Document:

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[LOGO] BANK OF AMERICA                                              EXHIBIT 10.1
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                                                         Business Loan Agreement

This Agreement dated as of MAY 19, 2000, is between Bank of America, N.A. (the
"Bank") and Cost Plus, Inc. (the "Borrower").

1.   LINE OF CREDIT AMOUNT AND TERMS

1.1  Line of Credit Amount.

(a)  During the availability period described below, the Bank will provide an
     unsecured line of credit to the Borrower. The amount of the line of credit
     (the "Commitment") is equal to the amount indicated for each period
     specified below:

          Period                                                         Amount
          ------                                                         ------

          From the date of this Agreement
          through June 30, 2000                                  $10,000,000.00

          From July 1, 2000 through
          December 31, 2000                                      $40,000,000.00

          From January 1, 2001 through
          June 30, 2001                                          $10,000,000.00

          From July 1, 2001 through
          December 31, 2001                                      $50,000,000.00

          From January 1, 2002 until the Expiration Date         $10,000,000.00

(b)  This is a revolving line of credit providing for cash advances and letters
     of credit. During the availability period, the Borrower may repay principal
     amounts and reborrow them.

(c)  The Borrower agrees not to permit the outstanding principal balance of
     advances under the line of credit plus the outstanding amounts of any
     letters of credit, including amounts drawn on letters of credit and not yet
     reimbursed, to exceed the Commitment.

1.2  Availability Period. The line of credit is available between the date of
     this Agreement and June 1, 2002, or such earlier date as the availability
     may terminate as provided in this Agreement (the "Expiration Date").

1.3  Interest Rate.

(a)  Unless the Borrower elects an optional interest rate as described below,
     the interest rate is the Bank's Prime Rate minus 0.75 percentage point.

(b)  The Prime Rate is the rate of interest publicly announced from time to time
     by the Bank as its Prime Rate. The Prime Rate is set by the Bank based on
     various factors, including the Bank's costs and desired return, general
     economic conditions and other factors, and is used as a reference point for
     pricing some loans. The Bank may price loans to its customers at, above, or
     below the Prime Rate. Any change in the Prime Rate shall take effect at the
     opening of business on the day specified in the public announcement of a
     change in the Bank's Prime Rate.

1.4  Repayment Terms.

(a)  The Borrower will pay interest on the last day of each monthly period of
     its fiscal calendar until payment in full of any principal outstanding
     under this line of credit. For the remainder of calendar year 2000 and
     prior to the commencement of each calendar year thereafter, the Borrower
     shall disclose to the Bank in writing the monthly periods of its fiscal
     calendar for such year.

(b)  The Borrower will repay in full all principal and any unpaid interest or
     other charges outstanding under this line of credit no later than the
     Expiration Date. Any interest period for an optional interest rate (as
     described below) shall expire no later than the Expiration Date.

                                      -1-
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1.5  Optional Interest Rates. Instead of the interest rate based on the Bank's
Prime Rate, the Borrower may elect the optional interest rates listed below
during interest periods agreed to by the Bank and the Borrower. The optional
interest rates shall be subject to the terms and conditions described later in
this Agreement. Any principal amount bearing interest at an optional rate under
this Agreement is referred to as a "Portion." The following optional interest
rates are available:

(a)  Short Term Fixed Rates.

(b)  the IBOR Rate plus 0.9 percentage point.

(c)  the LIBOR Rate plus 0.9 percentage point.

1.6  Letters of Credit.

(a)  This line of credit may be used for financing:

     (i)   commercial letters of credit with a maximum maturity of 180 days but
           not to extend beyond the Expiration Date. Each commercial letter of
           credit will require drafts payable at sight.

     (ii)  standby letters of credit with a maximum maturity of 365 days but not
           to extend more than 365 days beyond the Expiration Date. The standby
           letters of credit may include a provision providing that the maturity
           date will be automatically extended each year for an additional year
           unless the Bank gives written notice to the contrary; provided,
           however, that each letter of credit must include a final maturity
           date which will not be subject to automatic extension.

     (iii) The Bank has issued for the account of the Borrower letters of credit
           pursuant to the Business Loan Agreement entered into as of October
           12, 1998 between the Bank and the Borrower (as amended, the "1998
           Agreement"). As of the date of this Agreement, any such letters of
           credit shall be deemed to be outstanding under this Agreement and
           shall be subject to all the terms and conditions stated in this
           Agreement.

(b)  The Borrower agrees:

     (i)   any sum drawn under a letter of credit may, at the option of the
           Bank, be added to the principal amount outstanding under this
           Agreement. The amount will bear interest and be due as described
           elsewhere in this Agreement.

     (ii)  if there is a default under this Agreement, to immediately prepay and
           make the Bank whole for any outstanding letters of credit.

     (iii) the issuance of any letter of credit and any amendment to a letter of
           credit is subject to the Bank's written approval and must be in form
           and content satisfactory to the Bank and in favor of a beneficiary
           acceptable to the Bank.

     (iv)  to sign the Bank's form Application and Agreement for Commercial
           Letter of Credit or Application and Agreement for Standby Letter of
           Credit.

     (v)   to pay any issuance and/or other fees that the Bank notifies the
           Borrower will be charged for issuing and processing letters of credit
           for the Borrower.

     (vi)  to allow the Bank to automatically charge its checking account for
           any sum drawn under a letter of credit outstanding under this
           Agreement and for applicable fees, discounts, and other charges
           related to letters of credit outstanding under this Agreement.

     (vii) to pay the Bank a non-refundable fee equal to 1.0% per annum of the
           outstanding undrawn amount of each standby letter of credit, payable
           quarterly in advance, calculated on the basis of the face amount
           outstanding on the day the fee is calculated.

2.   OPTIONAL INTEREST RATES

2.1  Optional Rates.  Each optional interest rate is a rate per year. Interest
will be paid on the last day of each interest period, and on the last day of
each monthly period of the Borrower's fiscal calendar during the interest
period. At the end of any interest period, the interest rate will revert to the
rate based on the Prime Rate, unless the Borrower has designated another
optional interest rate for the Portion. No Portion will be converted to a
different interest rate during the applicable interest period. Upon the
occurrence of an event of default under this Agreement, the Bank may terminate
the availability of optional interest rates for interest periods commencing
after the default occurs.

                                      -2-
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2.2  Short Term Fixed Rate.  The election of Short Term Fixed Rates shall be
subject to the following terms and requirements:

(a)  The "Short Term Fixed Rate" means the fixed interest rate the Bank and the
     Borrower agree will apply during the applicable interest period.

(b)  The interest period during which the Short Term Fixed Rate will be in
     effect will be no shorter than 30 days and no longer than 90 days.

(c)  Each Short Term Fixed Rate Portion will be for an amount not less than Five
     Hundred Thousand Dollars ($500,000).

