AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

 

          This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"),

effective as of June 21, 1999 (the "Effective Date"), by and between McKesson

HBOC, Inc. (the "Company"), a Delaware corporation with its principal office at

One Post Street, San Francisco, California, and John H. Hammergren

("Executive").

 

                                   RECITALS

                                   --------

 

A.   WHEREAS, Executive and the Company have previously entered into

that certain employment agreement dated as of March 31, 1999 (the "Old

Employment Agreement").

 

B.   WHEREAS, Executive and the Company have previously entered into an

agreement providing for the payment of severance benefits to Executive in

connection with his termination following a Change in Control (as defined in

Paragraph 9(c) below) of the Company, dated January 31, 1996 (the "Termination

Agreement").

 

C.   WHEREAS, a Change in Control of the Company occurred under the Termination

Agreement on January 12, 1999 (the "1999 Change in Control")

 

D.   WHEREAS, Executive and the Company desire to amend and restate in its

entirety the Old Employment Agreement and to incorporate into this Agreement the

terms of such amendment and restatement the terms of the Termination Agreement

as it applies with regard to any Change in Control.

 

E.   WHEREAS, the Company, in its business, develops and uses certain

Confidential Information (as defined in Paragraph 7(c) below).  Such

Confidential Information will necessarily be communicated to or acquired by

Executive by virtue of his employment with the Company, and the Company has

spent time, effort and money to develop such Confidential Information and to

promote and increase its goodwill; and

 

F.   WHEREAS, the Company desires to retain the services of, and employ,

Executive on its own behalf and on behalf of its affiliated companies for the

period provided in this Agreement and, in so doing, to protect its Confidential

Information

<PAGE>

 

and goodwill, and Executive is willing to accept employment by the Company on a

full-time basis for such period, upon the terms and conditions hereinafter set

forth.

 

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual

covenants herein contained, the parties hereto agree as follows:

 

1.   Employment.  Subject to the terms and conditions of this Agreement, the

     ----------

     Company agrees to employ Executive, and Executive agrees to accept

     employment from, and remain in the employ of, the Company for the period

     stated in Paragraph 3 hereof.

 

2.   Position and Responsibilities.  During the period of his employment

     -----------------------------

     hereunder, Executive agrees to serve the Company, and the Company shall

     employ Executive, as Co-President and Co-Chief Executive Officer of the

     Company and in such other senior corporate executive capacities consistent

     with such position as may be specified from time to time by the Board of

     Directors of the Company (the "Board"). During the period of his employment

     hereunder, Executive shall report directly to the Board.

 

3.   Term and Duties.

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     (a)  Term of Employment.  The period of Executive's employment under this

          ------------------

          Agreement shall be deemed to have commenced on the date of this

          Agreement and shall continue until March 31, 2004 (the "Term"). Prior

          to the expiration of the Term, the Company shall offer to extend the

          Term of the Agreement effective as of the expiration of the Term on

          terms and conditions that are identical to the terms and conditions

          contained herein except that such extended agreement shall not

          obligate the Company to pay a Sign-On Bonus (as defined below) or

          Retention Bonus (as defined below) and the extended agreement shall

          not be subject to further extension. If Executive rejects such

          extension and the Agreement expires, the expiration of the Term shall

          be treated as a voluntary resignation entitling Executive to the

          amounts and benefits, if any, set forth in Paragraph 9(a) as of the

          end of the Term. If (i) the Company fails to offer to extend the term

          of the Agreement or (ii) the terms and conditions of the extension are

          not identical (except as set forth above) to the terms and conditions

          set forth herein and Executive rejects such extension, the expiration

          of the Term shall be treated as a termination other than for Cause (as

          defined

          in Paragraph 8 below) entitling Executive to the amounts and benefits

          set forth in Paragraph 9(b) or (c), as the case may be, as of the end

          of the Term.

 

     (b)  Duties.  During the period of his employment hereunder and except for

          ------

          illness, reasonable vacation periods, and reasonable leaves of

          absence, Executive shall devote substantially all of his business

          time, attention, skill and efforts to the business and affairs of the

          Company and its affiliated companies, as such business and affairs now

          exist and as they may be hereafter changed or added to, under and

          pursuant to the general direction of the Board; provided, however,

                                                          --------  -------

          that, (i) with the approval of the Board (which will not be

          unreasonably withheld or delayed), Executive may serve, or continue to

          serve, on the boards of directors of, hold any other offices or

          positions in, for profit companies or organizations, which, in the

          Board's judgment, will not present any conflict of interest with the

          Company or any of its subsidiaries or affiliates or divisions, or

          materially affect the performance of Executive's duties pursuant to

          this Agreement and (ii) Executive may devote a portion of his time to

          the management of his personal affairs or involvement in charitable

          activities, which activities shall not materially affect the

          performance of Executive's duties pursuant to this Agreement. The

          services which are to be employed by Executive hereunder are to be

          rendered in the State of California, or in such other place or places

          in the United States or elsewhere as may be determined from time to

          time by the Board, but are to be rendered primarily at the Company's

          principal place of business at One Post Street in San Francisco,

          California. Unless and until otherwise mutually agreed to between the

          Company and Executive, Executive shall be at liberty to maintain his

          residence in the San Francisco Bay Area, State of California.

 

4.   Compensation and Reimbursement of Expenses; Other Benefits.

     ----------------------------------------------------------

 

     (a)  Compensation.  During the period of his employment hereunder,

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          Executive shall be paid a salary, in monthly or semi-monthly

          installments (in accordance with the Company's normal payroll

          practices for senior executive officers), at the rate of Seven Hundred

          Fifty Thousand Dollars ($750,000.00) per year, or such higher salary

          as may be from time to time approved by the Board (or any duly

          authorized

          Committee thereof) (any such higher salary so approved to be

          thereafter the minimum salary payable to Executive during the

          remainder of the Term hereof), plus such additional incentive

          compensation, if any, as may be awarded to him yearly by the Board (or

          any duly authorized Committee thereof). For purposes of the MIP (as

          defined in subparagraph (c) below), for each of the Company's fiscal

          years ending during the Term of this Agreement, Executive's Individual

          Target Award shall be 100% of his base salary for the applicable Year

          (as defined in the MIP). Executive shall also receive an automobile

          allowance from the Company of One Thousand Dollars ($1,000.00) per

          month during the Term of this Agreement.

