product’s container if there is not room on the Product itself) with the country of origin. Supplier shall, mark the Products as directed by PSSWM so as to comply with the requirements of the customs authorities of the country of ultimate destination.

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8.4 Export/Import Agent. If the Products are being delivered FOB, FCA, FAS, CRF, CIF, CPT, CIP, DAF, DES, DEQ, DDU, as defined in Incoterms 2000, and the Supplier in question has no foreign trade right and has not named and import/export company to perform its obligations, TIGER SS shall act as the export agent, if TIGER SS is a properly licensed export/import company in China.

8.5 Export/Import Responsibility. If the Products are being delivered FOB, FCA, FAS, CRF, CIF, CPT, CIP, DAF, DES, DEQ, DDU, as defined in Incoterms 2000, TIGER SS or Supplier, as the case may be, shall be the exporter of record and shall comply with all customs matters at origin. PSSWM or its designee shall be the importer of record and shall comply with all customs matters at destination.

8.6 Documents for Customs Purposes. TIGER SS or Supplier, as the case may be, shall provide PSSWM or its designee with documentation deemed necessary by PSSWM or its designee to satisfy the requirements for customs benefits, US federal or state laws on domestic/foreign content, including country of origin information.

Article 9. COMPLAINTS, QUALITY RECORDS AND RECALLS

9.1 Complaints. TIGER SS will notify, in writing, Supplier’s quality assurance department of all Product complaints or any conformance issues that may affect the marketability of Products. TIGER SS shall conduct or cause Supplier to conduct safety investigations or other necessary follow-up activities. TIGER SS will provide information essential to such activities. TIGER SS or Supplier will promptly notify PSSWM when the corrective action has been completed.

9.2 Product Recall. If a recall of a Product occurs due to Supplier’s failure to supply Products that (i) conform in all material respects to the applicable published specifications; or (ii) are free from defects in material and workmanship (when given normal, proper and intended usage), TIGER SS shall cause Supplier to repair or replace at its own costs and expense all Products subject to the recall and previously delivered to PSSWM or its customers.

9.3 Recall Process. TIGER SS will arrange with Supplier to consult with PSSWM to establish a reasonable process for managing the recall and Supplier shall be responsible for all reasonable out-of-pocket expenditures incurred by PSSWM (inclusive of shipping costs, labor and travel costs) that are consistent with the recall process agreed to by the Parties. In the event the recall is not required by a governmental agency for safety or efficacy reasons, but is instead requested by Supplier at its sole discretion, Supplier will be responsible for determining the scope of the recall, including the number of units, timeframe for the recall, and criteria for completion, at no cost or expense to PSS.

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Exhibit D of 10.35

Buyer: World Med Shared Services, Inc. 4345 Southpoint Boulevard Jacksonville, Florida 32216 USA Phone:                         Fax: PURCHASE ORDER Page 1 of 1

The following number must appear on all related correspondence, shipping papers, and invoices:	P.O. NUMBER:
To Seller:	Ship To:
Phone:                         Fax:

P.O. DATE SHIPPED VIA/SHIP BY (DATE) F.O.B. POINT BUYER’S FREIGHT FORWARDER

Item Number	Description	Quantity	UNIT PRICE	TOTAL
PAYMENT TERMS: Net 45 days after shipment and receipt of invoice and shipping documents; Payment by wire transfer into Seller’s bank account in China. COMMENTS:
		OTHER
		TOTAL

Documents to be presented by Seller:

Packing List	Mill Certificate	Quality Certificate issued by Local Testing Authorities
Insurance Policy	VAT Invoice	Carrier’s Cargo Bill	Other

All commercial invoices and packing slips must contain but are not limited to the following information:

Invoice: Seller, Buyer, Consignee (if different from Buyer), purchase order number, item number, item description, quantity shipped, cost per piece, extended cost, Country of Origin.

Packing Slip must include everything that is on the invoice plus: total number of cartons, number of cartons per item, gross weight, net weight, shipment dimensions, shipping company, mode of transportation, shipment date.

Seller shall notify Buyer and its Designee of the shipment date on such date and advise Buyer of complete shipping and routing information. Seller must provide original shipment documents to Buyer and its Designee no later than seven (7) days after vessel sail date. On air shipments, documents must be sent no later than two (2) days after ship date.

1.      Please send two copies of your invoice. 2.      Enter this order in accordance with the prices, terms, delivery method listed above. 3.      Please notify us immediately if you are unable to ship as specified as to delivery date, price, quantity, quality or terms. 4.      Please send all correspondence to the authorized representative of Buyer at the above address and its Designee.	This purchase order is entered into pursuant to, and shall be governed by the terms and conditions set forth in the Master Supply Agreement by and between Buyer and Seller (“Agreement”). The terms & conditions of the Agreement are part of this purchase order.
	Authorized Representative of Buyer                        Date

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Exhibit E

*****Confidential portions of this document have been redacted and have been

separately filed with the Commission.

MASTER SUPPLY AGREEMENT

EFFECTIVE DATE:                     

This Master Supply Agreement (the “Agreement”) is made as of the Effective Date by and between World Med Shared Services, Inc., doing business as PSS World Medical Shared Services, Inc., and Gulf South Medical Shared Services, Inc., a Florida corporation located at 4345 Southpoint Boulevard, Jacksonville, Florida 32216 USA (hereinafter referred to as “BUYER”), and                                                                                                                                                                             , a Chinese company located at                                                                                                                                                                                     , China (hereinafter referred to as “SELLER”).