(d)  Each prepayment of a Short Term Fixed Rate Portion, whether voluntary, by
     reason of acceleration or otherwise, will be accompanied by the amount of
     accrued interest on the amount prepaid, and a prepayment fee as described
     below. A "prepayment" is a payment of an amount on a date earlier than the
     scheduled payment date for such amount as required by this Agreement.

(e)  The prepayment fee shall be equal to the amount (if any) by which:

     (i)  the additional interest which would have been payable during the
          interest period on the amount prepaid had it not been prepaid, exceeds

     (ii) the interest which would have been recoverable by the Bank by placing
          the amount prepaid on deposit in the domestic certificate of deposit
          market, the eurodollar deposit market, or other appropriate money
          market selected by the Bank for a period starting on the date on which
          it was prepaid and ending on the last day of the interest period for
          such Portion (or the scheduled payment date for the amount prepaid, if
          earlier).

2.3  IBOR Rate.  The election of IBOR Rates shall be subject to the following
terms and requirements:

(a)  The interest period during which the IBOR Rate will be in effect will be no
     shorter than 30 days and no longer than 90 days. The last day of the
     interest period will be determined by the Bank using the practices of the
     offshore dollar inter-bank market.

(b)  Each IBOR Rate Portion will be for an amount not less than Five Hundred
     Thousand Dollars ($500,000).

(c)  The Borrower may not elect an IBOR Rate with respect to any principal
     amount which is scheduled to be repaid before the last day of the
     applicable interest period.

(d)  The "IBOR Rate" means the interest rate determined by the following
     formula, rounded upward to the nearest 1/100 of one percent. (All amounts
     in the calculation will be determined by the Bank as of the first day of
     the interest period.)

              IBOR Rate =              IBOR Base Rate
                             -----------------------------------
                                  (1.00 - Reserve Percentage)

     Where,

     (i)  "IBOR Base Rate" means the interest rate at which the Bank's Grand
          Cayman Branch, Grand Cayman, British West Indies, would offer U.S.
          dollar deposits for the applicable interest period to other major
          banks in the offshore dollar inter-bank market.

     (ii) "Reserve Percentage" means the total of the maximum reserve
          percentages for determining the reserves to be maintained by member
          banks of the Federal Reserve System for Eurocurrency Liabilities, as
          defined in Federal Reserve Board Regulation D, rounded upward to the
          nearest 1/100 of one percent. The percentage will be expressed as a
          decimal, and will include, but not be limited to, marginal, emergency,
          supplemental, special, and other reserve percentages.

(e)  Each prepayment of an IBOR Rate Portion, whether voluntary, by reason of
     acceleration or otherwise, will be accompanied by the amount of accrued
     interest on the amount prepaid, and a prepayment fee as described below. A
     "prepayment" is a payment of an amount on a date earlier than the scheduled
     payment date for such amount as required by this Agreement.

(f)  The prepayment fee shall be equal to the amount (if any) by which:

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     (i)  the additional interest which would have been payable during the
          interest period on the amount prepaid had it not been prepaid, exceeds

     (ii) the interest which would have been recoverable by the Bank by placing
          the amount prepaid on deposit in the domestic certificate of deposit
          market, the eurodollar deposit market, or other appropriate money
          market selected by the Bank for a period starting on the date on which
          it was prepaid and ending on the last day of the interest period for
          such Portion (or the scheduled payment date for the amount prepaid, if
          earlier).

(g)  The Bank will be obligated to accept an election for an IBOR Rate Portion
     unless any of the following described events has occurred and is
     continuing:

     (i)   Dollar deposits in the principal amount, and for periods equal to the
           interest period, of an IBOR Rate Portion are not available in the
           offshore dollar inter-bank market;

     (ii)  the IBOR Rate does not accurately reflect the cost of an IBOR Rate
           Portion; or

     (iii) an event of default under this Agreement or an event which, with
           notice or lapse of time or both, would constitute an event of default
           under this Agreement.

2.4  LIBOR Rate.  The election of LIBOR Rates shall be subject to the following
terms and requirements:

(a)  The interest period during which the LIBOR Rate will be in effect will be
     one, two, three, four, five, six, seven, eight, nine, ten, eleven, or
     twelve months. The first day of the interest period must be a day other
     than a Saturday or a Sunday on which the Bank is open for business in New
     York and London and dealing in offshore dollars (a "LIBOR Banking Day").
     The last day of the interest period and the actual number of days during
     the interest period will be determined by the Bank using the practices of
     the London inter-bank market.

(b)  Each LIBOR Rate Portion will be for an amount not less than Five Hundred
     Thousand Dollars ($500,000).

(c)  The "LIBOR Rate" means the interest rate determined by the following
     formula, rounded upward to the nearest 1/100 of one percent. (All amounts
     in the calculation will be determined by the Bank as of the first day of
     the interest period.)

              LIBOR Rate =    London Inter-Bank Offered Rate
                              ------------------------------
                               (1.00 - Reserve Percentage)

     Where,

     (i)  "London Inter-Bank Offered Rate" means the average per annum interest
          rate at which U.S. dollar deposits would be offered for the applicable
          interest period by major banks in the London inter-bank market, as
          shown on the Telerate Page 3750 (or such other page as may replace it)
          at approximately 11:00 a.m. London time two (2) London Banking Days
          before the commencement of the interest period. If such rate does not
          appear on the Telerate Page 3750 (or such other page that may replace
          it), the rate for that interest period will be determined by such
          alternate method as reasonably selected by Bank. A "London Banking
          Day" is a day on which the Bank's London Branch is open for business
          and dealing in offshore dollars.

     (ii) "Reserve Percentage" means the total of the maximum reserve
          percentages for determining the reserves to be maintained by member
          banks of the Federal Reserve System for Eurocurrency Liabilities, as
          defined in Federal Reserve Board Regulation D, rounded upward to the
          nearest 1/100 of one percent. The percentage will be expressed as a
          decimal, and will include, but not be limited to, marginal, emergency,
          supplemental, special, and other reserve percentages.

(d)  The Borrower shall irrevocably request a LIBOR Rate Portion no later than
     12:00 noon time on the LIBOR Banking Day preceding the day on which the
     London Inter-Bank Offered Rate will be set, as specified above. For
     example, if there are no intervening holidays or weekend days in any of the
     relevant locations, the request must be made at least three days before the
     LIBOR Rate takes effect.

(e)  The Borrower may not elect a LIBOR Rate with respect to any principal
     amount which is scheduled to be repaid before the last day of the
     applicable interest period.

(f)  Each prepayment of a LIBOR Rate Portion, whether voluntary, by reason of
     acceleration or otherwise, will be accompanied by the amount of accrued
     interest on the amount prepaid and a prepayment fee as described below. A
     "prepayment" is a payment of an amount on a date earlier than the scheduled
     payment date for such amount as required by this Agreement.