 

     (b)  Reimbursement of Expenses.  The Company shall pay or reimburse

          -------------------------

          Executive, in accordance with its normal policies and practices, for

          all reasonable travel and other expenses incurred by Executive in

          performing his obligations hereunder. The Company further agrees to

          furnish Executive with such assistance and accommodations as shall be

          suitable to the character of Executive's position with the Company and

          adequate for the performance of his duties hereunder.

 

     (c)  Other Benefits.  During the period of his employment hereunder,

          --------------

          Executive shall be entitled to receive all other benefits of

          employment available to any other Co-President and Co-Chief Executive

          Officer of the Company and generally available to other members of the

          Company's management and those benefits for which key executives are

          or shall become eligible, when and as he becomes eligible therefor,

          including without limitation, group health and life insurance

          benefits, short and long-term disability plans, deferred compensation

          plans, and participation in the Company's Profit-Sharing Investment

          Plan, Employee Stock Purchase Plan, Executive Medical Plan, 1989

          Management Incentive Plan ("MIP"), Long Term Incentive Plan, 1984

          Executive Benefit Retirement Plan ("EBRP"), 1988 Executive Survivor

          Benefits Plan ("ESBP"), Stock Purchase Plan and 1994 Restricted Stock

          and Stock Option Plan (or any other similar plan or arrangement), and

          the Company agrees that none of such benefits shall be altered in any

          manner or in such a way as to reduce any then existing entitlement of

          Executive thereunder or any entitlement provided for hereunder. To the

          extent specific provisions of this Agreement that relate to other

          plans or arrangements of the Company are more favor-

          able than the terms and conditions set forth in such other plan or

          arrangement of the Company, the provisions of this Agreement shall

          control. Additionally, to the extent any other plan or arrangement of

          the Company contains provisions regarding noncompetition, unauthorized

          use of confidential information, or nonsolicitation, such provisions

          shall not be deemed to have been violated by Executive except to the

          extent his activities would also constitute a violation of similar

          provisions contained herein.

 

5.   Initial Incentive Grants.  Executive has received or will receive the

     ------------------------

     following initial incentive awards specified below:

 

     (a)  Sign-On/Retention Bonus.  Executive has received a special, one-time

          -----------------------

          sign-on bonus in the amount of Seven Hundred and Fifty Thousand

          Dollars ($750,000.00) (the "Sign-On Bonus"). Executive has also

          received a special one-time retention bonus in the amount of Seven

          Hundred and Fifty Thousand Dollars ($750,000.00) (the "Retention

          Bonus") to be retained by Executive if and only if he remains employed

          by the Company on March 31, 2000, or his employment terminates earlier

          as a result of his death, disability, a termination by the Company

          other than for Cause or a termination by Executive for Good Reason (as

          defined in Paragraph 8(c)). Executive acknowledges and agrees that, in

          the event he voluntarily leaves the Company's employment (other than

          for Good Reason) or if he is terminated by the Company for Cause prior

          to March 31, 2000, he shall promptly (and in no event later than

          thirty (30) days following cessation of employment) return the

          Retention Bonus (i.e., $750,000.00) to the Company.

                           ----

 

     (b)  Stock Options.  Executive has received a non-qualified stock option to

          -------------

          purchase One Million (1,000,000) shares of the Company's common stock,

          which option will vest at the rate of fifty percent (50%) at January

          29, 2001, seventy-five percent (75%) at January 29, 2002, and one

          hundred percent (100%) at January 29, 2003. Such option shall continue

          to be subject to the terms and conditions of the plan or arrangement

          pursuant to which it was issued in all respects; except that (i) to

          the extent vested, such option will remain exercisable until its

          expiration date unless Executive is terminated by the Company for

          Cause; (ii) provisions regarding noncompetition, use of confidential

          information, and nonsolicitation shall not be deemed to have been

          violated except to the extent such activities would also constitute a

          violation of similar provisions contained herein and (iii) the

          provisions regarding acceleration of vesting and exercisability set

          forth in the termination sections of this Agreement shall be

          applicable.

 

     (c)  LTIP Cash Award.  The Company has granted to Executive a Long-Term

          ---------------

          Incentive Plan award of Ten Million dollars ($10,000,000), payable, if

          earned, fifty percent (50%) at March 31, 2002, and fifty percent (50%)

          at March 31, 2004 (the "LTIP Award"). Executive acknowledges that

          payments of the award are contingent and based upon the Company's

          total shareholder return ("TSR"). Full awards will be paid if, at the

          end of each measurement period, the TSR is at or above the 75/th/

          percentile of the S&P 500 (excluding therefrom financial

          institutions). Partial awards will be paid as follows: 75% if TSR is

          between the 60/th/ and 75/th/ percentile; 50% if TSR is between the

          50/th/ and 60/th/ percentile; and 25% if TSR is below the 50/th/

          percentile.

 

     (d)  Executive was granted on August 16, 1999 (the "Grant Date"), a non-

          qualified stock option to purchase Two Million (2,000,000) shares of

          the Company's common stock, at a per share exercise price of $29.8125

          which option will vest at the rate of fifty percent (50%) on the

          second anniversary of the Grant Date, seventy-five percent (75%) on

          the third anniversary of the Grant Date and one hundred percent (100%)

          on the fourth anniversary of the Grant Date. Such option shall

          otherwise be subject to the terms and conditions of the Company's

          Stock Option and Restricted Stock Plan and the terms and conditions

          set forth in the form of agreement evidencing the stock option

          referenced in subparagraph (b) above, as adjusted by the provisions of

          subparagraph, b(i), (b)(ii) and (b)(iii), provided that with regard to

                                                    --------

          (b)(i), the period shall be the lesser of three years or the

          expiration date.

 

     (e)  Housing Loan.  Executive and the Company acknowledge and agree that

          ------------

          the terms and conditions of the housing loan between Executive and the

          Company remain in full force and effect.

