Document:

Ex-10.26

 

EXHIBIT
10.26

DEPARTURE AGREEMENT AND GENERAL RELEASE

(PLEASE READ CAREFULLY. THIS DEPARTURE AGREEMENT AND GENERAL RELEASE HAS IMPORTANT LEGAL
CONSEQUENCES.)

     This Departure Agreement and General Release (this “Agreement”) is between National Medical
Health Card Systems, Inc. (the “Company”) and Tery Baskin (“Employee”) and is a complete, final and
binding settlement of all claims and potential claims, if any, with respect to their employment
relationship. Employee and the Company may sometimes be referred to collectively as the “Parties.”

          WHEREAS, the Company and Employee are parties to an Employment Agreement dated on or about
June 4, 2001 (the “Employment Agreement”); and

          WHEREAS, the Company and Employee have agreed on certain terms and conditions regarding the
termination of employment under the Employment Agreement;

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, be it
agreed as follows:

     1. As of May 21, 2007, Employee’s employment relationship with the Company will
terminate (the “Termination Date”). This Agreement has been presented to Employee on or
before the Termination Date.

     2. In consideration for the covenants and promises set forth herein, following the
execution of the Agreement by Employee ( the “Execution Date”):

     (a) The Company will pay Employee’s present salary for twelve months (such
period to be referred to as the “Severance Period”), but only so long as Employee
has not breached and does not breach the provisions of paragraphs 6 through 11 of
the Employment Agreement, for a total sum not to exceed $230,000, payable in
twenty-six bi-weekly installments of $8,846.15 in accordance with the Company’s
general payroll practices, less applicable federal, state, and local legally
required deductions and less any deductions authorized by Employee to pay his
portion to continue group health coverage.

     (b) Employee has received all accrued salary through the Termination Date in
accordance with the Company’s general payroll practices, less applicable federal,
state, and local legally required deductions.

     (c) Provided that Employee does not violate paragraphs 6 through 11 of the
Employment Agreement and provided that Employee provides any assistance reasonably
requested by the Company in connection with the renewal of such contracts, the
Company will pay Employee a commission (the “Commission Payments”) equal to three
cents per net paid claim for the Arkansas

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State Employees account (“ASE”) and State of Arkansas Public School account
(“SAPS”), for each net paid claim submitted during the period commencing on the 2007
renewal dates of each such account and ending on the third anniversary of the 2007
renewal dates. The Commission Payments shall not exceed a total of $83,333 per
calendar year, and the total Commission Payments shall be no greater than $250,000.
Each Commission Payment will be made on a quarterly basis and will be paid by the
sixtieth day following each calendar quarter, and each Commission Payment shall be
paid only if Employee has continued to provide any assistance reasonably requested
by the Company in connection with such accounts and has otherwise not breached this
Agreement. Such payments will be subject to withholding if and as required by law.
Any dispute arising out of or relating to the Commission Payments shall be submitted
to binding arbitration by a party’s giving written notice to such effect to the
other party and the office of the American Arbitration Association (the “AAA”) in
New York, New York. Arbitration of such controversy, disagreement, or dispute shall
be conducted by a single arbitrator in accordance with the Federal Arbitration Act
and the Employment Arbitration Rules of the AAA.

     (d) For the period for which Employee is eligible to continue benefits under
the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), so long as Employee
has not breached and does not breach the provisions of paragraphs 6 through 11 of
the Employment Agreement, the Company will pay the Company’s portion of the premiums
as of the date of this Agreement ($7,121 per annum, subject to adjustment at the
renewal date in February 2008) for Employee’s medical, dental and prescription
coverage from the Termination Date through the end of such period of eligibility but
not to exceed the earlier of the date that (x) Employee is employed by an employer
offering health coverage or (y) the end of the Severance Period. In addition, the
Company will assign its interest in the life insurance policy purchased with respect
to Employee within thirty (30) days of the execution of this Agreement and waive any
claim to reimbursement for premiums paid.

     (e) Employee has received all reimbursable expenses pursuant to the Company’s
Travel & Entertainment policy incurred through the Termination Date and submitted
within thirty (30) days after the Termination Date.

