EXHIBIT 10.18 

EMPLOYMENT AGREEMENT 

        TheEmployment Agreement dated as of August 30, 2004 (the “Effective Date”) is byand between National Medical Health Card Systems, Inc., a Delaware corporation (the“Company”), and James F. Smith (the “Executive”). 

        WHEREAS,the Company is engaged in providing comprehensive prescription benefit management servicesto the general commercial market; and 

        WHEREAS,the Company desires to employ the Executive pursuant to the terms and conditions set forthherein; and 

        WHEREAS,The Executive desires to enter into employment with the Company on the terms andconditions set forth herein. 

        NOW,THEREFORE, in consideration of the mutual promises, terms, covenants and conditions setforth herein, and the performance of each, the parties, intending legally to be bond,hereby agree as follows: 

AGREEMENTS 

        “BaseSalary” has the meaning set forth in Section 4.1. 

        “Board”means the Board of Directors of the Company as the same is constituted from time to time. 

        “Cause” 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 materialproperty of the Company or any other Person, (i) theft, (ii) embezzlement, (iii) fraud,(iv) misappropriation of material property under applicable law, or (v) wilfulnon-disclosure and misappropriation of any corporate opportunity, (b) the arrest orindictment of the Executive of a crime resulting in material injury to the business orproperty of the Company or of moral turpitude , (c) the performance by the Executive ofhis duties pursuant to this Agreement in a manner that is to be negligent or (d) thematerial breach by the Executive of the Agreement, including but not limited to thefailure by the Executive to follow all reasonable and lawful directions of the Board orthe Chairman of the Company as to any material matter or the taking of any action by theExecutive that would be reasonably likely to cause material injury to the Company or thatwould be in conflict with any material interest to the Company, which breach if curable,shall not have been cured by the Executive within (10) days of receipt of written noticeof said material breach. 

        “Changeof Control” means any consolidation or merger of the Company with or into anothercompany where the Company is not the survivor or the conveyance of all or substantiallyall of the assets of the Company to another company or a change of ownership of more than50% of the Company’s common stock. 

        “ConfidentialInformation” means information that is not generally known to the public and thatwas 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, includingoperating systems, applications and program listings, (g) flow charts, manuals anddocumentation, (h) data bases, (i) accounting and business methods, (j) inventions,devices, new developments, methods and processes, whether patentable or unpatentable andwhether or not reduced to practice, (k) customers and clients and customer or clientlists, (l) other copyrightable works, (m) all technology and trade secrets, and (n) allsimilar and related information in whatever form or medium. Confidential Information doesnot include any information that has been published in a form generally available to thepublic prior to the date of disclosure or use of such information. Information will not bedeemed to have been published merely because individual portions of the information havebeen separately published, but only if all material features comprising such informationhave been published in combination. 

        “EmploymentPeriod” has the meaning set forth in Section 2 and Section 5 of the Agreement. 

        “Executive”means James F. Smith. 

        “IntellectualProperty” has the meaning set forth in Section 7 of the Agreement. 

        “PBMServices” shall mean, services associated with the prescription benefitmanagement business, including but not limited to: (i) claims administration, (ii)establishment and administration of a pharmacy network and benefits, (iii) mail orderpharmacy services (by phone, fax or internet), (iv) drug utilization review, (v) diseasestate management and delivery of specialty pharmacy benefits, (vi) formulary creation andadministration, (vii) rebate negotiation and administration, and (viii) therapeuticsubstitution programs. 

        “PermanentDisability” shall have occurred if as a result of physical or mental incapacity,the Employee shall have been incapable of performing Employee’s essential dutieshereunder for a period in excess of 13 consecutive weeks in any calendar year, or anaggregate of 26 weeks in any 12 month period. 

        “Person”means an individual, a partnership, a corporation, a limited liability company, anassociation, a joint stock company, a trust, a joint venture, an unincorporatedorganization and a governmental entity or any department, agency or political subdivisionthereof. 

        “ReimbursableExpenses” has the meaning set forth in Section 4.5 of the Agreement. 

        “Subsidiary”means, with respect to any Person, any corporation, partnership, limited liabilitycompany, association or other business entity of which (a) if a corporation, a majority ofthe total voting power of shares of stock entitled (without regard to the occurrence ofany contingency) to vote in the election of directors, managers or trustees thereof is atthe time owned or controlled, directly or indirectly, by that Person or a combinationthereof, or (b) if a partnership, limited liability company, association or other businessentity, a majority of the partnership or other similar ownership interests thereof is atthe time owned or controlled, directly or indirectly, by that Person or one or moreSubsidiaries of the Person or a combination thereof. For purposes of the Agreement, aPerson 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 Personsare allocated a majority of partnership, limited liability company, association or otherbusiness entity gains or losses or control the managing director or member or generalpartner of such partnership, limited liability company, association or other businessentity. 