                                      -4-
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(g)  The prepayment fee shall be equal to the amount (if any) by which:

     (i)       the additional interest which would have been payable during the
               interest period on the amount prepaid had it not been prepaid,
               exceeds

     (ii)      the interest which would have been recoverable by the Bank by
               placing the amount prepaid on deposit in the domestic certificate
               of deposit market, the eurodollar deposit market, or other
               appropriate money market selected by the Bank, for a period
               starting on the date on which it was prepaid and ending on the
               last day of the interest period for such Portion (or the
               scheduled payment date for the amount prepaid, if earlier).

(h)  The Bank will be obligated to accept an election for a LIBOR Rate
     Portion unless any of the following described events has occurred and is
     continuing:

     (i)       Dollar deposits in the principal amount, and for periods equal to
               the interest period, of a LIBOR Rate Portion are not available in
               the London inter-bank market;

     (ii)      the LIBOR Rate does not accurately reflect the cost of a LIBOR
               Rate Portion; or

     (iii)     an event of default under this Agreement or an event which, with
               notice or lapse of time or both, would constitute an event of
               default under this Agreement.

3.   FEES AND EXPENSES

3.1  Fees.

(a)  Loan fee.  The Borrower agrees to pay a loan fee in the amount of Eight
     Thousand and 00/100 Dollars ($8,000.00).  This fee is due on the date of
     this Agreement.

(b)  Unused commitment fee. The Borrower agrees to pay a fee on any difference
     between the Commitment and the amount of credit it actually uses,
     determined by the weighted average credit outstanding during the specified
     period. The fee will be calculated at 0.125% per year. The calculation of
     credit outstanding shall include the undrawn amount of letters of credit.
     This fee is due on last day of each fiscal quarter of the Borrower until
     the Expiration Date.

(c)  Late Fee. To the extent permitted by law, the Borrower agrees to pay a late
     fee in an amount not to exceed two percent (2%) of any installment that is
     more than fifteen (15) days late. The imposition and payment of a late fee
     shall not constitute a waiver of the Bank's rights with respect to the
     default.

3.2  Expenses.  The Borrower agrees to immediately repay the Bank for
     reasonable and documented expenses that include, but are not limited to,
     filing, recording and search fees, appraisal fees, title report fees and
     documentation fees.

3.3  Reimbursement Costs. The Borrower agrees to reimburse the Bank for any
reasonable and documented expenses it incurs in the preparation of this
Agreement and any agreement or instrument required by this Agreement equal to
50% of the first Three Thousand and 00/100 Dollars ($3,000.00) of such expenses.
If such expenses are in excess of Three Thousand and 00/100 Dollars ($3,000.00),
then the Bank and the Borrower will determine a mutually acceptable fee payment
arrangement. Expenses include, but are not limited to, reasonable attorneys'
fees, including any allocated costs of the Bank's in-house counsel.

4.   DISBURSEMENTS, PAYMENTS AND COSTS

4.1  Disbursements and Payments. Each disbursement by the Bank and each payment
     by the Borrower will be:

(a)  made at the Bank's branch (or other location) selected by the Bank from
     time to time;

(b)  made for the account of the Bank's branch selected by the Bank from time
     to time;

(c)  made in immediately available funds, or such other type of funds
     selected by the Bank;

(d)  evidenced by records kept by the Bank.  In addition, the Bank may, at
     its discretion, require the Borrower to sign one or more promissory notes.

                                      -5-
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4.2  Telephone and Telefax Authorization.

(a)  The Bank will honor telephone or telefax instructions for advances or
     repayments or for the designation of optional interest rates and telefax
     requests for the issuance of letters of credit given by any one of the
     individuals authorized to sign loan agreements on behalf of the Borrower,
     or any other individual designated by any one of such authorized signers.

(b)  Advances will be deposited in and repayments will be withdrawn from the
     Borrower's account number 17685-00608, or such other of the Borrower's
     accounts with the Bank as designated in writing by the Borrower.

(c)  The Borrower will indemnify and hold the Bank harmless from all liability,
     loss, and costs in connection with any act resulting from telephone or
     telefax instructions the Bank reasonably believes are made by any
     individual authorized by the Borrower to give such instructions. This
     paragraph will survive this Agreement's termination, will benefit the Bank
     and its officers, employees, and agents, and will not apply to any such
     liability, loss, or costs caused by the Bank's gross negligence or willful
     misconduct.

4.3  Direct Debit (Pre-Billing).

(a)  The Borrower agrees that the Bank will debit the Borrower's deposit account
     number 17685-00608, or such other of the Borrower's accounts with the Bank
     as designated in writing by the Borrower (the "Designated Account") on the
     date each payment of interest and any fees from the Borrower becomes due
     (the "Due Date"). If the Due Date is not a banking day, the Designated
     Account will be debited on the next banking day.

(b)  Approximately 5 days prior to each Due Date, the Bank will mail to the
     Borrower a statement of the amounts that will be due on that Due Date (the
     "Billed Amount"). The calculation will be made on the assumption that no
     new extensions of credit or payments will be made between the date of the
     billing statement and the Due Date, and that there will be no changes in
     the applicable interest rate.

(c)  The Bank will debit the Designated Account for the Billed Amount,
     regardless of the actual amount due on that date (the "Accrued Amount"). If
     the Billed Amount debited to the Designated Account differs from the
     Accrued Amount, the discrepancy will be treated as follows:

     (i)       If the Billed Amount is less than the Accrued Amount, the Billed
               Amount for the following Due Date will be increased by the amount
               of the discrepancy. The Borrower will not be in default by reason
               of any such discrepancy.

     (ii)      If the Billed Amount is more than the Accrued Amount, the Billed
               Amount for the following Due Date will be decreased by the amount
               of the discrepancy.

               Regardless of any such discrepancy, interest will continue to
               accrue based on the actual amount of principal outstanding
               without compounding. The Bank will not pay the Borrower interest
               on any overpayment.

(d)  The Borrower will maintain sufficient funds in the Designated Account to
     cover each debit. If there are insufficient funds in the Designated Account
     on the date the Bank enters any debit authorized by this Agreement, the
     debit will be reversed.

4.4  Banking Days. Unless otherwise provided in this Agreement, a banking day is
     a day other than a Saturday or a Sunday on which the Bank is open for
     business in California. For amounts bearing interest at an offshore rate
     (if any), a banking day is a day other than a Saturday or a Sunday on which
     the Bank is open for business in California and dealing in offshore
     dollars. All payments and disbursements which would be due on a day which
     is not a banking day will be due on the next banking day. All payments
     received on a day which is not a banking day will be applied to the credit
     on the next banking day.