     (f) Employee has received all accrued vacation pay to which Employee is
entitled through and including the Termination Date, which amount is $11,315.34.

     (g) The Company will reimburse Employee for attorney’s fees reasonably incurred
in the review and execution of this Agreement, not to exceed $5,000. Such request
for reimbursement must be submitted no later than thirty (30) days after the
signature of Employee and the Company to this Agreement and will be paid within
thirty (30) days after Employee presents a summary invoice for such services.

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     (h) Employee acknowledges and agrees that he is not entitled to any additional
wages, bonus payments, benefits or other compensation from the Company except as set
forth herein.

     3. For purposes of the National Medical Health Card Systems, Inc. 1999 Stock Option
Plan, as amended (the “Stock Option Plan”), and the National Medical Health Card Systems,
Inc. Amended and Restated 2000 Restricted Stock Grant Plan (the “Restricted Stock Plan”),
the termination of Employee’s employment will be considered as an involuntary termination
without cause. Accordingly, under the terms of the Stock Option Plan, Employee will have 90
days following the Termination Date to exercise any of his vested options. The Parties
acknowledge that, on the Termination Date, Employee will forfeit and have no further right,
title or interest in or with respect to, any and all non-vested options, shares of
restricted stock and restricted stock unit awards held by Employee under the Stock Option
Plan and/or the Company’s Restricted Stock Plan. Employee affirms the provision of any
Restricted Stock Agreement that the Company shall have the right to instruct the Company’s
transfer agent to transfer any unvested restricted stock to the Company.

     4. Release Provisions.

     (a) As a material inducement to Employee to enter this Agreement, and in
consideration for the Company’s payments to Employee as set forth in this Agreement,
and for other good and valuable consideration, as and for Employee’s complete
release of all statutory, contract, tort and all other claims against the Company
and each of its current and former owners (including, without limitation, New
Mountain Capital, L.L.C., New Mountain Partners, L.P., New Mountain Affiliated
Investors, L.P., and their respective affiliates), predecessors, assigns, employees,
representatives, attorneys, benefit plans, insurers, parent companies, divisions,
subsidiaries, affiliates, directors, managers, partners, members, and officers,
including any and all persons acting by, through, or under or in concert with any of
them (collectively “Releasees”), Employee hereby releases and forever discharges the
Releasees from any all actions, causes of action, suits, dues, sums of money,
reckonings, covenants, contracts, bonuses, controversies, agreements, claims,
promises, charges, obligations, complaints and demands whatsoever in law or equity,
which Employee (and Employee’s heirs, executors, administrators, successors and/or
assigns) may now have or hereafter can, shall, may, or may have had for, upon, or by
reason of any matter, cause or actual or alleged act, omission, transaction,
practice, conduct, occurrence, or other matter up to and including the execution of
this Agreement by Employee, including without limitation, any claim arising out of
or relating to Employee’s employment by the Company and each of its subsidiaries and
affiliated entities, and any and all obligations and liabilities of the Company
under the Employment Agreement, the letter agreement dated November 28, 2005 between
the Company and Employee (to the extent such letter agreement exists and is
effective), or any other agreement between Employee and any of the Releasees,
including, without limitation, any claim for car allowances, club dues, unused
vacation time, or other benefits incident to Employee’s employment, and the
ownership, acquisition,

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offer or sale of, or rights to any equity interest, or any option to purchase
or acquire any equity interest in the Company, excepting only the rights and
obligations (i) created by this Agreement; (ii) that may exist under any
indemnification agreement or the Company’s Certificate of Incorporation and Bylaws,
as amended, to indemnify Employee; (iii) Employee’s rights under state worker’s
compensation laws (for occupational illness or injury only) (iv) Employee’s vested
rights under the Company’s health, dental, pharmacy and 401(k) benefit plans, (v)
any rights, whenever arising, Employee may have in his capacity as a shareholder of
the Company and not arising from his capacity as officer, employee or agent of the
Company; provided, however, that Employee shall neither (A) initiate
any claim based in whole or in part upon Employee’s status as a shareholder of the
Company nor (B) directly or indirectly counsel or encourage another person or entity
to initiate, or voluntarily provide assistance in respect of, any claims based in
whole or in part upon any person’s or entity’s status as a shareholder of the
Company; provided, further, that nothing herein is intended to nor
shall it preclude Employee from providing truthful testimony if under legal
compulsion as a witness regarding any such claim and (vi) any cause of action that
arises in whatever capacity after the date of this Agreement.

