The contract is worth $16 million plus a player option for 2008 at the same amount.
"We told the Astros we would do the same deal at $14 [million]," Hendricks said. "They had been stuck on $12 [million] and essentially said, 'Take it or leave it.' The aborted [Jon] Garland trade proves they had no intention of increasing their offer. So there was nothing more to wait for except a decision by Andy, which he made this afternoon."
Houston was close to trading for Garland, a starting pitcher for the Chicago White Sox, on Thursday. The Astros were reportedly offering Taylor Buchholz, Willy Taveras and Jason Hirsh. The deal seemingly fell apart at the end, and the White Sox's skepticism toward Buchholz's health may have been a factor.
The Astros wanted Pettitte back but not at the price of a second-year player option, which takes the control out of the club's hands. Hendricks said that Pettitte would not pick up the option if he was hurt, but general manager Tim Purpura wasn't buying it.
"That's nonsense," Purpura said. "The [players] union would never let them do that. That's a misrepresentation.
"From a club point of view, that's a two-year deal. With one year with a player option, [Pettitte] gets to decide what's going to happen. From a club standpoint, it's a two-year deal. You have to look at it as a $28-million commitment."
Pettitte, 34, announced on Wednesday that he intended to pitch in 2007 and not retire, and it was clear that he would decide between Houston, where he spent the last three years, or the Yankees, with whom he won four World Series rings during a nine-year tenure from 1995-2003.
Pettitte was 14-13 with a 4.20 ERA in 2006 and was 37-26 over three years with the Astros. He had major elbow surgery in 2004, but he made a solid comeback in 2005, posting 17 wins while earning Houston's Pitcher of the Year honors.
The left-hander made 35 starts in 2006, matching his career high. He had a poor first half -- posting a 7-9 record and a 5.28 ERA -- but put together a strong second half, going 7-4 with a 2.80 ERA.
"It's been a brutal several days trying to come to this decision," Pettitte told KRIV, a Houston television station. "It's been extremely difficult. That's really all I can say right now.
"It's been an emotional day. It's been an emotional couple of days. Tomorrow, I am going to try and set something up and get everybody [in the media] together and we will talk about everything, and maybe I can be thinking a little clearer than I am right now."
Pettitte will be addressing the media on Saturday at 10:30 a.m. CT.
Losing Pettitte means the Astros will have to seek a No. 2 starter elsewhere. They could become more active in the free-agent market, although it's more likely the club will acquire a starting pitcher through a trade. The Garland deal could resurface, and the Astros also have several more proposals on the table.
But this is undoubtedly a tough blow for the Astros, who enjoyed two of their best seasons while Pettitte was in a Houston uniform. They reached the '04 National League Championship Series, even though Pettitte was out with injury, and they reached the World Series in '05 with he, Roy Oswalt and Roger Clemens at the top of the rotation.
"It's definitely a disappointment," Purpura said. "Maybe, I'm the eternal optimist, but you always hope that you can get a resolution when you have differences. The gulf was too wide, and we didn't feel that we could go where they wanted to go."
As for how this will affect the Astros' relationship with Clemens remains to be seen. Pettitte and Clemens are inseparable in their baseball lives, and while the right-hander has a 10-year personal services contract with the Astros waiting for him when he retires, it's quite possible he could follow Pettitte to the Yankees.
It's unclear whether the Yankees would want him for a half-season or if they would afford him the "freedom clause" that the Astros awarded him, which allowed Clemens to come and go as he pleased and not make road trips when he wasn't scheduled to pitch.
"I try not to lump players together," Purpura said. "I don't think that's fair to a player to think that one circumstance will change what they think about the organization.
"I think there's a strong relationship between the Astros and Roger Clemens, whether he plays for us or not next year. With his future being involved with us on personal services basis, that relationship will always be strong. I hope that doesn't change."
On how this will affect Clemens' future with the Astros, Hendricks said, "It's way too early to tell."
Alyson Footer is a reporter for MLB.com. This story was not subject to the approval of Major League Baseball or its clubs.