4.5  Additional Costs. The Borrower will pay the Bank, on demand, for the Bank's
     reasonable and documented costs or losses arising from any statute or
     regulation, or any request or requirement of a regulatory agency which is
     applicable to all national banks or a class of all national banks. The
     costs and losses will be allocated to the loan in a manner determined by
     the Bank, using any reasonable method. The costs include the following:

(a)  any reserve or deposit requirements; and

(b)  any capital requirements relating to the Bank's assets and commitments
     for credit.

4.6  Interest Calculation. Except as otherwise stated in this Agreement, all
     interest and fees, if any, will be computed on the basis of a 360-day year
     and the actual number of days elapsed. This results in more interest or a
     higher fee than if a 365-day year is used. Installments of principal which
     are not paid when due under this Agreement shall continue to bear interest
     until paid.

                                      -6-
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4.7  Default Rate. Upon the occurrence of any default under this Agreement,
principal amounts outstanding under this Agreement will at the option of the
Bank bear interest at a rate which is 2 percentage point(s) higher than the rate
of interest otherwise provided under this Agreement. This will not constitute a
waiver of any default.

5.   CONDITIONS

The Bank must receive the following items, in form and content acceptable to the
Bank, before it is required to extend any credit to the Borrower under this
Agreement:

5.1  Authorizations. Evidence that the execution, delivery and performance by
the Borrower of this Agreement and any instrument or agreement required under
this Agreement have been duly authorized.

5.2  Governing Documents.  A copy of the Borrower's articles of incorporation.

5.3  Other Items.  Any other items that the Bank reasonably requires.

6.   REPRESENTATIONS AND WARRANTIES

When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation:

6.1  Organization of Borrower.  The Borrower is a corporation duly formed and
existing under the laws of the state where organized.

6.2  Authorization.  This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.

6.3  Enforceable Agreement.  This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.

6.4  Good Standing.  In each state in which the Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.

6.5  No Conflicts.  This Agreement does not conflict with any law, agreement,
or obligation by which the Borrower is bound.

6.6  Financial Information.  All financial and other information that has been
or will be supplied to the Bank is:

(a)  sufficiently complete to give the Bank accurate knowledge of the Borrower's
     (and any guarantor's) financial condition, including all material
     contingent liabilities.

(b)  in compliance with all government regulations that apply.

6.7  Lawsuits.  There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower which, if lost, would materially impair the
Borrower's financial condition or ability to repay the loan, except as have
been disclosed in writing to the Bank.

6.8  Permits, Franchises.  The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged.

6.9  Other Obligations.  The Borrower is not in default on any obligation
for borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.

6.10 Income Tax Matters.  The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year.

6.11 No Event of Default.  There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.

6.12 Location of Borrower.  The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at 200 Fourth Street, Oakland, California 94607.

                                      -7-
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7.   COVENANTS

The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:

7.1  Use of Proceeds. To use the proceeds of the credit only for working capital
and general corporate purposes (including stock repurchases, friendly
acquisitions, and investments), and at the option of the Bank, to finance drafts
drawn under any letter of credit issued hereunder.

7.2  Financial Information. To provide the following financial information and
statements in form and content acceptable to the Bank, and such additional
information as requested by the Bank from time to time:

(a)  Within 120 days of the Borrower's fiscal year end, the Borrower's annual
     financial statements. These financial statements must be audited (with an
     unqualified opinion) by a certified public accountant acceptable to the
     Bank. The statements shall be prepared on a consolidated basis.

(b)  Within 45 days of the period's end, the Borrower's quarterly financial
     statements. These financial statements may be Borrower prepared. The
     statements shall be prepared on a consolidated basis. For the fourth fiscal
     quarter of each year, these financial statements will be prepared as part
     of the Borrower's annual financial statements required under (a) above and
     may be provided to the Bank together with those annual statements.

(c)  Within the period provided in (b) above, a compliance certificate of the
     Borrower signed by an authorized financial officer of the Borrower setting
     forth (i) the information and computations (in sufficient detail) to
     establish that the Borrower is in compliance with all financial covenants
     at the end of the period covered by the financial statements then being
     furnished and (ii) whether there existed as of the date of such financial
     statements and whether there exists as of the date of the certificate, any
     default under this Agreement and, if any such default exists, specifying
     the nature thereof and the action the Borrower is taking and proposes to
     take with respect thereto.

(d)  Within 60 days of its fiscal year end, the Borrower's annual business
     plan/budget for the then current fiscal year in form satisfactory to the
     Bank.

(e)  Copies of the Borrower's Form 10-K Annual Report, Form 10-Q Quarterly
     Report and Form 8-K Current Report within 30 days after the date of filing
     with the Securities and Exchange Commission.

(f)  By September 30 of each year, a summary of estimated new site lease
     commitments for the forthcoming fiscal year.

7.3  Tangible Net Worth. To maintain on a consolidated basis tangible net worth
equal to at least the amounts indicated for each period specified below:

           Period                                         Amounts
           ------                                         -------

           From the date of this Agreement
           through February 2, 2001                  $116,000,000

           From February 3, 2001 through
           February 1, 2002                          $140,000,000

           From February 2, 2002 and thereafter      $165,000,000

"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
unamortized debt discount and expense, capitalized or deferred research and
development costs, deferred marketing expenses, deferred receivables, and other
like intangibles, and monies due from affiliates, officers, directors, employees
or shareholders of the Borrower) plus liabilities subordinated to the Bank in a
manner acceptable to the Bank (using the Bank's standard form) less total
liabilities, including but not limited to accrued and deferred income taxes, and
any reserves against assets.

Compliance with this financial covenant will be measured as of the end of each
fiscal quarter.

7.4  Other Debts. Not to have outstanding or incur any direct or contingent
liabilities or capital lease obligations (other than those to the Bank), or
become liable for the liabilities of others, without the Bank's written consent,
which consent shall not be unreasonably withheld. This does not prohibit:

(a)  Acquiring goods, supplies, merchandise, or services on normal trade credit.

(b)  Endorsing negotiable instruments received in the usual course of business.

                                      -8-
<PAGE>

(c)  Obtaining surety bonds in the usual course of business.

(d)  Liabilities, lines of credit and leases in existence on the date of this
     Agreement disclosed in writing to the Bank prior to closing and acceptable
     to the Bank.

(e)  Additional debts and capital lease obligations for the acquisition of fixed
     or capital assets, to the extent permitted under Paragraph 7.6 of this
     Agreement. Such debts and obligations may include Purchase Money
     Indebtedness. "Purchase Money Indebtedness" means (i) indebtedness for the
     payment of all or any part of the purchase price of any fixed or capital
     assets, (ii) indebtedness incurred at the time of or within (10) ten days
     prior to or after the acquisition of any fixed or capital assets for the
     purpose of financing all or any part of the purchase price thereof and
     (iii) any renewals, extensions or refinancing thereof, but not any
     increases in principal amounts thereof outstanding at the time.

(f)  Additional debts arising from the finance or refinance of existing real
     property of the Borrower.