     (b) Without limiting the generality of the foregoing, this Agreement is
intended to and shall release Releasees from any and all claims, whether known or
unknown, which Employee ever had, has, or may have against any Releasee with respect
to Employee’s employment, the terms, benefits, and conditions of that employment,
and/or the termination thereof, including without limitation those arising under the
Civil Rights Act of 1866, 42 U.S.C.A. Section 1981, the Civil Rights Act of 1964, as
amended, 42 U.S.C.A. Section 2000e, et seq., the Age Discrimination in Employment
Act of 1967, as amended, 29 U.S.C.A. Section 621 et seq., the National Labor
Relations Act, 29 U.S.C.A. Section 151 et seq., the Fair Labor Standards Act, 29
U.S.C.A. Section 201 et seq., the Labor Management Reporting and Disclosure Act of
1959, as amended, 29 U.S.C.A. Section 401 et seq., the Americans with Disabilities
Act, 42 U.S.C.A. Section 12101, et. Seq., the Constitution and the laws of the
United States and the State of New York, including specifically, New York’s Human
Rights Law, Executive Law Section 290 et seq., or any other federal, state, or local
human rights, civil rights, wage-hour, pension, or labor laws, rules and/or
regulation, public policy, contract or tort law; and any and all claims arising out
of the acquisition, offer or sale of, or rights to any equity interest, or relating
to any option to purchase or acquire any equity interest in the Company, that
Employee has held at any time in the Company or any of its predecessors or
affiliates, including any claims, arising under the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, any federal, state or
local securities law, the rules or regulations promulgated under any of them, or any
doctrine of common law or equity applicable to the ownership, acquisition or sale of
securities or the solicitation of proxies with respect thereto; and any and all
claims for attorneys’ fees, costs, disbursements, or any action similar thereto.

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EMPLOYEE SPECIFICALLY ACKNOWLEDGES AND AGREES THAT BY EXECUTING THIS AGREEMENT, HE
IS WAIVING ALL RIGHTS OR CLAIMS, IF ANY, THAT HE HAS OR MAY HAVE UNDER THE AGE
DISCRIMINATION IN EMPLOYMENT ACT, AS AMENDED. EMPLOYEE FURTHER ACKNOWLEDGES AND
AGREES THAT HIS WAIVER OF SUCH RIGHTS OR CLAIMS IS KNOWING AND VOLUNTARY.

     (c) Employee promises never to initiate, be represented or participate in,
submit or file, or permit to be submitted or filed on or in his behalf, any lawsuit,
charge, claim, complaint or other proceeding against any Releasee with any
administrative agency, court, arbitrator or other forum, based upon claims that were
released pursuant to this Agreement. This covenant not to sue (and the remedies
provided in this Agreement, including those in paragraph 4(d)) does not affect
Employee’s right to test the knowing and voluntary nature of his waiver of rights.
Nothing in this Agreement shall be construed to affect the rights and
responsibilities of the Equal Employment Opportunity Commission, or any other state
or local agency with similar responsibilities (the “Commission”), to enforce any
laws pertaining to employment discrimination or retaliation. Likewise, this waiver
will not be used to justify interfering with the protected right of any employee to
file a charge or participate in an investigation or proceeding conducted by the
Commission; however, Employee waives the right to any benefits or recovery arising
out of any such proceeding.

     (d) Subject to paragraph 4(c), if Employee materially breaches any of his
promises contained in this paragraph 4 by filing a lawsuit or administrative charge
based on claims that he has released, Employee will indemnify the Company and/or any
Releasee for any costs, including reasonable attorneys’ fees, that the Company
and/or any Releasee may incur as the result of Employee’s breach. In addition,
without limiting any other legal or equitable remedy available to the Company under
this Agreement or otherwise, if Employee materially breaches the promises made in
any provision of this Agreement (other than the promises made in paragraph 7 of this
Agreement), (i) the Company shall cease making further payments, if any, pursuant to
paragraph 2 above and (ii) Employee shall forfeit and immediately repay to the
Company the amount of all payments, if any, received pursuant to paragraph 2(a) and
the first sentence of paragraph 2(d) above to the extent such payments received
exceed $115,000.

