NATIONAL MEDICAL HEALTH CARD SYSTEMS INC
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<FILENAME>mastersemplymtagmt.htm
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>EMPLOYMENT AGREEMENT </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Employment Agreement dated as of October 4, 2004 (the &#147;Effective Date&#148;) is by
and between National Medical Health Card Systems, Inc., a Delaware corporation (the
&#147;Company&#148;), and Bill Masters (the &#147;Executive&#148;). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS,
the Company is engaged in providing comprehensive prescription benefit management services
to the general commercial market; and </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS,
the Company desires to employ the Executive pursuant to the terms and conditions set forth
herein; and </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS,
The Executive desires to enter into employment with the Company on the terms and
conditions set forth herein. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW,
THEREFORE, in consideration of the mutual promises, terms, covenants and conditions set
forth herein, and the performance of each, the parties, intending legally to be bond,
hereby agree as follows: </FONT></P>

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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>AGREEMENTS </FONT></H1>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U> Section 1. </U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>  Definitions.</U>  For purposes of the Agreement, the following terms have the meanings set forth below:</FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Base
Salary</U>&#148; has the meaning set forth in Section 4.1. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Board</U>&#148;
means the Board of Directors of the Company as the same is constituted from time to time. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Cause</U>&#148; means
(a) the commission by the Executive of any act, on or after the date of the Agreement,
constituting, as to any cash funds or other receipts of the Company, or any material
property of the Company or any other Person, (i) theft, (ii) embezzlement, (iii) fraud,
(iv) misappropriation of material property under applicable law, or (v) wilful
non-disclosure and misappropriation of any corporate opportunity, (b) the arrest or
indictment of the Executive of a crime resulting in material injury to the business or
property of the Company or of moral turpitude , (c) the performance by the Executive of
his duties pursuant to this Agreement in a manner that is to be negligent or (d) the
material breach by the Executive of the Agreement, including but not limited to the
failure by the Executive to follow all reasonable and lawful directions of the Board or
the Chairman of the Company as to any material matter or the taking of any action by the
Executive that would be reasonably likely to cause material injury to the Company or that
would be in conflict with any material interest to the Company. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>&#147;Change
of Control&#148;</U> means any consolidation or merger of the Company with or into another
company where the Company is not the survivor or the conveyance of all or substantially
all of the assets of the Company to another company or a change of ownership of more than
50% of the Company&#146;s common stock. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Confidential
Information</U>&#148; means information that is not generally known to the public and that
was or is used, developed or obtained by the Company in connection with its business,
including (a) products or services, (b) fees, costs and pricing structures, (c) designs,
(d) analyses, (e) drawings, photographs and reports, (f) computer software, including
operating systems, applications and program listings, (g) flow charts, manuals and
documentation, (h) data bases, (i) accounting and business methods, (j) inventions,
devices, new developments, methods and processes, whether patentable or unpatentable and
whether or not reduced to practice, (k) customers and clients and customer or client
lists, (l) other copyrightable works, (m) all technology and trade secrets, and (n) all
similar and related information in whatever form or medium. Confidential Information does
not include any information that has been published in a form generally available to the
public prior to the date of disclosure or use of such information. Information will not be
deemed to have been published merely because individual portions of the information have
been separately published, but only if all material features comprising such information
have been published in combination. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Employment
Period</U>&#148; has the meaning set forth in Section 2 and Section 5 of the Agreement. </FONT></P>

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<A NAME=A003></A>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>&#147;Executive</u>&#148;means
Bill Masters. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Intellectual
Property</U>&#148; has the meaning set forth in Section 7 of the Agreement. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>PBM
Services</U>&#148; shall mean, services associated with the prescription benefit
management business, including but not limited to: (i) claims administration, (ii)
establishment and administration of a pharmacy network and benefits, (iii) mail order
pharmacy services (by phone, fax or internet), (iv) drug utilization review, (v) disease