BUYER has contracted with Tiger Specialty Sourcing, Limited, a Hong Kong company which has formed and organized a wholly foreign owned enterprise, Shanghai Hu Wei Medical Products Company Ltd., in Shanghai located at Suite 1910, 1 Huai Hai Zhong Road, Shanghai 200021 CHINA (hereinafter collectively referred to as “TIGER” or “Designee”), to identify, interview, select and recommend Chinese suppliers, negotiate the terms and conditions of each and every purchase and manage and coordinate its purchasing activity under this Agreement. BUYER will purchase and pay for the goods based on the terms and conditions of sale resulting from TIGER’s discussions with SELLER. Once an order is placed, TIGER shall manage and coordinate the purchase for and on behalf of BUYER.

WITNESSETH

WHEREAS, BUYER is in the business of buying medical products and equipment for distribution and sale in the United States;

WHEREAS, SELLER is in the business of selling                                                               and similar items (the “Products”); and

WHEREAS, BUYER wishes to purchase the Products from SELLER, as further delineated in attached Exhibit A, Product Specifications;

Now, therefore, in consideration of the mutual covenants of the parties and for good and valuable consideration, the legal sufficiency of which is hereby acknowledged, the parties agree as follows:

ARTICLE 1. Products; Purchase Orders

1.1 Products. SELLER agrees to produce and sell Products in accordance to specifications and samples provided by BUYER. SELLER must disclose any changes to the approved specifications, prior to making those changes, and obtain the written approval of BUYER.

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1.2 Purchase Order. Each contract for the supply of Products shall be entered into under this Agreement by BUYER’s issuance to SELLER of a signed purchase order (a “PO”) and SELLER’s acceptance of that PO. The PO shall be substantially in the form attached hereto as Exhibit B. All POs must be signed by an authorized representative of BUYER and any unsigned orders cannot be accepted by the SELLER to establish a contract. Each PO may be transmitted to SELLER by hand, mail, air courier, facsimile or electronic transmission in PDF format. This Agreement will not accompany each PO but will apply to all POs between the parties.

1.3 Revised POs. When a PO is revised by BUYER, only the latest revised PO shall be the applicable order that is valid and enforceable. If a revised PO is not objected to in writing by the SELLER, it shall be deemed to have been accepted.

1.4 Acceptance of PO. A PO issued by BUYER will be deemed to have been accepted by the SELLER upon the first to occur of the following: (i) written acceptance by the SELLER, (ii) SELLER’s first shipment or other tender of performance under the PO, or (iii) SELLER’s failure to deliver written objection to BUYER’s PO or revisions to a PO within five (5) business days of the SELLER’s receipt of the initial PO or revised PO (or such other period as may be specified in the PO).

1.5 Terms of Acceptance. Acceptance of a PO issued by BUYER is expressly limited to its terms and the terms of this Agreement. Any modification or change in the terms of either any PO or this Agreement shall only be binding if accepted by the BUYER in writing by BUYER’S authorized representative. BUYER’S AUTHORIZED REPRESENTATIVE IS THE PERSON WHO IS A SIGNATORY TO THIS AGREEMENT FOR PURPOSES OF THIS AGREEMENT AND FOR PO ISSUANCES AND REVISIONS.

1.6 Sourcing Service Representative. For purposes of coordinating and managing the orders and ensuring SELLER’s performance of this Agreement and the POs, BUYER has appointed and designated TIGER to serve as its sourcing service representative. Please direct all questions and concerns related to the Products and the POs to TIGER.

To leave no doubt and to avoid confusion, the SELLER may deem a varying term not contained in this Agreement or the PO to be accepted by BUYER only if the BUYER’s authorized representative agrees in writing to the varying term. BUYER’s authorized representative is not a representative of Tiger or Designee.

1.7 Separate Contracts. Each PO accepted by SELLER shall incorporate all the terms of this Agreement and will be a separate contract.

ARTICLE 2. Price, Price Terms

2.1 Price. The unit price of each Product is set forth in the Product Description and Pricing, Exhibit C to this Agreement. The unit prices are be effective and fixed for one year from the date of the first PO for all orders unless otherwise mutually agreed by the parties.

2.2 Price Terms. All prices shall be: (i) in USD as stated in Exhibit C; (ii) inclusive of all costs and expenses of whatever kind or nature, unless modified in the PO; and (iii) in accordance with the terms specified in the PO.

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*****Confidential portions of this document have been redacted and have been

separately filed with the Commission.

2.3 Price Changes. SELLER agrees for ***** from the date of the first PO ***** (see Exhibit A). Thereafter, SELLER agrees *****. If either (a) the price of raw materials for the Products increases or decreases by more than *****, or (b) the exchange rate between the US dollar and the RMB changes by more than *****, then the parties agree to *****.

2.4 Changes in Costs for Raw Materials. The changes in the costs of raw materials could be measured by comparing documentary evidence of the decrease or increase in the raw material costs of the first and last POs from the preceding twelve-month period for an adjustment in the price for the next twelve-month period. Documentation could include either (a) in the case of the Supplier, a comparison of the costs using invoices and evidence of payments for the raw materials used to fill the first and last POs during the first year of the Agreement, and (b) in the case of the Buyer, a comparison of the cost data for the raw materials published by a neutral third party organization applicable on the dates of the first and last POs during the first year. This process could be repeated for any subsequent twelve-month period by either party if the need to do so for a price increase or decrease arises.