     (e) The Company represents to Employee that, to the actual knowledge of the
current executive officers of the Company as of the Execution Date, there is no
basis for any lawsuit, charge, claim, complaint or other proceeding by the Company
against Employee.

     5. The Company will honor its obligation to indemnify Employee pursuant to the
Company’s Certificate of Incorporation and Bylaws, as amended (the “Charter Documents”) and
the Company acknowledges that Employee was an officer of the Company for such purposes. In
the event that the provisions of any of the Charter Documents relating to indemnification,
exculpation or advancement of expenses are

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amended after the Execution Date in a manner adverse to Employee, then subject to
applicable law, the Company will indemnify Employee in accordance with the terms of the
Charter Documents as they exist as provided to Employee on July 10, 2007. Nothing contained
in this paragraph will limit or preclude the exercise or be deemed exclusive of any right
under the law, by contract or otherwise, relating to indemnification of or advancement of
expenses to Employee as an employee or officer of the Company or was serving, at the
Company’s request, as a general partner, manager, officer, director, member, limited
partner, trustee, employee or agent of another partnership, association, limited
partnership, limited liability company, corporation, joint venture, trust, employee benefit
plan or other enterprise. Nothing contained in this paragraph will limit the ability of the
Company to otherwise indemnify or advance expenses to Employee.

     6. Employee acknowledges and agrees that, for the time periods set forth in the
Employment Agreement, he shall comply with paragraphs 6 through 11 of the Employment
Agreement and that such provisions shall survive the termination of the Employment
Agreement. Employee acknowledges and agrees that the provisions of paragraphs 6 through 11
of the Employment Agreement are fully enforceable and reasonable to protect the legitimate
business interests of the Company. Furthermore, Employee represents and warrants that he
has returned to the Company any and all identification cards, files, books, records,
materials, equipment or documents in his possession or under his control that were provided
to or obtained by him in connection his employment. The Company acknowledges that for
purposes of the Employment Agreement, ideas, as opposed to expressions of ideas, are not
Inventions (within the meaning of such term as used in the Employment Agreement) and
specifically agrees that the Employee’s ideas of integration of TPA, case management, PBM
and data analysis is not an Invention for the purposes of the Employment Agreement.

     7. Employee further agrees, at all times prior to October 1, 2010, to refrain from
making any statements or comments, whether oral or written to any person or entity that
would tend to disparage or harm the Company; provided, however, that this sentence shall not
be construed to constrain Employee from providing truthful testimony when required by law in
the course of a legal or administrative proceeding. Without limiting any other legal or
equitable remedy available to it under this Agreement or otherwise, the Company shall be
entitled to offset against amounts otherwise payable to Employee pursuant to paragraphs 2(a)
or 2(d) above an amount equal to the amount of any damages the Company suffers resulting
from any such disparaging or harmful remark. Employee understands and agrees that violation
of this paragraph shall be treated as a material breach of this Agreement. Any dispute
arising out of or relating to the Company’s exercise of the offset right provided above
shall be submitted to binding arbitration by a party’s giving written notice to such effect
to the other party and the office of the AAA in New York, New York. Arbitration of such
controversy, disagreement, or dispute shall be conducted by a single arbitrator in
accordance with the Federal Arbitration Act and the Employment Arbitration Rules of the AAA.

     8. The Company expressly agrees that upon its material breach of this Agreement in
addition to the remedy of the benefits provided to Employee under this Agreement, such
breach shall release Employee from any and all restrictions and

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obligations under paragraphs 6 through 11 of the Employment Agreement as well as any
restrictions and obligations under the terms of this Agreement as of the date of such
breach. For purposes of this paragraph, unless Employee shall have failed to comply with
paragraphs 6 through 11 of the Employment Agreement, failure by the Company to strictly
comply with any payment obligation set forth in paragraphs 2(a) and 2(d) above within ten
(10) days after receipt by the Company (at the physical mailing address or facsimile number
set forth in paragraph 12 below, to the attention of the Company’s President) of written
notice from Employee specifying such noncompliance in reasonable detail shall be a material
breach of this Agreement.