(g)  Other unsecured indebtedness incurred in the ordinary course of business.

(h)  Additional contingent liabilities that do not exceed an aggregate amount of
     One Million Dollars ($1,000,000).

7.5  Other Liens. Not to create, assume, or allow any security interest or lien
(including judicial liens) on property the Borrower now or later owns, except:

(a)  Deeds of trust and security agreements in favor of the Bank.

(b)  Liens for taxes not yet due.

(c)  Liens outstanding on the date of this Agreement disclosed in writing to the
     Bank prior to closing and acceptable to the Bank.

(d)  Additional purchase money security interests or purchase money liens in
     personal property or real property acquired after the date of this
     Agreement which secure Purchase Money Indebtedness permitted by
     subparagraph (e) of the preceding paragraph.

(e)  Liens on the financed or refinanced real property which secure indebtedness
     permitted by subparagraph (f) of the preceding paragraph.

(f)  Liens arising in the ordinary course of the Borrower's business by
     operation of law or regulation, but only if payment in respect of such lien
     is not yet due.

(g)  Liens in favor of customs and revenues authorities which secure payment of
     customs duties in connection with the importation of goods.

(h)  Such minor defects, irregularities, encumbrances, easements, rights of way,
     and clouds on title as normally exist with respect to similar properties
     and which do not, individually or in the aggregate, materially impair the
     property affected thereby or limit its use to the purpose for which it was
     acquired.

(i)  Landlord's liens arising under lease contracts or by operation of law in
     the ordinary course of business which are not delinquent or remain payable
     without penalty.

(j)  Additional liens against the property of the Borrower which secure
     obligations in an aggregate principal amount not exceeding One Million
     Dollars ($1,000,000).

7.6  Capital Expenditures. Not to spend or incur obligations (including the
total amount of any capital leases of equipment) for more than the following to
acquire fixed or capital assets: (a) Thirty Million Dollars ($30,000,000) in the
fiscal year ending February 3, 2001; (b) Thirty-Eight Million Dollars
($38,000,000) in the fiscal year ending February 2, 2002; and (c) Forty-Two
Million Dollars ($42,000,000) in the fiscal year ending February 1, 2003 and
each fiscal year thereafter.

7.7  Loans to Officers or Affiliates. Not to make any loans, advances or other
extensions of credit (including extensions of credit in the nature of accounts
receivable or notes receivable arising from the sale or lease of goods or
services) to any of the Borrower's executives, officers, directors or
shareholders (or any relatives of any of the foregoing), or to any affiliated
entities (other than to any subsidiary of the Borrower) in excess of Five
Hundred Thousand Dollars ($500,000) in the aggregate at any one time.

7.8  Stock Repurchases. Not to repurchase any of its stock in excess of Five
Million Dollars ($5,000,000) in any single fiscal year, without the prior
written consent of the Bank.

                                      -9-
<PAGE>

7.9  Change of Ownership. Not to cause, permit, or suffer any material change,
direct or indirect, in the Borrower's capital ownership.

7.10 Change of Management. Not to make any substantial change in its present
executive or management personnel.

7.11 Paydown Period. To reduce the amount of advances outstanding under this
Agreement to zero for a period of at least 30 consecutive days between January 1
and March 31 of each calendar year. For the purposes of this paragraph,
"advances" does not include undrawn amounts of outstanding letters of credit.

7.12 Notices to Bank. To promptly notify the Bank in writing of:

(a)  any lawsuit over One Million Dollars ($1,000,000) against the Borrower (or
     any guarantor).

(b)  any substantial dispute between the Borrower (or any guarantor) and any
     government authority.

(c)  any event of default under this Agreement, or any event which, with notice
     or lapse of time or both, would constitute an event of default.

(d)  any material adverse change in the Borrower's (or any guarantor's) business
     condition (financial or otherwise), operations, properties or prospects, or
     ability to repay the credit.

(e)  any change in the Borrower's name, legal structure, place of business, or
     chief executive office if the Borrower has more than one place of business.

(f)  any actual contingent liabilities of the Borrower (or any guarantor), and
     any such contingent liabilities which are reasonably foreseeable, where
     such liabilities are in excess of One Million Dollars ($1,000,000) in the
     aggregate.

7.13 Books and Records. To maintain adequate books and records.

7.14 Audits. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit, and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.

7.15 Compliance with Laws. To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business.

7.16 Preservation of Rights. To maintain and preserve all rights, privileges,
and franchises the Borrower now has.

7.17 Maintenance of Properties. To make any repairs, renewals, or replacements
to keep the Borrower's properties in good working condition.

7.18 Cooperation. To take any action reasonably requested by the Bank to carry
out the intent of this Agreement.

7.19 General Business Insurance. To maintain insurance satisfactory to the Bank
as to amount, nature and carrier covering property damage (including loss of use
and occupancy) to any of the Borrower's properties, public liability insurance
including coverage for contractual liability, product liability and workers'
compensation, and any other insurance which is usual for the Borrower's
business.

7.20 Additional Negative Covenants. Not to, without the Bank's written consent,
which consent shall not be unreasonably withheld:

(a)  engage in any business activities substantially different from the
     Borrower's present business.

(b)  liquidate or dissolve the Borrower's business.

(c)  enter into any consolidation, merger, or other combination unless (i) the
     Borrower enters into such consolidation, merger, or other combination in
     conjunction with an acquisition or purchase that is permitted under
     Paragraph 7.20(h) below and (ii) the Borrower is the surviving or
     continuing corporation of such consolidation, merger, or other combination.

(d)  become a partner in a partnership, a member of a joint venture, or a member
     of a limited liability company. It is provided, however, that the Borrower
     may become a partner in a partnership or a member of a joint venture or
     limited liability company so long as, between the date of this Agreement
     and February 2, 2002, the sum of the total amount of the Borrower's capital
     contributions to such entities plus the total amount of direct or
     contingent debt

                                      -10-
<PAGE>

     assumed or incurred by the Borrower in its capacity as a partner or member
     of such entities does not exceed Ten Million Dollars ($10,000,000).

(e)  sell or otherwise dispose of any assets for less than fair market value, or
     enter into any agreement to do so; provided, however, that sales or other
     dispositions for less than fair market value of assets with an aggregate
     fair market value not exceeding Three Million Dollars ($3,000,000) are
     permitted in any fiscal year.

(f)  sell, assign, lease, transfer or otherwise dispose of all or a substantial
     part of the Borrower's business or the Borrower's assets except in the
     ordinary course of the Borrower's business.

(g)  enter into any sale and leaseback agreement covering any of its fixed
     assets; provided, however, that sale and leaseback agreements covering
     fixed assets with an aggregate fair market value not exceeding Ten Million
     Dollars ($10,000,000) are permitted in any fiscal year.

