AMENDED AND RESTATED EMPLOYMENT
AGREEMENT
This AMENDED AND
RESTATED EMPLOYMENT AGREEMENT (the “Agreement”),
effective as of November 1, 2008 (the “Effective
Date”), by and between McKesson Corporation (the
“Company”), a Delaware corporation with its principal
office at One Post Street, San Francisco, California, and
John H. Hammergren (“Executive”).
A. WHEREAS,
Executive and the Company have previously entered into that certain
Extended Employment Agreement dated as of April 1, 2004 (the
“Prior Employment Agreement”);
B. WHEREAS,
Executive and the Company have previously amended and restated the
terms of the Prior Employment Agreement effective as of
November 1, 2006;
C. WHEREAS,
the Company, in its business, develops and uses certain
Confidential Information (as defined in Paragraph 6(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;
D. 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; and
E. WHEREAS,
Executive and the Company wish to amend and restate the terms of
the Agreement to comply with the final regulations promulgated
under section 409A of the Internal Revenue Code of 1986, as
amended (the “Code”) and preserve deductibility of
certain compensation under section 162(m) of the Code in accordance
with Revenue Ruling 2008-13.
NOW, THEREFORE, in
consideration of the foregoing premises and the mutual covenants
herein contained, the parties hereto agree as follows:
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1.
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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.
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2.
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Position and
Responsibilities . During the period of his
employment hereunder, Executive agrees to serve the Company, and
the Company shall employ Executive, as President and Chief
Executive Officer of the
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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. Executive also presently serves as Chairman of the
Board of Directors of the Company
(“Chairman”).
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(a)
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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 the third anniversary of the Effective Date, unless
terminated earlier in accordance with Paragraph 7 below;
provided , however , that this Agreement shall renew
automatically, such that the remaining term of this Agreement is
always three (3) years, unless terminated earlier in
accordance with Paragraph 7 below (the
“Term”).
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(b)
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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.
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4.
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Compensation and Reimbursement of
Expenses; Other Benefits .
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(a)
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Compensation . During the period of his
employment hereunder, 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 One Million Five Hundred Eighty Thousand
Dollars ($1,580,000) 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 (as defined in
the MIP) shall be no less than One Hundred and Fifty Percent
(150%), (or such Individual Target Award percentage as may be from
time to time approved by the Board, or any duly authorized
Committee thereof, any such higher percentage so approved to be
thereafter the minimum Individual Target Award percentage for
Executive during the remainder of the Term hereof), of his base
salary for the applicable Year (as defined in the MIP).
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(b)
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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; provided,
however, any such expenses eligible for reimbursement that are
taxable to Executive and incurred during the course of
Executive’s employment may not affect the expenses eligible
for reimbursement in any other taxable year. 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.
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(c)
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Other Benefits
. During the period of
his employment hereunder, Executive shall be entitled to receive
all other benefits of employment 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, Company-sponsored medical plan, Management Incentive
Plan (“MIP”), Long Term Incentive Plan, Executive
Benefit Retirement Plan (“EBRP”), Executive Survivor
Benefits Plan (“ESBP”), Stock
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Purchase Plan
and 1994 Stock Option and Restricted Stock 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. For purposes of the EBRP,
beginning with Fiscal Year 2006, Executive’s “Average
Final Compensation” shall mean one-fifth of the sum of
(x) the base salary and (y) one hundred and fifty percent
(150%) of the annual bonuses under the MIP or any successor or
replacement plans (including base salary and annual MIP bonuses or
portions thereof voluntarily deferred under a cash or deferred plan
or any other tax qualified or non-qualified salary deferral plan)
in each case earned by Executive for the five consecutive years of
full-time continuous employment with the Company which
(a) fall within the 15-year period ending on the first day of
the month following Executive’s Separation from Service (as
defined in the EBRP) with the Company and (b) produce the
highest such sum. To the extent specific provisions of this
Agreement that relate to other plans or arrangements of the Company
are more favorable 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.