 

6.   Benefits Payable Upon Disability or Death.

     -----------------------------------------

 

     (a)  Disability Benefits.  If, during the term of Executive's employment

          -------------------

          hereunder, Executive shall be prevented from properly performing

          services hereunder by reason of his illness or other physical or

          mental incapacity, the Company shall continue to pay Executive his

          then current salary hereunder during the period of such disability;

          or, if less, for a period of (12) calendar months, at which time the

          Company's obligations hereunder (other than as provided herein) shall

          cease and terminate. Following the expiration of such 12-month period,

          Executive shall be eligible to receive his benefits pursuant to the

          EBRP calculated at the maximum level of 60% of Average Final

          Compensation (as defined in the EBRP) without regard to any reduction

          for early retirement.

 

     (b)  Death Benefits.  In the event of the death of Executive during the

          --------------

          term of his employment hereunder, (i) Executive's salary payable

          hereunder shall continue to be paid to Executive's surviving spouse,

          or if there is no spouse surviving, then to Executive's designee or

          representative (as the case may be) through the six-month period

          following the end of the calendar month in which Executive's death

          occurs and (ii) the benefits payable under the EBRP calculated at the

          maximum level of 60% of Average Final Compensation (as defined in the

          EBRP) shall be payable without regard to any reduction for early

          retirement. Thereafter, all of the Company's obligations hereunder

          (other than as provided herein) shall cease and terminate.

 

     (c)  Other Plans.  Except as specifically provided herein, the provisions

          -----------

          of this Paragraph 6 shall not affect (i) any rights of Executive's

          heirs, administrators, executors, legatees, beneficiaries or assigns

          under the Company's Profit-Sharing Investment Plan, EBRP, Long Term

          Incentive Plan, ESBP, Restricted Stock and Stock Option Plan (or any

          similar plan or arrangement), any stock purchase plan or any other

          employee benefit plan of the Company, and any such rights shall be

          governed by the terms of the respective plans, or (ii) any rights that

          exist with respect to indemnification or directors and officers

          insurance or any other rights hereunder which are intended to continue

          after a termination of employment.

 

7.   Obligations of Executive During and After Employment.

     ----------------------------------------------------

 

     (a)  Noncompetition.  Executive agrees that during the Term of his

          --------------

          employment hereunder, he will engage in no other business activities,

          directly or indirectly, which are or may be competitive with or which

          might place him in a competing position to that of the Company, or any

          affiliated company, without the prior written consent of the Board.

          Without any inference as to any other activity, the foregoing shall

          not limit ownership by Executive of (i) less than one percent (1%) of

          the common stock or public debt of any publicly traded entity; (ii)

          less than five percent (5%) in any investment pool, hedge fund,

          private equity fund or other similar vehicle in which Executive has no

          control over the investments that are made by such investment pool,

          hedge fund, private equity fund or other similar vehicle; or (iii) the

          amount of stock or other interests Executive holds as of the Effective

          Date of this Agreement in the entities listed on Schedule 7(a) hereof,

          provided that Executive is not actively engaged in the management of

          such entities.

 

     (b)  Unauthorized Use of Confidential Information.  Executive acknowledges

          --------------------------------------------

          and agrees that (i) during the course of his employment Executive will

          have produced and/or have access to Confidential Information, of the

          Company and its affiliated companies, and (ii) the unauthorized use or

          sale of any of such confidential or proprietary information at any

          time would harm the Company and would constitute unfair competition

          with the Company. Executive promises and agrees not to engage in any

          unfair competition with the Company by reason of Executive's use of

          Confidential Information either during or after the Term of his

          employment hereunder. Therefore, during and subsequent to his

          employment by the Company and its affiliated companies, Executive

          agrees to hold in confidence and not, directly or indirectly,

          disclose, use, copy or make lists of any such information, except (x)

          pursuant to his duties hereunder during his employment by the Company,

          (y) to the extent expressly authorized by the Company in writing or as

          required by law or (z) to comply with a legal process, provided

          Executive promptly notifies the Company in order that the Company, at

          its expense, may seek a protective order and Executive cooperates with

          the Company in seeking such order. All records, files, drawings,

          documents, equipment, and the like, or copies thereof,

          relating to the Company's business, or the business of any of its

          affiliated companies, which Executive shall prepare, use, or come into

          contact with, shall be and remain the sole property of the Company,

          and shall not be removed (except to allow Executive to perform his

          responsibilities hereunder while traveling for business purposes or

          otherwise working away from his office) from the Company's or the

          affiliated company's premises without its prior written consent, and

          shall be promptly returned to the Company upon termination of

          employment with the Company and its affiliated companies. This

          Paragraph 7(b) shall survive the termination or expiration of the term

          of Executive's employment hereunder.

 

     (c)  Confidential Information Defined.  For purposes of this Agreement,

          --------------------------------

          "Confidential Information" means all information (whether reduced to

          written, electronic, magnetic or other tangible form) acquired in any

          way by Executive during the course of his employment with the Company

          or any of its affiliated companies concerning the products, projects,

          activities, business or affairs of the Company and its affiliated

          companies or the Company's or any of its affiliated companies'

          customers, including, without limitation, (i) all information

          concerning trade secrets of the Company and its affiliated companies,

          including computer programs, system documentation, special hardware,

          product hardware, related software development, manuals, formulae,

          processes, methods, machines, compositions, ideas, improvements or

          inventions of the Company and its affiliated companies, (ii) all sales

          and financial information concerning the Company and its affiliated

          companies, (iii) all customer and supplier lists of the Company and

          its affiliated companies, (iv) all information concerning products or

          projects under development of the Company and its affiliated companies

          or marketing plans for any of those products or projects, and (v) all

          information in any way concerning the products, projects, activities,

          business or affairs of customers of the Company and its affiliated

          companies which was furnished to him by the Company or any of its

          agents or customers; provided, however, that Confidential Information

          does not include information which (A) becomes available to the public

          or the industry in which the Company operates other than as a result

          of a disclosure by Executive (other than in the normal course of

          Executive's duties hereunder), (B) was available to him on a non-

          confidential basis outside of his employment with the Company, or

          (C) becomes available to him on a non-confidential basis from a source

          that Executive believes in good faith is not under an obligation of

          confidentiality to the Company.