2.5 Index for Foreign Exchange Rate Changes. The changes in the foreign exchange rate between the US dollar and the RMB shall be measured by comparing the exchange rate published by the Wall Street Journal on the dates of the first and last POs during the first year of the Agreement and by repeating the process of comparing the exchange rates on the dates of the first and last POs of the second year and each subsequent years thereafter if the term of the Agreement is extended if the need to do so for a price increase or decrease arises.

2.6 Lowest Price Offer. SELLER agrees to not sell the Products to other buyers that will be reselling the Products in the United States for less than it sells to BUYER. If SELLER does offer a lower price to another buyer, that lower price shall be offered to BUYER;.

ARTICLE 3. Payment; Taxes

3.1 Payment. Payment will be made 45 days after shipment and after receipt of SELLER’s invoice and shipping documents. Payment will be by wire transfer into SELLER’s designated bank account in China. Payments for Products will not be construed as acceptance by BUYER of any non-conforming Products.

3.2 Taxes. Each party will be responsible for its own taxes on the purchase and sale of Products. Upon request, the parties will cooperate in obtaining and furnishing to each other certificates or other evidences of payment, inapplicability of or exemption from any sales, excise or other taxes or duties to which either party may request.

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ARTICLE 4. Quality; Non-Conforming Products

4.1 Defective Products. SELLER shall bear all costs, direct and indirect, for defective Products or disposal fee of defective batch. If defects are found in the factory, all costs will be borne by SELLER, but if the Products have been shipped to the US, all defective Products found on the US side will have a third-party independent testing company’s report covering the defective items, defective quantity, nature of the defect and the like and the price of the defective batch will be deducted from any payment owed to SELLER by BUYER.

4.2 Quality. BUYER or its Designee may inspect for quality, condition and specifications of the Products at the SELLER’s factory and at the final destination and reject any non-conforming Products. Adherence to quality, condition and specifications will be determined based on many factors. Specifications adherence includes all accepted design drawings, renderings, artwork, specifications, models, samples, written procedures, or other guidelines for the Products, all as furnished, replaced, substituted, updated, or amended by BUYER.

4.3 Non-Conforming Products. Upon BUYER’s or its Designee’s determination that any of the Products are non-conforming, BUYER or its Designee may instruct SELLER as to the means and methods of cure and cover. BUYER shall have no obligation to pay for non-conforming Products and may cancel all unshipped orders for the same Products unless the SELLER takes immediate corrective measures to cure the quality or specifications variations. All non-conforming Products may be destroyed by BUYER if discovered after receipt of the shipment or by SELLER or BUYER’s Designee if the non-conformance is discovered before shipment. If the destruction is being conducted by the SELLER, BUYER or its Designee shall have the right to witness and verify the destruction of the non-conforming Products.

4.4 Random Quality Testing. BUYER reserves the right to select Products randomly from production for evaluation by a third-party or BUYER’s or Designee’s own laboratory testing. A copy of the lab-test report will be provided to SELLER if the Products are deemed to be non-conforming as a result of such test and shall be deemed to be conclusive.

4.5 Production Changes. Without the prior written approval from BUYER which may be withheld or conditioned in the BUYER’s sole discretion, SELLER shall not subcontract nor change processes, cycle times, raw materials used or specifications.

4.6 SA8000. SELLER shall substantially comply with SA8000 regulations and requirements on worker safety, worker environment and ethical treatment of workers. A copy SA8000 will be furnished to SELLER upon request.

ARTICLE 5. SELLER’s Representations and Warranties

5.1 SELLER’s Representations. SELLER represents, warrants and covenants that:

(a) It has all required permits, licenses and insurance to produce and sell all the Products to be bought by the BUYER;

(b) All materials used in the production of the Products shall be of the highest international industry standards and quality;

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(c) It has the capacity to produce and will produce BUYER’S annualized projections in a timely manner; and

(d) It has the authority to enter into this Agreement and perform its terms.

(e) It has the applicable ISO certification on the Effective Date. Or, if Supplier does not have the ISO certification, it shall covenant to apply diligently for the ISO certification. The Supplier acknowledges that continuation of this Agreement may depend on the attainment of the ISO certification.

5.2 Product Warranties. SELLER represents, warrants and covenants that the Products:

(a) To the best of SELLER’s knowledge, do not violate the intellectual property or other proprietary rights of any third parties and SELLER shall be liable if they do so;

(b) Conform to all quality standards and accepted design drawings, specifications, models, samples, written procedures, or other guidelines for the Products, all as furnished, replaced, substituted, updated or amended;

(c) Are free of all defects in materials, workmanship, manufacture, packaging, labeling, shipping, handling or processing;

(d) are merchantable, fit and sufficient in all respects for their intended purposes which purposes the SELLER understands and accepts;

(e) Are free and clear of all liens, encumbrances and claims of whatever nature that relate to the SELLER, or SELLER’s business or activities and the SELLER has good and merchantable title;

(f) Are manufactured without use of child or forced labor and in a safe and healthy work environment for the employees;

(g) Comply with all applicable Chinese laws, regulations, orders or standards, including any applicable agency or association standards (“Regulations”) and has received or will receive all required Chinese governmental approvals for the manufacture, packaging, labeling, shipping, handling, processing, sale, use, licensing, or certification of the Products. SELLER will furnish buyer with copies or other satisfactory evidence of all such governmental approvals; and

(h) Comply with all applicable US laws and regulations that the SELLER should have known or were made known to SELLER by the BUYER or its Designee.

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*****Confidential portions of this document have been redacted and have been

separately filed with the Commission.