        Section2.Employment. The Company hereby employs the Executive, and the Executivehereby accepts employment with the Company, upon the terms and conditions set forth in theAgreement, for the period provided in Section 5. 

*      Section3. Position and Duties.*

        3.1Position. During the Employment Period, the Executive will serve as President andChief Executive Officer of Company and will perform such executive and management dutiesas may, from time to time, be determined and assigned to the Executive by the Board ofDirectors of the Company or its designee. 

        3.2Performance of Duties; Other Activities. The Executive shall devote his full andbest 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 dutiesand responsibilities to the best of his abilities in a diligent, trustworthy, businesslikeand efficient manner. The Executive shall do such traveling as may reasonably be requiredin connection with the performance of his duties and responsibilities hereunder. 

        3.3 Reporting. The Executive will report to the Board of Directors of the Company.

*      Section4. Base Salary and Benefits.*

        4.1Base Salary. During the Employment Period, the Executive’s base salary will beat the rate of $325,000 per annum (the “Base Salary”), plus increases theCompensation Committee of the Board of Directors approves in its sole discretion from timeto time, which Base Salary will be payable by the Company in regular installments inaccordance with the general payroll practices of the Company as in effect from time totime. 

        4.2Bonus. In addition to the Base Salary, the Executive shall be eligible for annualbonuses (the “Bonus”), in accordance and payable with the Company’sExecutive Management Bonus Plan. 

    (a)                 Executive shall be eligible to receive 75% of Base Salary as an annual cash          bonus, provided 100% of predetermined performance targets have been achieved.          Performance targets are established by the Compensation Committee and by the          Board of Directors of the Company each year. Factors that will typically be          considered are sales growth, net income, return on equity and new positions of          leadership created by Executive within the Company. Moreover, Executive may earn          up to 112% of Executive’s Base Salary for accomplishing extraordinary          achievements. For the purposes of this section extraordinary achievements shall          mean achievement of 150% of Board of Director’s predetermined performance          targets performance or other achievements as determined by the Board of          Directors in its sole discretion; and 

    (b)                 Pursuant to the Company’s Executive 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’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’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. 

        4.3Benefits. In addition to the Base Salary and Bonus described above, theExecutive shall be entitled to the following further benefits during the EmploymentPeriod: 

    (a)                 such major medical, dental, life insurance and disability insurance coverage          (collectively, “Benefits”) 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’s current benefit plans (a 30 day          waiting period applies to the Company’s 401K plan); and 

    (b)                 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 

    (c)                 a car allowance in the amount of $600.00 per month; and 

    (d)                 A relocation bonus of $5,000 to cover the cost of moving incidentals and other          out-of –pocket expenses; and 

     (e)              reimbursement of relocation expenses as follows: 

    (i)                 Full reimbursement for packing and transportation of household goods. 

    (ii)                 Provision of temporary housing at one of the NMHC corporate homes located within          a short distance from the Company’s headquarters, for up to six months, or          longer if agreed to by the Company. 

    (iii)                 Reimbursement of house hunting trips for Executive and spouse, to include          travel, lodging, meals and any other forms of out-of-pocket expenses, consistent          with the Company’s expense policy. 

    (iv)                 Full reimbursement for any real estate brokerage commission paid by Executive in          connection with the sale of his primary residence. However, in the event that          Executive, for whatever reason, is no longer employed by the Company prior to          the second anniversary of this Agreement, Executive shall reimburse to the          Company the amount of the commission paid to Executive or broker in connection          with this paragraph. 

    (v)                 Company shall “gross-up” reimbursements made pursuant to this          paragraph (e) if, for federal and state tax purposes, such reimbursements are          imputed as income to Executive. 

        4.5Expenses. The Company shall reimburse the Executive for any and allreasonable expenses incurred by him in the course of performing him duties under theAgreement which are consistent with the Company’s policies in effect from time totime with respect to travel, entertainment and other business expenses (“ReimbursableExpenses”), subject to the Company’s requirements with respect to reporting anddocumentation of expenses. 

        4.6Employee Stock Options. O>n the Effective Date (as definedherein), Executive shall be granted stock options of the Company (“Initial OptionGrant”) pursuant to the Company’s 1999 Stock Option Plan. The Stock OptionAgreement regarding the Initial Option Grant is attached hereto as Exhibit A. All StockOptions granted under this Agreement are intended to qualify as incentive stock optionsunder Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”),subject to the limitations of Section 422 of the Code. 