 

     (d)  Nonsolicitation.  Executive recognizes and acknowledges that it is

          ---------------

          essential for the proper protection of the business of the Company and

          its affiliated companies that Executive be restrained for a reasonable

          period following the termination of Executive's employment with the

          Company and its affiliated companies from: (i) soliciting or inducing

          any employee of the Company or any of its affiliated companies to

          leave the employ of the Company or any of its affiliated companies;

          (ii) hiring or attempting to hire any employee of the Company or any

          of its affiliated companies; or (iii) directly and personally

          soliciting the trade of or trading with the customers of the Company

          or any of its affiliated companies for any competitive business

          purpose. Accordingly, Executive agrees that during the Term of his

          employment hereunder, and for the Restricted Period thereafter

          following the termination of Executive's employment with the Company

          and its affiliated companies for any reason, Executive shall not, (x)

          directly or indirectly, hire, solicit, aid in or encourage the hiring

          and/or solicitation of, contract with, aid in or encourage the

          contracting with, or induce or encourage to leave the employment of

          the Company or any of its affiliated companies, any employee of the

          Company or any of its affiliated companies; or (y) directly and

          personally solicit, or use Confidential Information to aid in the

          solicitation of, contract with, or service any person or entity which

          is, or was, within two (2) years prior to the termination of

          Executive's employment with the Company and its affiliated companies,

          a customer or client of the Company or any of its affiliated companies

          for the purpose of offering or selling a product or service

          competitive with any of those offered by the Company or any of its

          affiliated companies. Notwithstanding the foregoing, nothing in this

          Paragraph 7(d) shall prohibit Executive from providing references on

          an unsolicited basis with respect to employees of the Company. For

          purposes of this Paragraph 7(d), the "Restricted Period" shall be

          deemed to be equal to the longer of (i) two (2) years following the

          termination of Executive's employment for any reason, or (ii) the

          period during which Executive is receiving salary continuation

          payments hereunder. This Paragraph 7(d) shall survive the termination

          or expiration of this Agreement.

 

     (e)  Remedy for Breach.  Executive agrees that in the event of a breach or

          -----------------

          threatened breach of any of the covenants contained in this Paragraph

          7, the Company shall have the right and remedy to have such covenants

          specifically enforced by any court having jurisdiction, it being

          acknowledged and agreed that any material breach of any of the

          covenants will cause irreparable injury to the Company and that money

          damages will not provide an adequate remedy to the Company.

 

8.   Termination.

     -----------

 

     (a)  For Cause.  Notwithstanding anything herein to the contrary, the

          ---------

          Company may, without liability, terminate Executive's employment

          hereunder for Cause (as defined below) at any time within ninety (90)

          days of the date the Chairman of the Board, or of any Committee

          thereof, first has knowledge of the event justifying such termination

          by delivery of a Notice of Termination (as defined in subparagraph (d)

          below) from the Board (or any duly authorized Committee thereof)

          specifying such Cause, and thereafter, the Company's obligations

          hereunder shall cease and terminate.

 

          i)   Definition of Cause.  Except as provided in Paragraph 9(c) below,

               -------------------

               as used herein, the term "Cause" shall mean (i) Executive's

               willful engaging in misconduct with regard to the Company or any

               of its affiliated companies which is demonstrably and materially

               injurious to the Company and its affiliated companies taken as a

               whole, (ii) Executive's willful dishonesty of a material nature

               involving the Company's or any of its affiliated companies'

               assets, or (iii) a material failure by Executive to comply with

               any of the provisions of this Agreement. No act, or failure to

               act, on Executive's part shall be considered "willful" unless

               done, or omitted to be done, by Executive not in good faith and

               without reasonable belief that Executive's action or omission was

               in the best interest of the Company or its subsidiaries.

               Notwithstanding the foregoing, Executive shall not be deemed to

               have been terminated for Cause pursuant to this Paragraph 8(a)

               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 at a meeting of

               the Board called and held for the purpose of making a

               determination of whether Cause for termination exists (after

               reasonable notice to Executive and an opportunity for Executive

               to be heard before the Board), finding that in the good faith

               opinion of the Board, Executive was guilty of misconduct as set

               forth above in this subparagraph 8(a)(i) and specifying the

               particulars thereof in detail. In addition, if the conduct

               alleged to have constituted Cause is curable (as determined by

               the Board), the Notice of Termination shall not be delivered

               until after the Board (or any duly authorized Committee thereof)

               shall have given Executive written notice specifying the conduct

               alleged to have constituted such Cause and Executive has failed

               to cure such conduct, within fifteen (15) days following receipt

               of such notice.

 

          ii)  Arbitration Required to Confirm Cause.  In the event of a

               -------------------------------------

               termination for Cause pursuant to this Paragraph 8(a) or pursuant

               to subparagraph 9(c)(iv), the Company shall continue to pay

               Executive's then current compensation as specified in this

               Agreement until the issuance of an arbitration award affirming

               the Company's action. Such arbitration shall be held in

               accordance with the provisions of Paragraph 11(c) below. In the

               event the award upholds the action of the Company, Executive

               shall promptly repay to the Company any sums received pursuant to

               Paragraph 9 below, following termination of employment.

 

     (b)  Other than for Cause; Performance, Reorganization; Any Reason or

          ----------------------------------------------------------------

          Reasons. Notwithstanding anything herein to the contrary, the Company

          -------

          may also terminate Executive's employment (without regard to any

          general or specific policies of the Company relating to the employment

          or termination of its employees) (i) should Executive fail to perform

          his duties hereunder in a manner satisfactory to the Board, provided

          that Executive shall first be given written notice of such

          unsatisfactory performance and a period of ninety (90) days to improve

          such performance to a level deemed acceptable to the Board, (ii)

          should Executive's position be eliminated as a result of a

          reorganization or restructuring of the Company or any of its affiliated

          companies or (iii) for any other reason or reasons.