(h)  acquire or purchase a business or its assets for aggregate consideration,
     including assumption of direct or contingent debt, in excess of Twenty Five
     Million Dollars ($25,000,000) between the date of this Agreement and the
     fiscal year ending February 2, 2002.

7.21 ERISA Plans. Promptly during each year, to pay contributions adequate to
meet at least the minimum funding standards under ERISA with respect to each and
every Plan; file each annual report required to be filed pursuant to ERISA in
connection with each Plan for each year; and notify the Bank within ten (10)
days of the occurrence of any Reportable Event that might constitute grounds for
termination of any capital Plan by the Pension Benefit Guaranty Corporation or
for the appointment by the appropriate United States District Court of a trustee
to administer any Plan. "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time. Capitalized terms in this paragraph
shall have the meanings defined within ERISA.

8.   DEFAULT

If any of the following events occurs, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If an event of default occurs under the
paragraph entitled "Bankruptcy," below, with respect to the Borrower, then the
entire debt outstanding under this Agreement will automatically be due
immediately.

8.1  Failure to Pay. The Borrower fails to make a payment under this Agreement
within 10 days after the date when due.

8.2  False Information. The Borrower (or any guarantor) has knowingly given the
Bank false or misleading information or representations.

8.3  Bankruptcy. The Borrower (or any guarantor) files a bankruptcy petition, a
bankruptcy petition is filed against the Borrower (or any guarantor) or the
Borrower (or any guarantor) makes a general assignment for the benefit of
creditors. The default will be deemed cured if any bankruptcy petition filed
against the Borrower (or any guarantor) is dismissed within a period of 30 days
after the filing; provided, however, that the Bank will not be obligated to
extend any additional credit to the Borrower during that period.

8.4  Receivers. A receiver or similar official is appointed for the Borrower's
(or any guarantor's) business, or the business is terminated.

8.5  Lawsuits. Any lawsuit or lawsuits are filed on behalf of one or more trade
creditors against the Borrower (or any guarantor) in an aggregate amount of Five
Million Dollars ($5,000,000) or more in excess of any insurance coverage.

8.6  Judgments. Any judgments or arbitration awards are entered against the
Borrower (or any guarantor), or the Borrower (or any guarantor) enters into any
settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of Five Million Dollars ($5,000,000) or more in excess of any
insurance coverage.

8.7  Government Action. Any government authority takes action that materially
adversely affects the Borrower's (or any guarantor's) financial condition or
ability to repay.

8.8  Material Adverse Change. A material adverse change occurs, or is reasonably
likely to occur. "Material adverse change" means (a) a material impairment of
the ability of the Borrower to perform its payment obligations under this
Agreement or any document required by this Agreement, or (b) a material adverse
effect upon the legality, validity, binding effect or enforceability against the
Borrower of this Agreement or any document required by this Agreement.

                                      -11-
<PAGE>

8.9  Cross-default. Any default occurs under any agreement in connection with
any credit the Borrower (or any guarantor) has obtained from anyone else or
which the Borrower (or any guarantor) has guaranteed and, if there is a cure
period applicable to such default, such default continues beyond the applicable
cure period. It is provided, however, that this paragraph shall only apply to
defaults that consist of failing to make a payment when due or gives the other
lender the right to accelerate the obligation.

8.10 Default under Related Documents. Any guaranty, subordination agreement,
security agreement, deed of trust, or other document required by this Agreement
is no longer in effect or is violated in any material respect and, if there is a
cure period applicable to such violation, such violation continues beyond the
applicable cure period.

8.11 Other Bank Agreements. The Borrower (or any guarantor) fails to meet the
material conditions of, or fails to perform any material obligation under any
other agreement the Borrower (or any guarantor) has with the Bank or any
affiliate of the Bank and, if there is a cure period applicable to such failure,
such failure continues beyond the applicable cure period.

8.12 Other Breach Under Agreement. The Borrower fails to meet the conditions of,
or fails to perform any obligation under, any material term of this Agreement
not specifically referred to in this Article. If, in the Bank's opinion, the
breach is capable of being remedied, the breach will not be considered an event
of default under this Agreement for a period of thirty (30) days after the date
on which the Bank gives written notice of the breach to the Borrower; provided,
however, that the Bank will not be obligated to extend any additional credit to
the Borrower during that period.

9.   ENFORCING THIS AGREEMENT; MISCELLANEOUS

9.1  GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.

9.2  California Law.  This Agreement is governed by California law.

9.3  Successors and Assigns. This Agreement is binding on the Borrower's and the
Bank's successors and assignees. The Borrower agrees that it may not assign this
Agreement without the Bank's prior consent. The Bank may sell participations in
or assign this loan, and may exchange financial information about the Borrower
with actual or potential participants or assignees; provided that such actual or
potential participants or assignees shall agree to treat all financial
information exchanged as confidential. If a participation is sold or the loan is
assigned, the purchaser will have the right of set-off against the Borrower.

9.4  Arbitration.

(a)  This paragraph concerns the resolution of any controversies or claims
     between the Borrower and the Bank, whether arising in contract, tort or by
     statute, including but not limited to controversies or claims that arise
     out of or relate to: (i) this Agreement (including any renewals, extensions
     or modifications); or (ii) any document related to this Agreement
     (collectively a "Claim").

(b)  At the request of the Borrower or the Bank, any Claim shall be resolved by
     arbitration in accordance with the Federal Arbitration Act (Title 9, U. S.
     Code) (the "Act"). The Act will apply even though this Agreement provides
     that it is governed by the law of a specified state.

(c)  Arbitration proceedings will be determined in accordance with the Act, the
     rules and procedures for the arbitration of financial services disputes of
     J.A.M.S./Endispute or any successor thereof ("J.A.M.S."), and the terms of
     this paragraph. In the event of any inconsistency, the terms of this
     paragraph shall control.

(d)  The arbitration shall be administered by J.A.M.S. and conducted in any
     U.S. state where real or tangible personal property collateral for this
     credit is located or if there is no such collateral, in California. All
     Claims shall be determined by one arbitrator; however, if Claims exceed
     Five Million Dollars ($5,000,000), upon the request of any party, the
     Claims shall be decided by three arbitrators. All arbitration hearings
     shall commence within ninety (90) days of the demand for arbitration and
     close within ninety (90) days of commencement and the award of the
     arbitrator(s) shall be issued within thirty (30) days of the close of the
     hearing. However, the arbitrator(s), upon a showing of good cause, may
     extend the commencement of the hearing for up to an additional sixty (60)
     days. The arbitrator(s) shall provide a concise written statement of
     reasons for the award. The arbitration award may be submitted to any court
     having jurisdiction to be confirmed and enforced.