state management and delivery of specialty pharmacy benefits, (vi) formulary creation and
administration, (vii) rebate negotiation and administration, and (viii) therapeutic
substitution programs. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Permanent
Disability</U>&#148; shall have occurred if as a result of physical or mental incapacity,
the Employee shall have been incapable of performing Employee&#146;s essential duties
hereunder for a period in excess of 13 consecutive weeks in any calendar year, or an
aggregate of 26 weeks in any 12 month period. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Person</U>&#148;
means an individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political subdivision
thereof. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Reimbursable
Expenses</U>&#148; has the meaning set forth in Section 4.5 of the Agreement. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<U>Subsidiary</U>&#148;
means, with respect to any Person, any corporation, partnership, limited liability
company, association or other business entity of which (a) if a corporation, a majority of
the total voting power of shares of stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees thereof is at
the time owned or controlled, directly or indirectly, by that Person or a combination
thereof, or (b) if a partnership, limited liability company, association or other business
entity, a majority of the partnership or other similar ownership interests thereof is at
the time owned or controlled, directly or indirectly, by that Person or one or more
Subsidiaries of the Person or a combination thereof. For purposes of the Agreement, a
Person or Persons will be deemed to have a majority ownership interest in a partnership,
limited liability company, association or other business entity if such Person or Persons
are allocated a majority of partnership, limited liability company, association or other
business entity gains or losses or control the managing director or member or general
partner of such partnership, limited liability company, association or other business
entity. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section
2.</U> <U>Employment.</U> The Company hereby employs the Executive, and the Executive
hereby accepts employment with the Company, upon the terms and conditions set forth in the
Agreement, for the period provided in Section 5 (the &#147;Employment Period&#148;). </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section
3.</U>&nbsp;&nbsp;&nbsp;&nbsp; <U>Position and Duties.</U> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1
<U>Position.</U> During the Employment Period, the Executive will serve as Chief
Information Officer of the Company and will perform such executive and management duties
as may, from time to time, be determined and assigned to the Executive by the Chief
Executive Officer of the Company or his designee. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2
<U>Performance of Duties; Other Activities.</U> The Executive shall devote his full and
best efforts, attention and skills toward performing his duties on behalf of the Company,
and his full business and professional time to fully and faithfully perform such duties
and responsibilities to the best of his abilities in a diligent, trustworthy, businesslike
and efficient manner. The Executive shall do such traveling as may reasonably be required
in connection with the performance of his duties and responsibilities hereunder. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section
4.</U> &nbsp;&nbsp;&nbsp; <U> Base Salary and Benefits.</U> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1
<U>Base Salary.</U> During the Employment Period, the Executive&#146;s base salary will be
at the rate of $210,000 per annum (the &#147;Base Salary&#148;), plus annual increases
approved by the Chief Executive Officer and the Compensation Committee based upon an
evaluation of Executives achievements and contributions in the sole discretion of the
Chief Executive Officer and the Compensation Committee. Base Salary will be payable by the
Company in regular installments in accordance with the general payroll practices of the
Company as in effect from time to time. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2
<U>Bonus.</U> In addition to the Base Salary, the Executive shall be eligible for annual
bonuses (the &#147;Bonus&#148;), in accordance and payable with the Company&#146;s
Executive Management Bonus Plan. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          You will be eligible to receive 35% of base pay as an annual cash incentive if
          100% of predetermined corporate performance targets are achieved. Annual
          performance targets are established by the Board each year and are typically
          measured by factors that include, sales growth as compared to target, net income
          as compared to target, return on equity as compared to target, as well as
          &#147;personal&#148; objectives which will be established by the CEO. </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          Pursuant to the Company&#146;s Long Term Incentive Plan (as such may be amended
          or modified by the Board of Directors or the Compensation Committee from time to
          time), Executive shall be eligible to receive annual long term incentive
          compensation equal to up 50% of Executive&#146;s Base Salary. 50% of such long
          term incentive compensation shall be paid through the issuance of stock options
          to purchase common stock of the Company and the remaining 50% of such long term