 

     (c)  Termination by Executive.  Executive may terminate his employment

          ------------------------

          hereunder with or without Good Reason by delivery of a Notice of

          Termination to the Company, provided that any such Notice of

          Termination for Good Reason shall be given within ninety (90) days

          after the occurrence of the event giving rise to Good Reason, which

          notice shall specify the act, or failure to act, alleged to give rise

          to Good Reason hereunder and shall otherwise comply with the

          provisions of subparagraph (d) below. If Executive gives the Company

          such Notice of Termination, the Company shall have fifteen (15) days

          after receipt of such notice to remedy the facts and circumstances

          that allegedly gave rise to Good Reason. In the event Executive does

          not provide a Notice of Termination to the Company of termination for

          Good Reason, such termination shall be deemed a voluntary resignation

          by Executive.

 

          i)  Definition of Good Reason.  As used herein, the term "Good Reason"

              -------------------------

              shall mean any of the following acts or failures to act, if taken

              without the express written consent of Executive, (A) any material

              change by the Company in Executive's functions, duties or

              responsibilities as Co-President and Co-Chief Executive Officer,

              which change would cause Executive's position with the Company to

              become of less dignity, responsibility, importance, or scope as

              compared to the position and attributes that applied to Executive

              as of the Effective Date, or an adverse change in Executive's

              title, position or his obligation and right to report directly to

              the Board; (B) any reduction in Executive's base salary, other

              than a reduction effected proportionately as part of an

              across-the-board reduction affecting all executive employees of

              the Company; (C) any material failure by the Company to comply

              with any of the provisions of the Agreement; (D) the Company's

              requiring Executive to be based at any office or location more

              than 25 miles from the office at which Executive is based as of

              the Effective Date, except for travel reasonably required in the

              performance of Executive's responsibilities; or (E) any failure by

              the Company to obtain the express assumption of the Agreement by

              any successor or assign of the Company. Executive's right to

              terminate employment for Good Reason pursuant to this Paragraph 8

              shall not be affected by Executive's incapacity due to physical

              or mental illness.

 

     (d)  Notice of Termination.  Any termination of Executive's employment by

          ---------------------

          the Company or by Executive hereunder shall be communicated by a

          Notice of Termination to the other party hereto. For purposes of this

          Agreement, a "Notice of Termination" shall mean a written notice which

          shall indicate the specific termination provisions in this Agreement

          relied upon and which sets forth (i) in reasonable detail the facts

          and circumstances claimed to provide a basis for termination of

          Executive's employment under the provision so indicated and (ii) the

          date of Executive's termination of employment, which shall be no

          earlier than fifteen (15) days after such Notice is received by the

          other party. Any purported termination of Executive's employment by

          the Company which is not effected pursuant to a Notice of Termination

          satisfying the requirements of this Agreement shall not be effective.

          In the case of a termination for Cause, the Notice of Termination

          shall also satisfy the requirements set forth in Paragraph 8(a).

 

9.   Obligations of the Company on Termination of Employment.

     -------------------------------------------------------

 

     (a)  For Cause; Voluntary Resignation.  If (i) the Company terminates

          --------------------------------

          Executive's employment for Cause hereunder or (ii) Executive

          terminates his employment with the Company other than for Good Reason,

          then, except as otherwise specifically set forth herein, all of the

          Company's obligations hereunder shall immediately cease and terminate.

          Executive shall thereupon have no further right or entitlement to

          additional salary, incentive compensation payments or awards, or any

          perquisites from the Company whatsoever, and Executive's rights, if

          any, under the Company's employee and executive benefit plans shall be

          determined solely in accordance with the express terms of the

          respective plans. Notwithstanding the foregoing, Executive shall be

          entitled to receive any accrued base salary, accrued but unused

          vacation and unreimbursed expenses, and if such termination is by

          Executive other than for Good Reason on or after March 31, 2004,

          Executive shall be entitled to receive the benefits under Paragraphs

          9(b)(i)(C), 9(b)(i)(E)(x) and (E)(y) and 9(b)(i)(H).

 

     (b)  Termination Other than for Cause; Termination for Good Reason.

          -------------------------------------------------------------

 