ARTICLE 6. Delivery

6.1 Delivery. SELLER shall generally ship Products within 45 days after receipt and acceptance of the PO from BUYER unless otherwise specified in the PO. Delays in shipment will incur a reduction of ***** of total shipment value for each day the ordered Products are not shipped as specified in the PO.

6.2 Returns. SELLER acknowledges that BUYER may return, within 30 days of receipt, any Products for full credit if:

(a) Shipped in error by SELLER; or

(b) Received in damaged condition before or after title passes to BUYER if the damage is due to negligent packing of the Product by the SELLER.

6.3 Shipping Documents. SELLER shall furnish one set of original documents, inclusive of Invoice, Packing List, Forwarder’s Cargo Receipt, Certificate of Origin to a shipping agent designated by BUYER or its Designee and another set of original documents to TIGER.

ARTICLE 7. Insurance; Indemnity

7.1 Liability Insurance. SELLER agrees to provide the BUYER and BUYER’S Designee a copy of all insurance policies it carries for or relating to product liability. BUYER may request that SELLER add BUYER as an additional insured on its insurance policies or to obtain adequate insurance coverage as a condition of purchase if BUYER or BUYER’s Designee deems the insurance coverage to be inadequate in its sole opinion.

7.2 Indemnity. SELLER shall defend, indemnify and hold BUYER and Designee and each of their respective directors, officers, employees free and harmless from and against any loss, cost, liability, claims, demands or lawsuits, including reasonable attorneys’ fees, arising from or relating to (i) the manufacture or use of any Products, (ii) the breach by SELLER of any warranty, representation or covenant contained in this Agreement or any PO, or (iii) any products liability.

7.3 Notice of Claim. In the event of any claim or threatened claim which may be the subject of indemnification, BUYER will give SELLER prompt written notification of the claim.

7.4 Offset Right. If the SELLER does not timely discharge its indemnity responsibilities, any amounts, whether due or to become due, to SELLER shall be subject to offset by BUYER to the full extent of all costs, damages, liabilities and expenses against any outstanding payments to SELLER.

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ARTICLE 8. Proprietary Information; Confidentiality; Non-Compete

8.1 Proprietary Information. All tools, tooling, equipment, molds, materials, samples, writings, design drawings, artwork, specifications, technical knowledge, manufacturing knowledge and other tangibles, intellectual property (inclusive of patents, trademarks, copyrights and trade secrets), information about BUYER’s products, production or other methods, processes, scheduling, sources of supply, customers, marketing, financial information and the like BUYER or its Designee presents or introduces to SELLER (“Proprietary Information”) shall remain the sole and exclusive property of BUYER.

8.2 Confidentiality. The Proprietary Information shall be deemed to have been disclosed as part of the consideration under this Agreement and shall held in strict confidence by the SELLER and its owners, directors, officers and employees and shall not be used to benefit SELLER (except in connection with this Agreement) or any other person or third party. SELLER shall prevent any disclosure or use inconsistent with BUYER’s rights in the Proprietary Information.

8.3 Non-compete. Except in connection with this Agreement, SELLER agrees not use in any manner, directly or indirectly any Proprietary Information of the BUYER and to ensure that its owners, directors, officers and employees, as well as affiliates, subsidiaries, agents, contractors, suppliers and customers and their owners, directors, officers and employees (“Seller-Related Parties”) do not use such Proprietary Information. In particular, SELLER and Seller-Related Parties shall not use Proprietary Information to solicit BUYER’s customers for the purchase and sale of Products.

8.4 Survival. SELLER explicitly agrees that the terms and conditions of this Article 8 shall survive expiration or termination of this Agreement for three (3) years.

ARTICLE 9. Customs

9.1 Delivery Terms. The Products shall be delivered in accordance with the shipment terms specified in the PO, such as FOB (Free on Board at named port of shipment), CIF (Cost, Insurance and Freight at named port of destination), CIP (Carriage and Insurance Paid to named place of destination), DDU (Delivered Duty Unpaid to named place of destination). The shipment terms shall be defined as provided in the International Chamber of Commerce Official Rules for the Interpretation of Trade Terms, commonly known as Incoterms 2000.

9.2 Export/Import Agent. If SELLER has no foreign trade right, SELLER shall enter into a domestic purchase and sale contract with a licensed export/import company designated by SELLER for the Products to be exported which designated export/import company must be approved by the BUYER.

9.3 Export/Import Responsibility. Generally under most delivery terms, SELLER, or the export/import company, if any, shall be the exporter of record and shall comply with all customs matters at origin. BUYER shall be the importer of record and shall comply with all customs matters at destination.

9.4 Documents for Customs Purposes. SELLER, together with the export/import company, if any, shall provide BUYER or its Designee with any documentation deemed necessary by BUYER or its Designee to satisfy the requirements of any customs benefits, federal or state laws on domestic/foreign content, including country of origin information.

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ARTICLE 10. Term, Cancellation, Default and Remedies

10.1 Term. The term of this Agreement shall commence on the Effective Date upon execution of this Agreement by both parties and continue for two years. The parties may extend the term of the Agreement for additional one-year terms by agreeing to do so in writing.

10.2 Cancellation of POs for Breach. BUYER may cancel any PO, in whole or in part, if SELLER defaults under this Agreement or any PO. Upon such cancellation, BUYER shall have no further liability or responsibility with respect to such PO (or the cancelled portion of the PO), as the case may be.