          incentive compensation shall be paid through the issuance of either performance
          based or performance accelerated restricted stock of the Company, as determined
          by the Company in its sole discretion, in accordance with the terms of the
          Company&#146;s 2000 Restricted Stock Grant Plan. Notwithstanding the foregoing,
          the form and mix of long term compensation may be changed by the Board of
          Directors or the Compensation Committee, in their sole discretion. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3
<U>Benefits.</U> In addition to the Base Salary and Bonus described above, the Executive
shall be entitled to the following further benefits during the Employment Period: </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          such major medical, dental, life insurance and disability insurance coverage
          (collectively, &#147;Benefits&#148;) as is, or may from time to time during the
          Employment Period, be provided for other executive officers of the Company
          (provided that nothing herein contained shall be deemed to require the Company
          to maintain any particular plan or policy); and, in connection herewith, the
          Executive shall, upon commencement of his full-time employment hereunder, be
          immediately enrolled in the Company&#146;s current benefit plans (a 30 day
          waiting period applies to the Company&#146;s 401K plan); and </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          four (4) weeks of paid vacation per year during the Employment Period (to be
          taken at mutually convenient times so as not to unduly interfere with the
          business of the Company); and </FONT></P>

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     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
          provision of temporary housing at one of the NMHC corporate homes located within
          a short distance from the Company&#146;s headquarters. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.5
<U>Expenses.</U> The Company shall reimburse the Executive for any and all reasonable
expenses incurred by him in the course of performing him duties under the Agreement which
are consistent with the Company&#146;s policies in effect from time to time with respect
to travel, entertainment and other business expenses (&#147;Reimbursable Expenses&#148;),
subject to the Company&#146;s requirements with respect to reporting and documentation of
expenses. Moreover, Executive shall be reimbursed for travel related to and from
Executives home in Kentucky consistent with the Company&#146;s travel policies. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.6
<U>Employee Stock Options.</U> On the Effective Date (as defined herein), Executive shall
be granted stock options of the Company (&#147;Initial Option Grant&#148;) pursuant to the
Company&#146;s 1999 Stock Option Plan. The Stock Option Agreement regarding the Initial
Option Grant is attached hereto as Exhibit A. All Stock Options granted under this
Agreement are intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (the &#147;Code&#148;), <U>subject to</U> the
limitations of Section 422 of the Code. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section
5.</U> &nbsp;&nbsp;&nbsp; <U> Term and Termination.</U> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1
<U>Term</U>. The Executive&#146;s full-time employment hereunder shall commence upon the
(the &#147;Effective Date&#148;), and, unless renewed or modified by written agreement
between the Company and the Executive, the Employment Period will terminate on the first
anniversary following the Effective Date (the &#147;Term&#148;); <U>provided</U>, that (a)
the Employment Period shall terminate prior to such date upon the Executive&#146;s
resignation, death or Permanent Disability and (b) the Employment Period may be terminated
by the Company at any time prior to such date, if such termination shall be for Cause.
Notwithstanding the foregoing, this Agreement shall automatically be renewed for
successive additional terms of one (1) year each (upon the expiration of the Term) unless
either party, upon thirty days written notice, notifies the other of its intention not to
renew the Agreement. The renewal term shall be subject to the right of either party to
terminate this Agreement by giving not less than thirty (30) days prior written notice of
termination to the other prior to the commencement of any renewal term, such termination
to be effective at the conclusion of the term or such renewal term. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2
<U>Unjustified Termination</U>. Except as otherwise provided in Section 5.3 below, if the
Employment Period shall be terminated by the Company for any reason <U>other</U>
<U>than</U> (a) for Cause, (b) as a result of the Executive&#146;s resignation, or (c) as
a result of the death or Permanent Disability of the Executive, (collectively, an
&#147;Unjustified Termination&#148;), the Executive shall be entitled to receive (i) an
amount equal to the Executive&#146;s then current Base Salary and the benefits to be
provided to Executive, as set forth in paragraph&#146;s 4.1 and 4.3 (a) hereof, for a six
month period (&#147;Severance Period&#148;) following the Unjustified Termination
(&#147;Severance Pay&#148;), so long as the Executive has not breached and does not breach
the provisions of Sections 6, 7, 8 or 9 of the Agreement and has executed a release in a
form mutually agreeable to both parties. Such Severance Pay shall immediately be reduced