          i)   If the Company terminates Executive's employment pursuant to

               Paragraph 8(b) above or Executive terminates his employment with

               the Company for Good Reason in both cases prior to a Change in

               Control of the Company or at any time other than within the two

               (2) years immediately following a Change in Control, then in lieu

               of any benefits payable pursuant to the Company's Executive

               Severance Policy (so long as the compensation and benefits

               payable hereunder equal or exceed those payable under said

               Policy) and in complete satisfaction and discharge of all of its

               obligations to Executive hereunder (other than obligations that

               arise under Paragraphs 10 or 11 hereof), the Company shall, while

               Executive is not in breach of the provisions of Paragraph 7

               hereof; provided any such suspended payments and/or benefits

               shall resume once any such breach has been cured, (A) continue

               Executive's then base salary, without increase, for the remainder

               of the Term of this Agreement but in no event for a period of

               less than two years following such termination of employment

               (such greater of the remainder of the Term or two (2) years shall

               be referred to as the "Severance Period"), (B) continue

               Executive's incentive award compensation under the terms of the

               Company's MIP for each fiscal year ending with or within the

               Severance Period, such MIP awards to be equal, in each case, to

               100% of Executive's Individual Target Award existing at the time

               of his termination of employment, (C) provide Executive with

               lifetime (x) coverage under the Company's Executive Medical Plan

               and financial counseling program and (y) office space and

               secretarial support services as may be suitable and adequate for

               Executive's needs, (D) continue Executive's participation in the

               Deferred Compensation Administration Plan II, and Executive's

               automobile allowance for the Severance Period, (E) subject to the

               express special forfeiture and repayment provisions of the

               respective plans (or the terms and conditions applicable

               thereto), continue the accrual and vesting of Executive's rights,

               benefits and existing awards for the Severance Period for

               purposes of the EBRP and ESBP (with

               Executive's benefits, for purposes of those two plans only,

               calculated on the basis of Executive receiving (x) Approved

               Retirement (as defined in the EBRP) commencing on the expiration

               of this Agreement and, (y) with respect to the EBRP, a benefit

               calculated at the maximum level of 60% of Average Final

               Compensation (as defined in the EBRP) then specified in the EBRP

               without any reduction for early retirement), (F) subject to both

               (x) the express special forfeiture and repayment provisions of

               the applicable plans or arrangements (or the terms and conditions

               applicable thereto) and (y) the provisions of subparagraph

               (b)(ii) below, accelerate the vesting of all Executive's awards

               granted prior to such termination of employment pursuant to the

               Company's Stock Option and Restricted Stock Plan (or any similar

               plan or arrangement); provided, that Executive shall in no event

                                     --------  ----

               be entitled to or receive additional grants or awards subsequent

               to the date of his termination of employment, (G) continue

               Executive's participation in the Company's Long Term Incentive

               Plan for the remainder of the Term of this Agreement (but not

               thereafter) (pro-rating performance periods as of the date

               Executive ceased rendering services to the Company), provided,

                                                                    --------

               that Executive shall not participate in any way whatsoever in any

               ----

               performance period commencing subsequent to the date of

               termination, and provided, further, that with respect to the LTIP

                                --------  -------

               Award, such award shall be paid in accordance with the terms and

               conditions applicable to Approved Retirement with the exception

               that the "Service-based Portion of the Target Award" shall be

               paid as if Executive had continued employment throughout the

               performance period applicable to such award (H) deem Executive's

               termination to have occurred as if the sum of his age and years

               of service to the Company is at least 65 for purposes of both the

               Deferred Compensation Administration Plan II and the Stock Option

               and Restricted Stock Plan (or any similar plan or arrangement,

               and (I) terminate Executive's participation in the Company's tax-

               qualified profit-sharing plans and stock purchase plans, pursuant

               to the terms of the respective plans, as of the date of

               Executive's termination of employment. During the Severance

               Period, Executive shall have no obligation to seek other

               employment and the Company shall not (x) have the right of offset

               as a result of any compensation Executive may receive from a

               subsequent employer or, (y) while Executive is not in breach of

               the provisions of Paragraph 7, reduce its payments pursuant to

               this Paragraph 9(b)(i).

 

          ii)  For purposes of subparagraph (b)(i) above, (A) if Executive's

               termination occurs prior to August 1, 2000, (x) 100% of the stock

               options granted to Executive prior to July 1, 1999, shall vest in

               full, and (y) 50% of the then unvested stock options granted to

               Executive subsequent to July 1, 1999, shall vest in full, and

               (B), if Executive's termination occurs on or after August 1,

               2000, all unvested stock options granted to Executive shall vest

               in full.

 

     (c)  Termination in Connection with a Change in Control.  Notwithstanding

          --------------------------------------------------

          the provisions of Paragraph 9(a) and (b) hereof, in the event of an

          occurrence of a Change in Control (which shall include the 1999 Change

          in Control), the following provisions shall apply in the event of

          Executive's termination of employment (i) within two (2) years

          following such Change in Control or (ii) within the six (6) month

          period immediately preceding such Change in Control if such

          termination of employment occurs at the direction of the person or

          entity that is involved in, or otherwise in connection with, such

          Change in Control:

 

          i)   If the Company terminates Executive's employment pursuant to

               Paragraph 8(b) above or otherwise without Cause (as defined in

               subparagraph 9(c)(iv) below) or Executive terminates his

               employment with the Company for Good Reason, then the Company

               shall in lieu of the benefits payable under subparagraphs (A) and

               (B) of Paragraph 9(b) above immediately pay to Executive in a

               cash lump sum an amount equal to the greater of: (x) 2.99

                                                    ----------

               multiplied by Executive's "base amount" determined pursuant to

               section 280G of the Internal Revenue Code of 1986, as amended

               (the "Code") and (y) the sum of the amounts described in clauses

               (A) and (B) in Paragraph 9(b) above and shall take all actions

               described in clauses (C) through (I) in Paragraph 9(b) hereof.

 

          ii)  For Cause; Voluntary Resignation.  If the Company terminates

               --------------------------------

               Executive's employment for Cause (as defined in subparagraph

               9(c)(iv)) or Executive terminates his employment with the Company

               other than for Good Reason, then the rights and obligations of

               the Company and Executive shall be governed by Paragraph 9(a)

               hereof.

 

          iii) Change in Control.  For purposes of this Agreement, a "Change in

               -----------------

               Control" of the Company shall be deemed to have occurred if any

               of the events set forth in any one of the following subparagraphs

               shall occur: (A) any Person (as defined in section 3(a)(9) of the

               Securities Exchange Act of 1934, as amended (the "Exchange Act"),

               and as such term is modified in sections 13(d) and 14(d) of the

               Exchange Act), excluding the Company or any of its subsidiaries,

               a trustee or any fiduciary holding securities under an employee

               benefit plan of the Company or any of its subsidiaries, an

               underwriter temporarily holding securities pursuant to an

               offering of such securities, or a corporation owned, directly or

               indirectly, by stockholders of the Company in substantially the

               same proportions as their ownership of the Company, is or becomes

               the "beneficial owner" (as defined in Rule 13(d)(3) under the

               Exchange Act), directly or indirectly, of securities of the

               Company representing 30% or more of the combined voting power of

               the Company's then outstanding securities; (B) during any period

               of not more than two consecutive years, individuals who at the

               beginning of such period constitute the Board and any new

               director (other than a director designated by a Person who has

               entered into an agreement with the Company to effect a

               transaction described in clause (A), (C) or (D) of this

               subparagraph) whose election by the Board or nomination for

               election by the Company's stockholders was approved by a vote of

               at least two-thirds (2/3) of the directors then still in office

               who either were directors at the beginning of the period or whose

               election or nomination for election was previously so approved,

               cease for any reason to constitute a majority thereof; (C) the

               stockholders of the Company approve a merger or consolidation of

               the Company with any other corporation, other than (x) a

               merger or consolidation which would result in the voting

               securities of the Company outstanding immediately prior thereto

               continuing to represent (either by remaining outstanding or by

               being converted into voting securities of the surviving entity),

               in combination with the ownership of any trustee or other

               fiduciary holding securities under an employee benefit plan of

               the Company, at least 50% of the combined voting power of the

               voting securities of the Company or such surviving entity

               outstanding immediately after such merger or consolidation, or

               (y) a merger or consolidation effected to implement a

               recapitalization of the Company (or similar transaction) in which

               no Person acquires more than 50% of the combined voting power of

               the Company's then outstanding securities; or (D) the

               stockholders of the Company approve a plan of complete

               liquidation of the Company or an agreement for the sale or

               disposition by the Company of all or substantially all of the

               Company's assets.