10.3 Termination Agreement for Breach. The non-defaulting party may terminate this Agreement if:

The other party defaults in the performance of any covenant, warranty, representation or other obligation under this Agreement and the default is not cured after 30 days’ written notice to the defaulting party by the non-defaulting party;

The other party is subject to any administrative or governmental action which suspends or terminates its business or that portion of its business that relates to any outstanding POs;

The other party makes a general assignment for the benefit of creditors, suspends business or commits any act amounting to business failure, or makes a voluntary assignment or transfer of all or substantially all of its property; or

A voluntary petition in bankruptcy is filed by the other party, or any involuntary petition to obtain an order for relief against the other party is filed under the bankruptcy laws applicable to the other party.

10.4 Voluntary Termination. For any reason or no reason BUYER may cancel this Agreement or any PO not yet shipped (in whole or in part) by giving thirty (30) days written notice of cancellation of the Agreement or PO to the SELLER. If BUYER elects to cancel this Agreement or a PO, BUYER agrees to pay: (1) for any Products that have at such time been shipped by SELLER pursuant to a PO; (2) any packaging that has been customized for BUYER and purchased by SELLER specifically for BUYER pursuant to a written request by BUYER or BUYER’s Designee; or (3) any Products that BUYER or BUYER’s Designee has asked SELLER in writing to keep on hand as “emergency stock”.

10.5 Remedies. In the event of any default or breach by either party of its obligations under this Agreement or any PO, the other party may pursue any and all legal and equitable remedies to which it may be entitled under this Agreement and under applicable law.

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ARTICLE 11. Dispute Resolution

11.1 Consultations or Mediation. In the event any dispute arises out of or in relation to this Agreement, the parties shall attempt in the first instance to resolve such dispute through friendly consultations or mediation. If the dispute is not resolved in this manner within sixty (60) days after the date on which one party has served written notice on the other party for the commencement of consultations or mediation, then either party may refer the dispute to arbitration in accordance with the provisions of Sections 11.2. The fees and costs of a mediator shall be split between the parties.

11.2 Arbitration. Either party may submit the dispute for arbitration by the American Arbitration Association in accordance with its International Arbitration Rules with instructions that: (i) all proceedings in any arbitration shall be conducted in the English language and (ii) there shall be one (1) arbitrator jointly selected by the parties or absent agreement, selected by the American Arbitration Association from a list of six candidates with each party proposing three of those candidates. The arbitration award shall be final and binding on the parties, and the parties agree to be bound by the arbitral award and to act accordingly. The fees and costs of the arbitrator shall be split between the parties and the arbitrator may award reasonable attorneys fees and costs to the prevailing party. The arbitration shall be held in Jacksonville, Florida.

11.3 Litigation. The parties have selected binding arbitration as the sole means to resolve a dispute between them over monetary claims that cannot be resolved through consultation or mediation. Concurrently with or without arbitration, either party may pursue through litigation at any time: (a) claims for injunctive or other non-monetary relief; (b) claims that also involve third parties who have not consented to arbitration; and (c) claims in litigation commenced by third parties. The prevailing party shall be entitled to reasonable attorneys fees and costs.

11.4 No Public Disclosure. The existence and resolution of the arbitration proceedings shall be kept confidential by the parties and by the arbitrator, except as required by law, regulation or a court of competent jurisdiction. All disputes between the parties concerning the representations, warranties, covenants and agreements contained in this Agreement and any PO shall be exclusively and finally resolved in accordance with the provisions of this Article 11.

ARTICLE 12. Miscellaneous

12.1 Successors and Assigns. All covenants and agreements contained in this Agreement shall bind and inure to the benefit of the respective successors and assigns of the parties, except that SELLER shall have no right to assign or subcontract any interest in this Agreement or any PO without the prior written consent of BUYER. A merger or change in the corporate structure of SELLER (inclusive of a change in controlling ownership interest) shall constitute an assignment which shall require the prior written consent of BUYER.

12.2 Independent Contractor. SELLER is an independent contractor, not an agent, licensee, distributor or employee of BUYER or its Designee.

12.3 Survival. Unless otherwise agreed in writing, the obligations, liabilities, warranties, representations, rights and remedies of each of the parties accrued, made or incurred prior to or at the time of any termination or expiration of this Agreement shall survive such termination or expiration for three years.

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12.4 Waiver. The failure of either party to enforce any right or remedy provided in the Agreement, any PO or by law on a particular occasion will not be deemed a waiver of that right or remedy on a subsequent occasion or a waiver of any other right or remedy.

12.5 Governing Law. This Agreement and any POs under this Agreement shall be governed by the laws of the State of Florida, United States, without reference to principles of conflicts of law.

12.6 Severability. If any provision hereof is or becomes invalid or unenforceable under any law, the parties intend that such provision will be deemed severed and omitted from this Agreement or any PO and the remaining portions shall remain in full force and effect as written.

12.7 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be a duplicate original, but all of which, taken together, constitute a single document.

12.8 UN Convention on Contracts. The United Nations Convention on Contracts for the International Sale of Products shall have no application to this Agreement, any POs or actions under or contemplated by this Agreement.

12.9 Governing Language. The parties agree that governing language is English. Any translations of this Agreement or any POs into Chinese or any other language shall be for reference purposes only and shall not be legally binding.

12.10 Entire Agreement. This Agreement and any POs constitute the entire agreement between the parties, superseding all prior oral and written agreements, understandings, negotiations, promises, and representations of any kind and there are no conditions to this Agreement or any PO which are not expressed therein.

The parties hereafter execute this Agreement as of the Effective Date set forth above.