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5.
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Benefits Payable Upon Disability or
Death .
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(a)
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Disability Benefits
. If, during the term of
Executive’s employment hereunder, Executive sustains a
disability, as defined in Treasury Regulation section
1.409A-3(i)(4)(i) or -3(i)(4)(iii), the Company shall continue to
pay Executive his then current salary hereunder during the period
of such disability at the time of the regular payroll schedule; 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 percentage in
effect at the time of the disability as described in
Paragraph 8(b)(i)(E) herein, subject to a maximum level of
seventy-five percent (75%), of Average Final Compensation (as
defined in Paragraph 4(c) above) without regard to any
reduction for early retirement; provided that the lump-sum payment
for this Approved Retirement shall never be less than the
lump-sum
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payment that
would have been provided under Executive’s Prior Employment
Agreement for an Approved Retirement under EBRP on April 1,
2004 (the “Minimum Lump-Sum Payment”).
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(b)
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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) at the time of the regular
payroll schedule 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, subject to the
Minimum Lump-Sum Payment described in Paragraph 5(a) above,
calculated at the percentage in effect at the time of his death as
described in Paragraph 8(b)(i)(E) herein, subject to a maximum
level of seventy-five percent (75%), of Average Final Compensation
(as defined in Paragraph 4(c) above) shall be payable without
regard to any reduction for early retirement in a lump sum as soon
as practicable, but not later than ninety (90) days after
Executive’s death. Thereafter, all of the Company’s
obligations hereunder (other than as provided herein) shall cease
and terminate.
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(c)
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Other Plans . Except as specifically provided
herein, the provisions of this Paragraph 5 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, 1994 Stock Option and Restricted Stock 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.
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6.
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Obligations of Executive During and
After Employment .
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(a)
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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
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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 6(a) hereof, provided
that Executive is not actively engaged in the management of such
entities.
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(b)
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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 6(b) shall survive the
termination or expiration of the term of Executive’s
employment hereunder.
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(c)
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Confidential Information
Defined . For
purposes of this Agreement, “Confidential Information”
means all information (whether reduced to written, electronic,
magnetic or other tangible
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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 nonconfidential 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)
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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; or (ii) hiring or attempting to hire any
employee of the Company or any of its affiliated companies.
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, 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
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of the Company
or any of its affiliated companies. Notwithstanding the foregoing,
nothing in this Paragraph 6(d) shall prohibit Executive from
providing references on an unsolicited basis with respect to
employees of the Company. For purposes of this Paragraph 6(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 6(d) shall survive the
termination or expiration of this Agreement.
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(e)
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Nonsolicitation of
Customers .
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 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 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. For purposes of this
Paragraph 6(e), 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 6(e)
shall survive the termination or expiration of this
Agreement.
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(f)
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Remedy for Breach
. Executive agrees that
in the event of a breach or threatened breach of any of the
covenants contained in this Paragraph 6, 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.
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(g)
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Mutual Dependence
. Executive understands
and agrees that his full compliance with the provisions of this
Section 6 is an express condition for and mutually dependent
upon the obligations of the Company to pay Executive his
compensation and benefits, including severance pay, during the
remainder of the Term. Executive further understands and agrees
that in the event that any of the provisions of this Section 6
are rendered void, invalid, illegal or otherwise unenforceable, in
whole or in substantial part, as a result of actions not initiated
by the Company or its agent, the Company’s obligations to pay
Executive his Base Salary, bonus or any other compensation and
benefits, including severance pay, may be terminated
immediately.
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(a)
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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 Board of
Directors, 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.
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(i)
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Definition of Cause
. Except as provided in
Paragraph 8(c)(iii) 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 7(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
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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 7(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.
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(ii)
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Arbitration Required to Confirm
Cause . In
the event of a termination for Cause pursuant to this
Paragraph 7(a) or pursuant to subparagraph 8(c)(iii), 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 10(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 8 below,
following termination of employment.
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(b)
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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
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