 

               Notwithstanding the foregoing, no Change in Control shall be

               deemed to have occurred if there is consummated any transaction

               or series of integrated transactions immediately following which,

               in the judgment of the Compensation Committee of the Board, the

               holders of the Company's common stock immediately prior to such

               transaction or series of transactions continue to have the same

               proportionate ownership in an entity which owns all or

               substantially all of the assets of the Company immediately prior

               to such transaction or series of transactions.

 

          iv)  Notwithstanding anything to the contrary contained in

               subparagraph 8(a)(i), for purposes of this Paragraph 9(c),

               termination by the Company of Executive's employment for "Cause"

               shall mean termination upon Executive's willful engaging in

               misconduct which is demonstrably and materially injurious to the

               Company and its subsidiaries taken as a whole. No act, or failure

               to act, on Executive's part shall be considered "willful" unless

               done, or omitted to be done, by Executive not in good faith and

               without reasonable belief that Executive's action or omission was

               in the best interest of the Company or its subsidiaries.

               Notwithstanding the foregoing, Executive shall not be

               deemed to have been terminated for Cause pursuant to this

               subparagraph 9(c)(iv) 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 at a meeting of the Board called and held

               for the purpose of making a determination of whether Cause for

               termination exists (after reasonable notice to Executive and an

               opportunity for Executive to be heard before the Board), finding

               that in the good faith opinion of the Board, Executive was guilty

               of misconduct as set forth above in this subparagraph 9(c)(iv)

               and specifying the particulars thereof in detail. In addition, if

               the conduct alleged to have constituted Cause is curable (as

               determined by the Board), the Notice of Termination shall not be

               delivered until after the Board (or any duly authorized Committee

               thereof) shall have given Executive written notice specifying the

               conduct alleged to have constituted such Cause and Executive has

               failed to cure such conduct, within fifteen (15) days following

               receipt of such notice.

 

          v)   Remedy by Company.  If, within two years following a Change in

               -----------------

               Control, Executive terminates employment for Good Reason in

               accordance with the provisions of Paragraph 9(c), Executive shall

               make a good faith reasonable determination immediately after the

               fifteen-day period whether the facts and circumstances that

               allegedly gave rise to Good Reason have been remedied and shall

               communicate such determination in writing to the Company (the

               "Executive Determination"). If Executive determines that adequate

               remedy has not occurred, then the initial Notice of Termination

               shall remain in effect. The Company shall not be bound by any

               Executive Determination that applies to any termination other

               than a termination for Good Reason that occurs within two years

               following a Change in Control. Notwithstanding any dispute

               concerning whether Good Reason exists for termination of

               employment or whether adequate remedy has occurred, the Company

               shall immediately pay to Executive, as specified in subparagraph

               9(c)(i), any amounts otherwise due under this Agreement. Executive

               may be required to repay such amounts to the Company if any such

               dispute is finally determined adversely to Executive.

 

10.  Excise Tax Payment.

     ------------------

 

     (a)  If, as a result of Executive's employment with the Company or

          termination thereof, the benefits received by Executive (the "Total

          Payments") are subject to the excise tax provision set forth in

          section 4999 of the Code (the "Excise Tax"), the Company shall pay to

          Executive an additional amount (the "Gross-Up Payment") such that the

          net amount retained by Executive, after deduction of any Excise Tax on

          the benefits received hereunder and any Federal, state and local

          income and employment taxes and Excise Tax upon the Gross-Up Payment,

          shall be equal to the Total Payments.

 

     (b)  For purposes of determining whether any of the Total Payments will be

          subject to the Excise Tax and the amount of such Excise Tax, (i) all

          of the Total Payments shall be treated as "parachute payments" (within

          the meaning of section 280G(b)(2) of the Code) unless, in the opinion

          of tax counsel ("Tax Counsel") reasonably acceptable to Executive and

          selected by the accounting firm which was, immediately prior to the

          Change in Control, the Company's independent auditor (the "Auditor"),

          such payments or benefits (in whole or in part) do not constitute

          parachute payments, including by reason of section 280G(b)(4)(A) of

          the Code, (ii) all "excess parachute payments" within the meaning of

          section 280G(b)(l) of the Code shall be treated as subject to the

          Excise Tax unless, in the opinion of Tax Counsel, such excess

          parachute payments (in whole or in part) represent "reasonable

          compensation" for services actually rendered (within the meaning of

          section 280G(b)(4)(B) of the Code) in excess of the Base Amount (as

          defined in section 280G(b)(3) of the Code) allocable to such

          reasonable compensation, or are otherwise not subject to the Excise

          Tax, and (iii) the value of any noncash benefits or any deferred

          payment or benefit shall be determined by the Auditor in accordance

          with the principles of sections 280G(d)(3) and (4) of the Code. For

          purposes of determining the amount of the Gross-Up Payment, Executive

          shall be deemed to pay federal income tax at the highest marginal rate

          of federal income taxation in the calendar year in which the

          Gross-Up Payment is to be made and state and local income taxes at the

          highest marginal rate of taxation in the state and locality of

          Executive's residence on the date of termination (or if there is no

          date of termination, then the date on which the Gross-Up Payment is

          calculated for purposes of this Paragraph 10(b)), net of the maximum

          reduction in federal income taxes which could be obtained from

          deduction of such state and local taxes.