      *Section5. Term and Termination.*

        5.1Term. The Executive’s full-time employment hereunder shall commence upon theEffective Date, and, unless renewed or modified by written agreement between the Companyand the Executive, the Employment Period will terminate on the second anniversaryfollowing the Effective Date (the “Employment Period”) provided, that (a) theEmployment Period shall terminate prior to such date upon the Executive’sresignation, death or Permanent Disability and (b) the Employment Period may be terminatedby 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 forsuccessive additional terms of one (1) year each (upon the expiration of the EmploymentPeriod) unless either party, upon thirty days written notice, notifies the other of itsintention not to renew the Agreement. The renewal term shall be subject to the right ofeither party to terminate this Agreement by giving not less than thirty (30) days priorwritten 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. 

        5.2Unjustified Termination. Except as otherwise provided in Section 5.3 below,if the Employment Period shall be terminated by the Company for any reason other than (a)for Cause, (b) as a result of the Executive’s resignation, or (c) as a result of thedeath or Permanent Disability of the Executive, or (d) if the Company fails to renew thisAgreement as provided for in Section 5.1 (collectively, an “UnjustifiedTermination”), the Executive shall be entitled to receive (i) an amount equal to theExecutive’s then current Base Salary and the benefits to be provided to Executive, asset forth in paragraph’s 4.1 and 4.4 (a) hereof, for a two (2) year period(“Severance Period”) following the Unjustified Termination (“SeverancePay”), so long as the Executive has not breached and does not breach the provisionsof Sections 6, 7, 8 or 9 of the Agreement and has executed a release in a form mutallyagreeable to both parties. 

        5.3Justified Termination.If the Employment Period shall be terminated by theCompany for (a) Cause, (b) as a result of the Executive’s resignation, or (c) as aresult of the death or permanent disability of the Executive (collectively, a“Justified Termination”), the Executive shall be entitled to receive his BaseSalary through the date of termination and reimbursement of all Reimbursable Expensesincurred by the Executive prior to the termination of the Employment Period. A terminationfor Cause shall become effective on the date designated by the Company. In the case ofJustified Termination, Executive shall not be eligible to receive, and the Company shallnot be required to pay, any Severance Pay pursuant to Section 5.2 hereof. 
        5.4Benefits. Except as otherwise required by law, all of the Executive’srights to benefits under the Agreement, if any, accruing after the termination of theEmployment Period as a result of a Justified Termination will cease upon such JustifiedTermination. 
        Section6. Nondisclosure and Non-Use of Confidential Information. The Executive will not at any time disclose or use any ConfidentialInformation of which the Executive is or becomes aware, during the term of his Employmentand for two years thereafter, whether or not such information is developed by him, exceptto the extent that such disclosure or use is directly related to and required by theExecutive’s performance of duties assigned to the Executive pursuant to theAgreement. The Executive will take all appropriate steps to safeguard ConfidentialInformation and to protect it against disclosure, misuse, espionage, loss and theft. 

        Section7. Ownership of Intellectual Property.In the event thatthe Executive, as part of his activities on behalf of the Company or any Subsidiary of theCompany, generates, authors, or contributes to any service, design, new development,device, product, method, trade secret or process (whether or not patentable or reduced topractice or compromising Confidential Information) or any other form of ConfidentialInformation relating directly or indirectly to the business of the Company or anySubsidiary as now or hereinafter conducted (collectively, “IntellectualProperty”), the Executive acknowledges that such Intellectual Property is and shallbe the sole and exclusive property of the Company and its Subsidiaries, and hereby assignsall right, title and interest in and to such Intellectual Property to the Company. Anycopyrightable work prepared in whole or in part by the Executive will be deemed “awork made for hire” 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. TheExecutive will promptly and fully disclose all Intellectual Property and will cooperatewith the Company and its Subsidiaries to protect the Company’s interests in andrights to such Intellectual Property (including providing reasonable assistance insecuring patent protection and copyright registrations and executing all documents asreasonably requested by the Company or its Subsidiaries), whether such requests occurprior to or after termination of the Executive’s employment hereunder. 

        Section8. Delivery of Materials upon Termination of Employment. As requested by the Company from time to time and upon thetermination of the Executive’s employment with the Company for any reason, theExecutive will promptly deliver to the Company all copies and embodiments, in whateverform or medium, of all Confidential Information or Intellectual Property in theExecutive’s possession or within his control (including, without limitation, anywritten 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 IntellectualProperty) irrespective of the location or form of such material and, if requested by theCompany, will provide the Company with written confirmation that all such materials havebeen delivered to the Company. 