(e)  The arbitrator(s) will have the authority to decide whether any Claim is
     barred by the statute of limitations and, if so, to dismiss the arbitration
     on that basis. For purposes of the application of the statute of
     limitations, the service on J.A.M.S. under applicable J.A.M.S. rules of a
     notice of Claim is the equivalent of the filing of a lawsuit. Any dispute
     concerning this arbitration provision or whether a Claim is arbitrable
     shall be determined by the arbitrator(s). The arbitrator(s) shall have the
     power to award legal fees pursuant to the terms of this Agreement.

                                      -12-
<PAGE>

(f)  This paragraph does not limit the right of the Borrower or the Bank to: (i)
     exercise self-help remedies, such as but not limited to, setoff; (ii)
     initiate judicial or nonjudicial foreclosure against any real or personal
     property collateral; (iii) exercise any judicial or power of sale rights,
     or (iv) act in a court of law to obtain an interim remedy, such as but not
     limited to, injunctive relief, writ of possession or appointment of a
     receiver, or additional or supplementary remedies.

(g)  The filing of a court action is not intended to constitute a waiver of the
     right of the Borrower or the Bank, including the suing party, thereafter to
     require submittal of the Claim to arbitration.

9.5  Severability; Waivers. If any part of this Agreement is not enforceable,
     the rest of the Agreement may be enforced. The Bank retains all rights,
     even if it makes a loan after default. If the Bank waives a default, it may
     enforce a later default. Any consent or waiver under this Agreement must be
     in writing.

9.6  Administration Costs. The Borrower shall pay the Bank for all reasonable
     and documented costs incurred by the Bank in connection with administering
     this Agreement.

9.7  Attorneys' Fees. The Borrower shall reimburse the Bank for any reasonable
     and documented costs and attorneys' fees incurred by the Bank in connection
     with the enforcement or preservation of any rights or remedies under this
     Agreement and any other documents executed in connection with this
     Agreement, and in connection with any amendment, waiver, "workout" or
     restructuring under this Agreement. In the event of a lawsuit or
     arbitration proceeding, the prevailing party is entitled to recover costs
     and reasonable attorneys' fees incurred in connection with the lawsuit or
     arbitration proceeding, as determined by the court or arbitrator. In the
     event that any case is commenced by or against the Borrower under the
     Bankruptcy Code (Title 11, United States Code) or any similar or successor
     statute, the Bank is entitled to recover costs and reasonable attorneys'
     fees incurred by the Bank related to the preservation, protection, or
     enforcement of any rights of the Bank in such a case. As used in this
     paragraph, "attorneys' fees" includes the allocated costs of the Bank's in-
     house counsel.

9.8  One Agreement. This Agreement and any related security or other agreements
     required by this Agreement, collectively:

(a)  represent the sum of the understandings and agreements between the Bank and
     the Borrower concerning this credit;

(b)  replace any prior oral or written agreements between the Bank and the
     Borrower concerning this credit; and

(c)  are intended by the Bank and the Borrower as the final, complete and
     exclusive statement of the terms agreed to by them.

In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.

9.9  Indemnification. The Borrower will indemnify and hold the Bank harmless
from any loss, liability, damages, judgments, and costs of any kind relating to
or arising directly or indirectly out of (a) this Agreement or any document
required hereunder, (b) any credit extended or committed by the Bank to the
Borrower hereunder, and (c) any litigation or proceeding related to or arising
out of this Agreement, any such document, or any such credit, except to the
extent any such loss, liability, damages, judgments, or costs are caused by the
Bank's gross negligence or willful misconduct. This indemnity includes but is
not limited to attorneys' fees (including the allocated cost of in-house
counsel). This indemnity extends to the Bank, its parent, subsidiaries and all
of their directors, officers, employees, agents, successors, attorneys, and
assigns. This indemnity will survive repayment of the Borrower's obligations to
the Bank. All sums due to the Bank hereunder shall be obligations of the
Borrower, due and payable immediately without demand.

9.10 Notices. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, or by overnight courier,
to the addresses on the signature page of this Agreement, or sent by facsimile
to the fax numbers listed on the signature page, or to such other addresses as
the Bank and the Borrower may specify from time to time in writing. Notices sent
by first class mail shall be deemed delivered on the earlier of actual receipt
or on the fourth business day after deposit in the U.S. mail.

9.11 Headings. Article and paragraph headings are for reference only and shall
not affect the interpretation or meaning of any provisions of this Agreement.

9.12 Prior Agreement Superseded. This Agreement supersedes the 1998 Agreement,
and any credit outstanding thereunder shall be deemed to be outstanding under
this Agreement.

                                      -13-
<PAGE>

This Agreement is executed as of the date stated at the top of the first page.

Bank of America, N.A.
                                                 Cost Plus, Inc.

X /s/ Lisa M Thomas                              X /s/ John Hoffner
  ---------------------------------                --------------------------
By: Lisa M. Thomas, Senior Vice                  By: John Hoffner, Chief
    President                                        Financial Officer

Address where notices to the                     Address for Notices:
Bank are to be sent:

Bay Area Commercial Banking Office #01473        200 Fourth Street
345 Montgomery Street                            Oakland, CA 94607
San Francisco, CA 94104

                                      -14-<PAGE>

                                                                    Exhibit 10.1

                             EMPLOYMENT AGREEMENT
                             --------------------

THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of 8/1/99 (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 Alan Seelenfreund ("Executive").

                                   RECITALS
                                   --------

A.   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

B.   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 an exclusive 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 Chairman of the Board of Directors of the Company.
<PAGE>

3.   Term and Duties.
     ---------------

     (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 June 30, 2001.

     (b)  Duties.  During the period of his employment hereunder and except for
          ------
          illness, reasonable vacation periods, and reasonable leaves of
          absence, Executive shall devote his best efforts and all 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 of Directors of the
          Company (the "Board"); provided, however, that, with the approval of
                                 --------  -------
          the Board, Executive may serve, or continue to serve, on the boards of
          directors of, hold any other offices or positions in, companies or
          organizations which, in such officer'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. The Company shall
          retain full direction and control of the means and methods by which
          Executive performs the services for which he is employed hereunder.
          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,
          ------------
          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 Five Hundred
          Thousand Dollars ($500,000.00) per year, or such higher salary as may
          be from time to time approved by the Board (or any duly authorized
          Commit-

                                       2
<PAGE>

          tee 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 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"), 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.

5.   Stock Options.  Executive will be granted on or about August 16, 1999, a
     -------------
     non-qualified stock option to purchase One Million (1,000,000) shares of
     the Company's common stock, at a per share exercise price equal to the fair

                                       3
<PAGE>

     market value of a share of the Company's common stock on the date of grant
     (the "Grant Date"), which option will vest at the rate of fifty percent
     (50%) on the anniversary of the Grant Date and one hundred percent (100%)
     on June 30, 2001. Such option will otherwise be subject to the terms and
     conditions of the Company's Stock Option and Restricted Stock Plan (or any
     other similar plan or arrangement).

6.   Benefits Payable Upon Disability or Death.
     -----------------------------------------

     (a)  Disability Benefits.  If, during the term of this Agreement, 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 shall cease and terminate.

