EXHIBIT 10.26
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 David L. Mahoney ("Executive").
RECITALS
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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 July 16, 1990 (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
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
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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
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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
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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
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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
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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,
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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.
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(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
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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
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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,
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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-
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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
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following initial incentive awards specified below:
(a) Sign-On/Retention Bonus. Executive has received a special, one-time
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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.
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(b) Stock Options. Executive has received a non-qualified stock option to
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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
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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
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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 75th
percentile of the S&P 500 (excluding therefrom financial
institutions). Partial awards will be paid as follows: 75% if TSR is
between the 60th and 75th percentile; 50% if TSR is between the 50th
and 60th percentile; and 25% if TSR is below the 50th 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
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(b)(i), the period shall be the lesser of three years or the
expiration date.
6. Benefits Payable Upon Disability or Death.
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(a) Disability Benefits. If, during the term of Executive's employment
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hereunder, Executive shall be prevented from properly performing
services hereunder by reason of his illness or other physical or
mental
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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
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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
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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.
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(a) Noncompetition. Executive agrees that during the Term of his
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employment hereunder, he will engage in no other business activities,
directly or indirectly, which are or may be competitive with or which
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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
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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
8
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,
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"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.
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(d) Nonsolicitation. Executive recognizes and acknowledges that it is
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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
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threatened breach of any of the covenants contained in this Paragraph
7, the Company shall have the right and remedy to have such cove-
10
nants 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.
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(a) For Cause. Notwithstanding anything herein to the contrary, the
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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)
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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 reason-
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able 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
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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
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Reasons. Notwithstanding anything herein to the contrary, the Company
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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.
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(c) Termination by Executive. Executive may terminate his employment
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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
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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
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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
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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.
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(a) For Cause; Voluntary Resignation. If (i) the Company terminates
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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.
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(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
15
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
16
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.
17
(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
18
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
19
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
20
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
21
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
22
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
23
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
24
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: David L. Mahoney
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/ David L. Mahoney
- ------------------------------------- ----------------------------------
Senior Vice President and Secretary Executive
By the Authority of the
Board of Directors
of McKesson HBOC, Inc.
on July 12, 1999.
25