BUYER:	SELLER:
WORLD MED SHARED SERVICES INC.
Signature:	Signature:
Name:	Name:
Title:	Title:

BUYER’s Designee: TIGER SPECIALTY SOURCING LIMITED and

Signature:
Name:	Mark Engel, Chairman

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Exhibit F

CONFIDENTIALITY AGREEMENT

Effective Date:                     

This Confidentiality Agreement (“Agreement”) is made as of the Effective Date by and between WORLD MED SHARED SERVICES, INC. (“PSSWM”), a Florida corporation which is a subsidiary of PSS WORLD MEDICAL, INC. (“PSS”), with an office located at 4345 Southpoint Blvd., Suite 300, Jacksonville, Florida 32216, USA, and                                                                                                       , a company organized and existing under the laws of China, with a factory located at                                                                                                                            (“Recipient”).

1. TIGER SPECIALTY SOURCING LIMITED and SHANGHAI HU WEI MEDICAL PRODUCTS COMPANY LTD. (“Tiger” or “Designee”). PSSWM has contracted with Tiger to identify, interview, select and recommend Chinese suppliers, negotiate the terms and conditions of each and every purchase and manage and coordinate its purchasing activity in China. As PSSWM’s Designee in China, Tiger will discuss and negotiate the terms and conditions of purchase and sale of goods from Recipient and in the course of these discussions, confidential, proprietary and commercially sensitive information may be disclosed to the Recipient by PSSWM or its Designee.

2. CONFIDENTIALITY COVENANT. Recipient agrees not to disclose nor use proprietary, confidential or commercially sensitive information disclosed by PSSWM or its Designee and their directors, officers and employees to Recipient, or learned by Recipient from PSSWM or its Designee and their directors, officers and employees. This confidentiality covenant by Recipient shall cover all proprietary, confidential or commercially sensitive information and documents related to PSS’s and PSSWM’s products, brands, designs, plans, strategies, processes, opportunities, technology, research, development, know-how, personnel or suppliers and third-party confidential information (collectively “Confidential Information”).

3. EXCEPTIONS TO CONFIDENTIALITY COVENANT. Confidential Information does not include information that: (a) is now or subsequently becomes generally available to the public through no fault or breach on the part of Recipient; (b) Recipient can demonstrate to have had rightfully in its possession prior to the disclosure to or acquisition by Recipient, (c) is independently developed by Recipient without use of any Confidential Information; or (d) Recipient rightfully obtains from a third party who has the right to transfer or disclose it.

4. SCOPE OF THE CONFIDENTIALITY COVENANT. Recipient agrees to use Confidential Information only for the purpose of entering into a supply agreement with PSSWM and for no other purpose, whether during and after the term of this Agreement. Recipient will not to copy, disclose, disseminate, distribute, publish, modify, disassemble, decompile or reverse engineer any Confidential Information and will take all reasonable precaution to prevent any such unauthorized acts. Recipient agrees, at its sole expense, to take all reasonable measures, including but not limited to court proceedings, to restrain its directors, officers, employees, agents or contractors from unauthorized disclosure or use of Confidential Information.

5. OWNERSHIP OF CONFIDENTIAL INFORMATION. All Confidential Information, and any Derivative of it (as defined below), whether created by PSSWM, its Designee or Recipient,

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remains the property of PSSWM and no license or other rights to Confidential Information is granted to Recipient. For purpose of this Agreement, “Derivative” means: (i) for copyrightable or copyrighted material, any translation, abridgment, revision or other form in which an existing work may be recast, transformed or adapted, (ii) for patentable or patented material, any improvement or enhancement of it; and (iii) for information or material which is protected as trade secret, any new information or material derived from existing trade secret information or material, including new information or material which may be protected by copyright or patent or as trade secret.

6. TERM. The term of this Agreement is for three (3) years from the Effective Date unless the parties enter into a supply agreement, in which case this Agreement will terminate and the confidentiality provisions of the supply agreement shall take effect.

7. RETURN OF DOCUMENTS. Upon PSSWM’s or its Designee’s written request, Recipient will promptly deliver to PSSWM or its Designee all documents, records and copies containing or reflecting Confidential Information and delete the same completely from all computer systems, back-up devices and electronic files and certify such deletion to PSSWM and its Designee in writing. For purposes of this Agreement, the term “documents” includes all information fixed in any tangible medium of expression, in whatever form or format.

8. EQUITABLE RELIEF. Recipient hereby acknowledges that unauthorized disclosure or use of Confidential Information will cause irreparable harm and significant injury to PSSWM that may be difficult to ascertain. Accordingly, Recipient agrees that in addition to any other rights and remedies PSSWM may have, PSSWM will have the right to seek and obtain immediate injunctive relief in any court of competent jurisdiction any where in the world including China to enforce obligations under this Agreement without having to offer specific proof that PSSWM has suffered irreparable harm.

9. NO WAIVER. Recipient agrees that no failure or delay by PSSWM in exercising any right, power or privilege under this Agreement will operate as a waiver nor will any single or partial exercise preclude any other or further exercise of any right, power or privilege.

10. ENTIRE AGREEMENT AND GOVERNING LAW. This Agreement constitutes the entire agreement between the parties with respect to Confidential Information and supersedes all prior or contemporaneous oral or written agreements. This Agreement will be governed by and construed in accordance with the laws of the State of Florida, USA, excluding that body of law concerning conflicts of law.