     (b)  Death Benefits.  In the event of the death of Executive during the
          --------------
          term of this Agreement, 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. Thereafter, all of
          the Company's obligations hereunder shall cease and terminate.

     (c)  Other Plans.  The provisions of this Paragraph 6 shall not affect any
          -----------
          rights of Executive's heirs, administrators, executors, legatees,
          beneficiaries or assigns under the Company's Profit-Sharing Investment
          Plan, ESBP, Restricted Stock and Stock Option Plan (or any other
          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.

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

                                       4
<PAGE>

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

     (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 (as
          defined in subparagraph (c) hereof), 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 either during or after the term of this Agreement.
          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 to the extent expressly authorized by the
          Company in writing or as required by law. 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 this
          Agreement.

     (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 company's
          customers, including, without limitation, (i) all information
          concerning trade secrets of the Company and its affiliated companies,
          includ-

                                       5
<PAGE>

          ing 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 by the Company or any of 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 or any of 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 other than as a result of a disclosure by Executive, (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 other than the Company or any of its
          agents, creditors, suppliers, lessors, lessees or customers.

     (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) 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 or indirectly, (x) 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

                                       6
<PAGE>

          companies; and (y) solicit, aid in or encourage the solicitation of,
          contract with, aid in or encourage the contracting with, service, or
          contact any person or entity which is, or was, within three 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 of any of its affiliated companies. For purposes of this
          Paragraph 7(d), the "Restricted Period" shall be deemed to be the
          longer of (i) two (2) years following 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 upon written notice
          from the Board (or any duly authorized Committee thereof) specifying
          such Cause, and thereafter, the Company's obligations hereunder shall
          cease and terminate; provided, however, that such written notice 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, if curable, within fifteen
          (15) days following receipt of such notice. As used herein, the term
          "Cause" shall mean (i) Executive's willful misconduct, habitual
          neglect, dishonesty or other intentional actions (or failures to act)
          which are materially and demonstrably injurious to the Company, or

                                       7
<PAGE>

          (ii) a material breach by Executive of one or more terms of this
          Agreement.

     (b)  Arbitration Required to Confirm Cause.  In the event of a termination
          -------------------------------------
          for Cause pursuant to subparagraph (a) above, 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(d) below. In the event the award
          upholds the action of the Company, Executive shall promptly repay to
          the Company any sums received pursuant to this subparagraph 8(b),
          following termination of employment.

     (c)  Other than for Cause; Performance, Reorganization.  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.

     (d)  Obligations of the Company on Termination of Employment.
          -------------------------------------------------------

          i)   If the Company terminates Executive's employment pursuant to
               subparagraph 8(a) above and the Company's action is affirmed as
               specified in subparagraph 8(b) above or Executive terminates his
               employment with the Company other than for Good Reason (as
               defined in subparagraph (d)(iii)), then 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 deter-

                                       8
<PAGE>

               mined solely in accordance with the express terms of the
               respective plans;

          ii)  If the Company terminates Executive's employment pursuant to
               subparagraph 8(c) above or Executive terminates his employment
               with the Company for Good Reason prior to the expiration of this
               Agreement, 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, the Company shall,
               provided Executive is not in breach of the provisions of
               Paragraph 7 hereof, and except as provided in Paragraph 10(c)
               below, (A) continue Executive's then base salary, without
               increase, for the remainder of the term of this Agreement, (B)
               continue Executive's incentive award compensation under the terms
               of the Company's MIP for each fiscal year ending with or within
               the term of this Agreement, such MIP awards to be equal, in each
               case, to Executive's Individual Target Award existing at the time
               of his termination of employment, (C) accelerate the vesting of
               all stock options granted to Executive, (D) continue Executive's
               automobile allowance until the expiration date of this Agreement
               and (E) 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.

          iii) For purposes of this Agreement, "Good Reason" shall mean any of
               the following actions, if taken without the express written
               consent of Executive, (A) any material change by the Company in
               Executive's functions, duties or responsibilities, 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; (B) any significant reduction in Executive's base
               salary, other than a reduction effected as part of an across-the-
               board reduction affecting all executive employees of the Company;
               (C) any material

                                       9
<PAGE>

               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.

9.   Excise Tax Payment.
     ------------------

     (a)  If, during the term of this Agreement, the benefits received by
          Executive hereunder (the "Total Payments") are subject to the excise
          tax provision set forth in Section 4999 of the Internal Revenue Code
          of 1986, as amended (the "Code") (the "Excise Tax"), the Company shall
          pay to the Executive an additional amount (the "Gross-Up Payment")
          such that the net amount retained by the 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 the 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
          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 deter-

                                      10
<PAGE>

          mined 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, the 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 the 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 9(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, the Executive shall repay to the Company, within fifteen (15)
          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 the Executive, to the extent that such repayment
          results in a reduction in the Excise Tax and a dollar-for-dollar
          reduction in the 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 the Executive with respect to such excess) within
          fifteen (15) business days following the time that the amount of such
          excess is finally determined. The 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.

                                      11
<PAGE>

10.  General Provisions.
     ------------------

     (a)  Executive's rights and obligations hereunder shall not be transferable
          by assignment or otherwise. 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. This Agreement shall not be terminated by
          the voluntary or involuntary dissolution of the Company.

     (b)  This Agreement (together with the Termination Agreement between the
          parties of even date herewith) 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. Nothing whatsoever in
          this Agreement shall diminish, impair, or in any manner adversely
          affect Executive's right to receive any benefits that Executive had
          accrued or to which he was otherwise entitled as of the date
          immediately prior to the Effective Date as a result of his previous
          employment by, or retirement from, the Company.

     (c)  In the event Executive's employment with the Company shall terminate
          under circumstances otherwise providing Executive with a right to
          benefits under both Section 5 of the Termination Agreement and
          Paragraph 8(d)(ii) of this Agreement, Executive shall be entitled to
          receive the greater of the benefits provided therein or herein,
                      -------
          calculated individually, without duplication.

     (d)  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

                                      12
<PAGE>

          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.

     (e)  Executive expressly relinquishes any rights to renewed participation
          in the Company's 1984 Executive Benefit Retirement Plan.

     (f)  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.

     (g)  This Agreement may not be amended or modified except by a written
          instrument executed by the Company and Executive.

     (h)  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.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

                                              McKESSON HBOC, INC.
                                              A Delaware Corporation

                                              By /s/ Ivan D. Meyerson
                                                 ------------------------
                                                  Senior Vice President

                                      13
<PAGE>

ATTEST:

/s/ Kristina Veaco                      /s/ Alan Seelenfreund
------------------------------          ---------------------------------
  Assistant Secretary                   Executive

By the Authority of the
Board of Directors
of McKesson HBOC, Inc.
on July 12, 1999.

                                      14

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