dollar for dollar by the amount of any salary or other compensation received by the
Executive during the Severance Period from any other entity or Person. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.3
<U>Justified Termination</U>. If the Employment Period shall be terminated by the Company
for (a) Cause, (b) as a result of the Executive&#146;s resignation, or (c) as a result of
the death or permanent disability of the Executive (collectively, a &#147;Justified
Termination&#148;), the Executive shall be entitled to receive his Base Salary through the
date of termination and reimbursement of all Reimbursable Expenses incurred by the
Executive prior to the termination of the Employment Period. A termination for Cause shall
become effective on the date designated by the Company. In the case of Justified
Termination, Executive shall not be eligible to receive, and the Company shall not be
required to pay, any Severance Pay pursuant to Section 5.2 hereof. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.4
<U>Benefits.</U> Except as otherwise required by law, all of the Executive&#146;s rights
to benefits under the Agreement, if any, accruing after the termination of the Employment
Period as a result of a Justified Termination will cease upon such Justified Termination. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section
6</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <U>Nondisclosure and Non-Use of Confidential Information</U>. The Executive will
not at any time disclose or use any Confidential Information of which the Executive is or
becomes aware, during the term of his Employment and for two years thereafter, whether or
not such information is developed by him, except to the extent that such disclosure or use
is directly related to and required by the Executive&#146;s performance of duties assigned
to the Executive pursuant to the Agreement. The Executive will take all appropriate steps
to safeguard Confidential Information and to protect it against disclosure, misuse,
espionage, loss and theft. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section
7</U>.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <U>Ownership of Intellectual Property</U>.In the event that the Executive, as part
of his activities on behalf of the Company or any Subsidiary of the Company, generates,
authors, or contributes to any service, design, new development, device, product, method,
trade secret or process (whether or not patentable or reduced to practice or compromising
Confidential Information) or any other form of Confidential Information relating directly
or indirectly to the business of the Company or any Subsidiary as now or hereinafter
conducted (collectively, &#147;Intellectual Property&#148;), the Executive acknowledges
that such Intellectual Property is and shall be the sole and exclusive property of the
Company and its Subsidiaries, and hereby assigns all right, title and interest in and to
such Intellectual Property to the Company. Any copyrightable work prepared in whole or in
part by the Executive will be deemed &#147;a work made for hire&#148; under Section 201(b)
of the Copyright Act of 1976, as amended, and the Company will own all of the rights
comprised in the copyright herein. The Executive will promptly and fully disclose all
Intellectual Property and will cooperate with the Company and its Subsidiaries to protect
the Company&#146;s interests in and rights to such Intellectual Property (including
providing reasonable assistance in securing patent protection and copyright registrations
and executing all documents as reasonably requested by the Company or its Subsidiaries),
whether such requests occur prior to or after termination of the Executive&#146;s
employment hereunder. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section
8</U>. <U>Delivery of Materials upon Termination of Employment</U>. As requested by the
Company from time to time and upon the termination of the Executive&#146;s employment with
the Company for any reason, the Executive will promptly deliver to the Company all copies
and embodiments, in whatever form or medium, of all Confidential Information or
Intellectual Property in the Executive&#146;s possession or within his control (including,
without limitation, any written records, notes, photographs, manuals, notebooks,
documentation, program listings, flow charts, projections, customer or supplier lists,
magnetic media, disks, diskettes, tapes and all other materials containing any
Confidential Information or Intellectual Property) irrespective of the location or form of
such material and, if requested by the Company, will provide the Company with written
confirmation that all such materials have been delivered to the Company. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section
9.</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <U>Non-Competition</U>. The Executive covenants and agrees that during his
employment by the Company, and for a period of two (2) years following the termination for
any reason of such employment either directly or indirectly, without the prior written
consent of the Company, on his own behalf or in the service or on behalf of others serve
anywhere in the United States as an owner, manager, stockholder (except as a holder of no
more than l% of the issued and outstanding stock of a publicly traded company),
consultant, director, officer or employee of any business entity that provides, develops
or sells PBM Services that are similar to or competitive to those provided, offered or
sold by the Company; and for a period of two (2) years following the termination for any