Understood and agreed to by the duly authorized representatives of the parties:

World Med Shared Services, Inc.	Recipient:
By:	By:
(Signature)	(Signature)
(Printed Name and Title)	(Printed Name and Title)

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EX-10.36

Exhibit 10.36

RESTRICTED STOCK AGREEMENT

Non-transferable

GRANT TO

Your Name

(“Grantee”)

by PSS World Medical, Inc. (the “Company”) of

100

shares of its common stock, $0.01 par value (the “Shares”)

pursuant to and subject to the provisions of the PSS World Medical, Inc. 1999 Long-Term Incentive Plan, as amended and restated, (the “Plan”) and to the terms and conditions set forth on the following page (the “Terms and Conditions”). By accepting the Shares, Grantee shall be deemed to have agreed to the terms and conditions set forth in this Agreement and the Plan.

Unless sooner vested in accordance with Section 3 of the Terms and Conditions, the restrictions imposed under Section 2 of the Terms and Conditions will expire as to the following percentage of the Shares awarded hereunder, on the following respective dates; provided that Grantee is then still employed by the Company or any of its subsidiaries:

Grant Date: August 19, 2004

Percentage of Shares	Date of Expiration of Restrictions
33%	August 19, 2005
66%	August 19, 2006
100%	August 19, 2007

IN WITNESS WHEREOF, PSS World Medical, Inc., acting by and through its duly authorized officers, has caused this Agreement to be executed as of the Grant Date.

PSS WORLD MEDICAL, INC.
By:
	David M. Bronson
	Executive Vice President and Chief Financial Officer

1

TERMS AND CONDITIONS

1. Grant of Shares. The Company hereby grants to the Grantee named on page 1 hereof (“Grantee”), subject to the restrictions and the other terms and conditions set forth in the Plan and in this award agreement (this “Agreement”), the number of shares indicated on page 1 hereof of the Company’s $0.01 par value common stock (the “Shares”). Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Plan.

2. Restrictions. The Shares are subject to each of the following restrictions. “Restricted Shares” mean those Shares that are subject to the restrictions imposed hereunder which restrictions have not then expired or terminated. Restricted Shares may not be sold, transferred, exchanged, assigned, pledged, hypothecated or otherwise encumbered. If Grantee’s employment with the Company or any subsidiary terminates for any reason other than as set forth in paragraph (b) of Section 3 hereof, then Grantee shall forfeit all of Grantee’s right, title and interest in and to the Restricted Shares as of the date of employment termination and such Restricted Shares shall revert to the Company immediately following the event of forfeiture. The restrictions imposed under this Section shall apply to all shares of the Company’s common stock or other securities issued with respect to Restricted Shares hereunder in connection with any merger, reorganization, consolidation, recapitalization, stock dividend or other change in corporate structure affecting the common stock of the Company.

3. Expiration and Termination of Restrictions. The restrictions imposed under Section 2 will expire on the earliest to occur of the following (the period prior to such expiration being referred to herein as the “Restricted Period”):

(a) the third anniversary of the Grant Date; provided Grantee is then still employed by the Company or any subsidiary; or

(b) the termination of Grantee’s employment by reason of Death, Disability or Retirement; or

(c) the occurrence of a Change in Control.

4. Delivery of Shares. The Shares will be registered in the name of Grantee as of the Grant Date and may be held by the Company during the Restricted Period in certificated or uncertificated form. If a certificate for Restricted Shares is issued during the Restricted Period with respect to such Shares, such certificate shall be registered in the name of Grantee and shall bear a legend in substantially the following form (in addition to any legend required under applicable state securities laws): “This certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture and restrictions against transfer) contained in a Restricted Stock Agreement between the registered owner of the shares represented hereby and PSS World Medical, Inc. Release from such terms and conditions shall be made only in accordance with the provisions of such Agreement, copies of which are on file in the offices of PSS World Medical, Inc.” Stock certificates for the Shares, without the first above legend, shall be delivered to Grantee or Grantee’s designee upon request of Grantee after the expiration of the Restricted Period, but delivery may be postponed for such period as may be required for the Company with reasonable diligence to comply if deemed advisable by the Company, with registration requirements under the 1933 Act, listing requirements under the rules of any stock exchange, and requirements under any other law or regulation applicable to the issuance or transfer of the Shares.

5. Voting and Dividend Rights. Grantee, as beneficial owner of the Shares, shall have full voting and dividend rights with respect to the Shares during and after the Restricted Period. If Grantee forfeits any rights he may have under this Agreement, Grantee shall no longer have any rights as a stockholder with respect to the Restricted Shares or any interest therein and Grantee shall no longer be entitled to receive dividends on such stock. In the event that for any reason Grantee shall have received dividends upon such stock after such forfeiture, Grantee shall repay to the Company any amount equal to such dividends.

6. Changes in Capital Structure. The provisions of the Plan shall apply in the case of a change in the capital structure of the Company.

7. No Right of Continued Employment. Nothing in this Agreement shall interfere with or limit in any way the right of the Company or any subsidiary to terminate Grantee’s employment at any time, nor confer upon Grantee any right to continue employment.

8. Payment of Taxes. Upon issuance of the Shares hereunder, Grantee may make an election under Section 83(b) of the Code to be taxed as of the Grant Date. Grantee will, no later than the date as of which any amount related to the Shares first becomes includable in Grantee’s gross income for federal income tax purposes, pay to the Company any federal, state and local taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under this Agreement will be conditional on such payment or arrangements, and the Company, and, where applicable, its subsidiary will, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind (including Shares hereunder) otherwise due to Grantee.