        Section9. Non-Competition. The Executive covenants and agrees that during hisemployment by the Company, and for a period of two (2) years following the termination forany reason of such employment or for the period of time Executive is receiving severanceor compensation from the Company, whichever is longer, either directly or indirectly,without the prior written consent of the Company, on his own behalf or in the service oron 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 publiclytraded company), consultant, director, officer or employee of any business entity thatprovides, develops or sells PBM Services that are similar to or competitive to thoseprovided, offered or sold by the Company; and for a period of two (2) years following thetermination for any reason of such employment the Executive shall not, either directly orindirectly (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 PBMServices offered, sold or provided by the Company to or from those entities who are nowclients of the Company, joint venturers, or partners with the Company or parties to whichCompany has submitted a proposal to offer any products or services to customers of ThirdParty Clients within six (6) months prior to such termination. As used herein, “ThirdParty Clients” shall mean those institutions and businesses whose clients, customersor members are solicited by the Company for the purchase of PBM services. 

        Section10. Agreement Not to Solicit Employees. The Executive covenants and agrees that during his employment by the Company, and for a periodof two (2) 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 competingbusiness any person employed by the Company, whether or not such employee is a full-timeemployee or a temporary employee of the Company, and whether or not such employment ispursuant to written agreement and whether or not such employment is for a determinedperiod or is at will. 

        Section11. Affiliates; Equitable Relief. It is expresslyunderstood that the provisions and limitations of Sections 6, 7, 8, 9 and 10 above shallapply 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 ifsuch Persons and their Confidential Information, Intellectual Property, employees andbusinesses were expressly named and described herein. The Executive acknowledges that abreach 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 respectiveaffiliates, for which it or they would have no adequate remedy at law. Accordingly, and inaddition to any remedies which the Company or their affiliates may have at law, in theevent of an actual or threatened breach by the Executive of his covenants contained inSections 6, 7, 8, 9 or 10 of the Agreement, the Company and their affiliates shall havethe absolute right to apply to any court of competent jurisdiction for such injunctive orother equitable relief as such court may deem necessary or appropriate in thecircumstances. 

        Section12. No Prior Agreements. The Executive hereby represents andwarrants to the Company that the execution of the Agreement by Executive, his employmentby the Company, and the performance of his duties hereunder will not violate or be abreach 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, reasonableattorney’s fees and expenses of investigation, of any such third party that suchthird party may now have or may hereafter come to have against the Company or such otherpersons, 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 thedate of the Agreement. To the extent that Employee had any oral or written employmentagreement or understanding with the Company, the Agreement shall automatically supersedesuch agreement or understanding, and upon execution of the Agreement by Employee and theCompany, such prior agreement or understanding automatically shall be deemed to have beenterminated and shall be null and void. 

*      Section13. Miscellaneous.*

        13.1Remedies. The Company and the Executive will have all rights and remediesset forth in the Agreement, all rights and remedies which the Company has been granted atany time under any other agreement or contract and all of the rights which the Company hasunder any law. The Company will be entitled to enforce such rights specifically, withoutposting a bond or other security, to recover damages by reason of any breach of anyprovision of the Agreement and to exercise all other rights granted by law or available inequity. 

        13.2Waivers and Amendments. The provisions of the Agreement may beamended or waived only by a written agreement executed and delivered by the Company andthe Executive. No other course of dealing between the parties to the Agreement or anydelay in exercising any rights hereunder will operate as a waiver of any rights of anysuch parties. 

        13.3Successors and Assigns. All covenants and agreements containedin the Agreement by or on behalf of any of the parties hereto will bind and inure to thebenefit of the parties and their respective heirs, executors, administrators, personalrepresentatives, successors and assigns, whether so expressed or not; provided that theExecutive may not assign his rights or delegate his obligations under the Agreementwithout the written consent of the Company. 

        13.4Severability. Whenever possible, each provision of the Agreement will beinterpreted in such manner as to be effective and valid under applicable law, but if anyprovision 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. 

        13.5Counterparts. The Agreement may be executed simultaneously in two or morecounterparts, any one of which need not contain the signatures of more than one party, butall of which counterparts taken together will constitute one and the same agreement. 

        13.6DescriptiveHeadings. The descriptive headings of the Agreement areinserted for convenience only and do not constitute a part of the Agreement. 

        13.7Notices. All notices, demands or other communications to be given ordelivered under or by reason of the provisions of the Agreement will be in writing andwill be deemed to have been given when delivered personally to the recipient, two businessdays after the date when sent to the recipient by certified or registered mail, returnreceipt requested and postage prepaid. Such notices, demands, and other communicationswill be sent to the Executive and to the Company at the addresses set forth below. 
 If to Executive:
 Mr. James F. Smith