reason of such employment the Executive shall not, either directly or indirectly (i)
solicit or divert or appropriate to or for any competing business, or (ii) attempt to
solicit, divert or appropriate to or for any competing business, any PBM Services offered,
sold or provided by the Company to or from those entities who are now clients of the
Company, joint venturers, or partners with the Company or parties to which Company has
submitted a proposal to offer any products or services to customers of Third Party Clients
within six (6) months prior to such termination. As used herein, &#147;Third Party
Clients&#148; shall mean those institutions and businesses whose clients, customers or
members are solicited by the Company for the purchase of PBM services. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section
10.</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <U>Agreement Not to Solicit Employees.</U>The Executive covenants and agrees that
during his employment by the Company, and for a period of three (3) years following
termination, for any reason, of such employment, he will not, either directly or
indirectly, on his own behalf or in the service or on behalf of others, solicit, divert or
hire away, or attempt to solicit, divert or hire away, to any competing business any
person employed by the Company, whether or not such employee is a full-time employee or a
temporary employee of the Company, and whether or not such employment is pursuant to
written agreement and whether or not such employment is for a determined period or is at
will. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section
11.</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <U>Affiliates; Equitable Relief.</U> It is expressly understood that the
provisions and limitations of Sections 6, 7, 8, 9 and 10 above shall apply to and with
respect to any and all Confidential Information, Intellectual Property, employees and
businesses of the Company and any of their subsidiaries or affiliates, as if such Persons
and their Confidential Information, Intellectual Property, employees and businesses were
expressly named and described herein. The Executive acknowledges that a breach or
threatened breach by his of any of his covenants contained in Sections 6, 7, 8, 9 or 10 of
the Agreement could cause irreparable harm to the Company and their respective affiliates,
for which it or they would have no adequate remedy at law. Accordingly, and in addition to
any remedies which the Company or their affiliates may have at law, in the event of an
actual or threatened breach by the Executive of his covenants contained in Sections 6, 7,
8, 9 or 10 of the Agreement, the Company and their affiliates shall have the absolute
right to apply to any court of competent jurisdiction for such injunctive or other
equitable relief as such court may deem necessary or appropriate in the circumstances. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section
12.</U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <U>No Prior Agreements</U>. The Executive hereby represents and warrants to the
Company that the execution of the Agreement by Executive, his employment by the Company,
and the performance of his duties hereunder will not violate or be a breach of any
agreement with a former employer, client, or any other Person. Further, Executive agrees
to indemnify and hold harmless the Company and its officers, directors, and
representatives for any claim, including, but not limited to, reasonable attorney&#146;s
fees and expenses of investigation, of any such third party that such third party may now
have or may hereafter come to have against the Company or such other persons, based upon
or arising out of any non-competition agreement, invention, secrecy, or other agreement
between Employee and such third party that was in existence as of the date of the
Agreement. To the extent that Employee had any oral or written employment agreement or
understanding with the Company, the Agreement shall automatically supersede such agreement
or understanding, and upon execution of the Agreement by Employee and the Company, such
prior agreement or understanding automatically shall be deemed to have been terminated and
shall be null and void. </FONT></P>

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<A NAME=A007></A>
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Section
13.</U> &nbsp;&nbsp;&nbsp; <u> Miscellaneous.</U> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.1
<U>Remedies.</U> The Company and the Executive will have all rights and remedies set forth
in the Agreement, all rights and remedies which the Company has been granted at any time
under any other agreement or contract and all of the rights which the Company has under
any law. The Company will be entitled to enforce such rights specifically, without posting
a bond or other security, to recover damages by reason of any breach of any provision of
the Agreement and to exercise all other rights granted by law or available in equity. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.2
<U>Waivers and Amendments</U>. The provisions of the Agreement may be amended or waived
only by a written agreement executed and delivered by the Company and the Executive. No
other course of dealing between the parties to the Agreement or any delay in exercising
any rights hereunder will operate as a waiver of any rights of any such parties. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.3
<U>Successors and Assigns.</U> All covenants and agreements contained in the Agreement by