 

     (c)  In the event that the Excise Tax is finally determined to be less than

          the amount taken into account hereunder in calculating the Gross-Up

          Payment, Executive shall repay to the Company, within five (5)

          business days following the time that the amount of such reduction in

          the Excise Tax is finally determined, the portion of the Gross-Up

          Payment attributable to such reduction (plus that portion of the

          Gross-Up Payment attributable to the Excise Tax and federal, state and

          local income and employment taxes imposed on the Gross-Up Payment

          being repaid by Executive, to the extent that such repayment results

          in a reduction in the Excise Tax and a dollar-for-dollar reduction in

          Executive's taxable income and wages for purposes of federal, state

          and local income and employment taxes, plus interest on the amount of

          such repayment at 120% of the rate provided in section 1274(b)(2)(B)

          of the Code. In the event that the Excise Tax is determined to exceed

          the amount taken into account hereunder in calculating the Gross-Up

          Payment (including by reason of any payment the existence or amount of

          which cannot be determined at the time of the Gross-Up Payment), the

          Company shall make an additional Gross-Up Payment in respect of such

          excess plus any interest, penalties or additions payable by Executive

          with respect to such excess) within five (5) business days following

          the time that the amount of such excess is finally determined.

          Executive and the Company shall each reasonably cooperate with the

          other in connection with any administrative or judicial proceedings

          concerning the existence or amount of liability for Excise Tax with

          respect to the Total Payments.

 

     (d)  Notwithstanding anything else herein, this Paragraph 10 shall survive

          any termination of employment, any payments hereunder or any

          termination of obligations hereunder; provided, however, that this

          Paragraph 10 shall not survive any termination of employment for Cause

          that occurs prior to a Change in Control, or any payments or

          termination of obligations in connection with such termination for

          Cause.

 

11.  General Provisions.

     ------------------

 

     (a)  Executive's rights and obligations hereunder shall not be transferable

          by assignment or otherwise; provided, however, that this Agreement

          shall inure to the benefit of and be enforceable by Executive's

          personal and legal representatives, executors, administrator,

          successors, heirs, distributees, devisees and legatees. If Executive

          should die while any amounts are still payable to Executive hereunder,

          all such amounts, unless otherwise provided herein, shall be paid in

          accordance with the terms of this Agreement to Executive's devisee,

          legatee or other designee or, if there be no such designee, to

          Executive's estate. Nothing in this Agreement shall prevent the

          consolidation of the Company with, or its merger into, any other

          corporation, or the sale by the Company of all or substantially all of

          its properties or assets; and this Agreement shall inure to the

          benefit of, be binding upon and be enforceable by, any successor

          surviving or resulting corporation, or other entity to which such

          assets shall be transferred. Unless otherwise agreed to by Executive,

          the Company shall require any successor or assign (whether direct or

          indirect, by purchase, merger, consolidation or otherwise) to all or

          substantially all of the business and/or assets of the Company, by

          agreement in form and substance satisfactory to Executive (such

          agreement not to be unreasonably withheld or delayed), to assume 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 or assignment had taken place. This Agreement shall not

          otherwise be assigned by the Company. As used in this Agreement,

          "Company" shall mean the Company as hereinbefore defined and any

          successor or assign to its business and/or assets as aforesaid which

          executes and delivers the agreement provided for in this paragraph or

          which otherwise becomes bound by all the terms and provisions of this

          Agreement by operation of law. This Agreement shall not be terminated

          by the voluntary or involuntary dissolution of the Company.

 

     (b)  This Agreement and the rights of Executive with respect to the

          benefits of employment referred to in Paragraph 4(c) constitute the

          entire agreement between the parties hereto in respect of the employment

          of Executive by the Company. This Agreement supersedes and replaces in

          its entirety all prior oral and written agreements, understandings,

          commitments, and practices between the parties, including, but not

          limited to, the Old Employment Agreement and the Termination

          Agreement.

 

     (c)  Any dispute, controversy or claim arising under or in connection with

          this Agreement, or the breach hereof, other than any dispute,

          controversy claim or breach arising under Paragraph 7 of this

          Agreement, shall be settled exclusively by arbitration in accordance

          with the Rules of the American Arbitration Association then in effect.

          Judgment upon the award rendered by the arbitrator may be entered in

          any court of competent jurisdiction. Any arbitration held pursuant to

          this paragraph in connection with any termination of Executive's

          employment shall take place in San Francisco, California at the

          earliest possible date. If any proceeding is necessary to enforce or

          interpret the terms of this Agreement, or to recover damages for

          breach thereof, the prevailing party shall be entitled to reasonable

          attorneys fees and necessary costs and disbursements, not to exceed in

          the aggregate one percent (1%) of the net worth of the other party, in

          addition to any other relief to which he or it may be entitled.

 

     (d)  The provisions of this Agreement shall be regarded as divisible, and

          if any of said provisions or any part hereof are declared invalid or

          unenforceable by a court of competent jurisdiction, the validity and

          enforceability of the remainder of such provisions or parts hereof and

          the applicability hereof shall not be affected thereby.

 

     (e)  This Agreement may not be amended or modified except by a written

          instrument executed by the Company and Executive.

 

     (f)  This Agreement and the rights and obligations hereunder shall be

          governed by and construed in accordance with the laws of the State of

          California without regard to its principles of conflict of laws.

 

     (g)  For purposes of this Agreement, notices and all other communications

          provided for in this Agreement shall be in writing and shall be deemed

          to have been duly given when delivered by messenger or in

          person, or when mailed by United States registered mail, return

          receipt requested, postage prepaid, as follows:

 

          If to the Company: McKesson HBOC, Inc.

                             One Post Street

                             San Francisco, CA 94104

                             Attention: Office of the General Counsel

 

          If to Executive:   John H. Hammergren

                             c/o McKesson HBOC, Inc.

                             One Post Street

                             San Francisco, CA 94104

 

          or such other address as either party may have furnished to the other

          in writing in accordance herewith, except that notices of change of

          address shall be effective only upon receipt.

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date

first above written.

 

                                          McKESSON HBOC, INC.

                                          A Delaware Corporation

 

 

                                          By /s/ William A. Armstrong

                                             -----------------------------------

                                             Senior Vice President

 

ATTEST:

 

/s/ Ivan D. Meyerson                      /s/ John H. Hammergren

- -------------------------------------     --------------------------------------

 Senior Vice President and Secretary         Executive

 

 

By the Authority of the

Board of Directors

of McKesson HBOC, Inc.

on July 12, 1999.