9. Amendment. The Committee may amend, modify or terminate this Agreement without approval of Grantee; provided, however, that such amendment, modification or termination shall not, without Grantee’s consent, reduce or diminish the value of this award determined as if it had been fully vested on the date of such amendment or termination.

10. Plan Controls. The terms contained in the Plan are incorporated into and made a part of this Agreement and this Agreement shall be governed by and construed in accordance with the Plan. In the event of any actual or alleged conflict between the provisions of the Plan and the provisions of this Agreement, the provisions of the Plan shall be controlling and determinative.

11. Severability. If any one or more of the provisions contained in this Agreement is deemed to be invalid, illegal or unenforceable, the other provisions of this Agreement will be construed and enforced as if the invalid, illegal or unenforceable provision had never been included.

12. Notice. Notices and communications under this Agreement must be in writing and either personally delivered or sent by registered or certified United States mail, return receipt requested, postage prepaid. Notices to the Company must be addressed to PSS World Medical, Inc., 4345 Southpoint Blvd, Jacksonville, FL 32216, Attn: Secretary, or any other address designated by the Company in a written notice to Grantee. Notices to Grantee will be directed to the address of Grantee then currently on file with the Company, or at any other address given by Grantee in a written notice to the Company.

2

EX-12

Exhibit 12

PSS WORLD MEDICAL, INC. AND SUBSIDIARIES

COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES

FOR THE FISCAL YEARS ENDED APRIL 1, 2005, APRIL 2, 2004, MARCH 28, 2003,

MARCH 29, 2002, AND MARCH 30, 2001

(Dollars in Thousands)

	Fiscal Year Ended
	2005			2004			2003			2002			2001
Fixed charges:
Interest expense	$	6,856		$	5,560		$	12,554		$	8,201		$	11,374
Capitalized interest		469			27			—			1,801			1,612
Interest component of rental expense		13,229			8,962			12,985			12,440			12,768
Fixed charges	$	20,554		$	14,549		$	25,539		$	22,442		$	25,754
Earnings:
Income (loss) from continuing operations before provision for income taxes	$	56,154		$	46,300		$	14,129		$	17,934		$	(37,593	)
Add: Fixed charges		20,554			14,549			25,539			22,442			25,754
Less: Capitalized interest		469			27			—			1,801			1,612
Total earnings (loss)	$	76,239		$	60,822		$	39,668		$	38,575		$	(13,451	)
Ratio of earnings (loss) to fixed charges:
Total earnings (loss)	$	76,239		$	60,822		$	39,668		$	38,575		$	(13,451	)
Fixed charges	$	20,554		$	14,549		$	25,539		$	22,442		$	25,754
Ratio		3.7	(a)		4.2	(a)		1.6	(a)		1.7	(a)		(0.5	)(a)

(a) The consolidated ratios of earnings to fixed charges shown above is calculated in accordance with Section 229.503 (d) of Regulation S-K.

EX-21

Exhibit 21

List of Subsidiaries of PSS World Medical, Inc.

Name of Domestic Subsidiary	State of Formation	(Names under which Subsidiary conducts business)
Gulf South Medical Supply, Inc.	Delaware
Physician Sales & Service, Inc.	Florida
Physician Sales & Service Limited Partnership	Florida
PSS Holding, Inc.	Florida
PSS Service, Inc.	Florida
ThriftyMed, Inc.	Florida
WorldMed Shared Services, Inc.	Florida	PSS World Medical Shared Services, Inc.
Proclaim, Inc.	Tennessee
Ancillary Management Solutions, Inc.	Tennessee

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

PSS World Medical, Inc.:

We consent to the incorporation by reference in the registration statements (No. 33-80657, No. 33-90464, No. 333-15043, No. 333-64185, No. 33-85004, No. 33-97756, No. 33-99046, No. 33-97754, No. 333-30427, No. 333-50526, No. 333-58272, and No. 333-104262) on Form S-8 of PSS World Medical, Inc. of our reports dated June 8, 2005, with respect to the consolidated balance sheets of PSS World Medical, Inc. and subsidiaries as of April 1, 2005 and April 2, 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the years in the three-year period ended April 1, 2005, and the related financial statement schedule, management’s assessment of the effectiveness of internal control over financial reporting as of April 1, 2005 and the effectiveness of internal control over financial reporting as of April 1, 2005 which reports appear in the April 1, 2005, annual report on Form 10-K of PSS World Medical, Inc.

Our report refers to the adoption of Emerging Issues Task Force No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor, effective November 21, 2002.

KPMG LLP

Jacksonville, Florida

June 13, 2005

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, David A. Smith, certify that:

1. I have reviewed this annual report on Form 10-K of PSS World Medical, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

June 13, 2005

/s/ David A. Smith

David A. Smith

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, David M. Bronson, certify that:

1. I have reviewed this annual report on Form 10-K of PSS World Medical, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

June 13, 2005

/s/ David M. Bronson

David M. Bronson

Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, David A. Smith, President and Chief Executive Officer of PSS World Medical, Inc. (the “Company”), hereby certify that the Company’s Annual Report on Form 10-K for the fiscal year ended April 1, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ David A. Smith

David A. Smith

President and Chief Executive Officer

June 13, 2005

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, David M. Bronson, Executive Vice President and Chief Financial Officer of PSS World Medical, Inc. (the “Company”), hereby certify that the Company’s Annual Report on Form 10-K for the fiscal year ended April 1, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ David M. Bronson

David M. Bronson

Executive Vice President and Chief Financial Officer

June 13, 2005