or on behalf of any of the parties hereto will bind and inure to the benefit of the
parties and their respective heirs, executors, administrators, personal representatives,
successors and assigns, whether so expressed or not; <U>provided</U> that the Executive
may not assign his rights or delegate his obligations under the Agreement without the
written consent of the Company. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.4
<U>Severability.</U> Whenever possible, each provision of the Agreement will be
interpreted in such manner as to be effective and valid under applicable law, but if any
provision of the Agreement is held to be prohibited by or invalid under applicable law,
such provision will be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of the Agreement. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.5
<U>Counterparts.</U> The Agreement may be executed simultaneously in two or more
counterparts, any one of which need not contain the signatures of more than one party, but
all of which counterparts taken together will constitute one and the same agreement. </FONT></P>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.6
         <U>   Descriptive Headings.</U>   The descriptive headings of the Agreement are inserted for convenience only and do not
constitute a part of the Agreement. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.7
<U>Notices.</U> All notices, demands or other communications to be given or delivered
under or by reason of the provisions of the Agreement will be in writing and will be
deemed to have been given when delivered personally to the recipient, two business days
after the date when sent to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands, and other communications will be
sent to the Executive and to the Company at the addresses set forth below. </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=20%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>&nbsp;If
to the Executive:</I>  <BR><BR>                          Mr. Bill Masters<BR>
                                             1560 Roberts Hill Drive<BR>                            Richmond,
KY 40475 </FONT>
</TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=20%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>

<A NAME=A008></A><I>If
to the Company:</I><BR><BR>

                           National Medical Health Card Systems, Inc.<BR>
                           26 Harbor Park Drive<BR>
                           Port Washington, NY 10050 <BR>
                           Attn:  Jonathan Friedman, Esq. </FONT>
</TD>
</TR>
</TABLE>
<BR>
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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=20%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>With
a copy to (which shall not constitute notice): </I><BR><BR>

                           National Medical Health Card Systems, Inc.<BR>
                           26 Harbor Park Drive<BR>
                           Port Washington, NY 10050<BR>
                           Attn: Joseph Fallarino</FONT>
</TD>
</TR>
</TABLE>
<BR>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Or to such other address or to the
attention of such other Person as the recipient party has specified by prior written
notice to the sending party. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.8
<U>No Third Party Beneficiary</U>. The Agreement will not confer any rights or remedies
upon any person other than the Company, the Executive and their respective heirs,
executors, administrators, personal representatives, successors and permitted assigns. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.9
<U>Entire Agreement.</U> The Agreement constitutes the entire agreement among the parties
and supersedes any prior understandings, agreements or representations by or among the
parties, written or oral, that may have related in any way to the subject matter hereof. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.10
<U>Construction.</U> The language used in the Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rule of strict construction
will be applied against any party. Any reference to any federal, state, local or foreign
statute or law will be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The use of the word
&#147;including&#148; in the Agreement means &#147;including without limitation&#148; and
is intended by the parties to be by way of example rather than limitation. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.11
<U>Survival.</U> Sections 6, 7, 8, 9, 10 and 11 of the Agreement will survive and continue
in full force in accordance with their terms notwithstanding any termination of the
Employment Period. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.12
<U>Governing Law</U>. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW, AND NOT THE LAW OF
CONFLICTS, OF THE STATE OF NEW YORK. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN
WITNESS WHEREOF, the parties hereto have executed the Agreement as of the date first above
written. </FONT></P>

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<TD WIDTH=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.</B><BR><BR>
<BR>BY: /s/James F. Smith<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
James F. Smith<BR>President</FONT> </TD>
</TR>
</TABLE>
<BR>
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<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B></B><BR><BR>
<BR> /s/ Bill Masters<BR>&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;&#151;<BR>
Bill Masters<BR></FONT></TD>
</TR>
</TABLE>
<BR>

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