     9. Employee expressly agrees that this Agreement is not and shall not in any way be
deemed to constitute an admission or evidence of any breach of contract, wrongdoing or
liability on the part of the Company, nor of any violation of any federal, state or
municipal statute, regulation or principle of common law or equity.

     10. Employee agrees to make himself reasonably available in connection with any
information the Company requires relating to the services Employee had provided to the
Company, including any litigation the Company is or may become involved in to which Employee
has knowledge. The Company agrees to provide Employee with reasonable notice in connection
with any depositions or court appearances where his presence is necessary or reasonably
desirable. The Company shall pay Employee’s travel expenses in this regard. Employee and
the Company shall agree on a reasonable per diem fee for any time Employee is required to
make himself available in person pursuant to this paragraph.

     11. Employee and the Company acknowledge and agree:

     (a) that each of them has read and understands the contents of this Agreement;

     (b) that this Agreement does not waive rights or claims that may arise after
the date that this Agreement is executed;

     (c) that Employee waives rights or claims only in exchange for consideration
that Employee would not be entitled to but for executing this Agreement;

     (d) that the Company has informed Employee that Employee should consult with an
attorney in connection with this Agreement; and

     (e) that Employee’s decision to consult with an attorney or not to consult with
any attorney was made without influence by the Company.

     12. Both Parties understand that Employee shall have 45 days to consider this Agreement
before signing. Both Parties understand that Employee shall have seven (7) days in which to
revoke this Agreement after signing, and that this Agreement shall not become effective or
enforceable until the expiration of seven (7) days after signing (the date of such
expiration, “Effective Date”), and the severance compensation payable

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hereunder (beyond the $115,000 payable under the Employment Agreement) shall not be due
and owing until after the Effective Date set forth herein. To accept the Agreement,
Employee must send a signed copy to Neil Carfagna, National Medical Health Card Systems,
Inc., 26 Harbor Park Drive, Port Washington, New York 11050, (516) 605 6802, (516) 626 4632
(facsimile), NCarfagna@nmhc.com. Any notice of revocation must also be sent such that it is
received prior to the end of the seven day revocation period by Neil Carfagna, National
Medical Health Card Systems, Inc., 26 Harbor Park Drive, Port Washington, New York 11050,
(516) 605 6802, (516) 626 4632 (facsimile), NCarfagna@nmhc.com. Employee also acknowledges
receipt of the following information:

     (a) The group of individuals covered: All employees who hold positions whose
employment is being terminated on or about May 21, 2007.

     (b) Eligibility factors: A severance proposal is being offered to all
employees whose employment is being terminated on or about May 21, 2007.

     (c) Time limits: Each employee who is offered a severance proposal has 45 days
to consider the Agreement and seven (7) days to revoke acceptance after signing.

     (d) Employee acknowledges that Employee has received and reviewed the
information contained in Exhibit “A” to this Agreement. The information in Exhibit
“A” includes the job titles and ages of all individuals from the group of employees
considered for termination on or about May 21, 2007, and whether or not those
employees were selected for termination of employment or otherwise offered a
severance proposal.

     13. This Agreement is made in the State of New York. This Agreement is to be
interpreted under the laws of the State of New York without regard to conflict of laws
principles. The Parties agree that the federal and state courts sitting in Nassau County,
New York, shall be the exclusive venue for the resolution of any dispute arising out of or
relating to this Agreement.

     14. Except as provided in this Agreement, this is the entire agreement between Employee
and the Company and supersedes any and all prior agreements or understandings between the
Parties, whether written or oral, pertaining to Employee’s employment with the Company.
This Agreement may only be amended or modified by a written document signed by both Parties.
The Company has made no promises to Employee other than those in this Agreement.
Notwithstanding anything to the contrary in this paragraph 14, except as explicitly provided
otherwise in this Agreement, (i) paragraphs 6 through 11 of the Employment Agreement, and
(ii) any obligation of the Company under any indemnification agreement or the Company’s
Certificate of Incorporation and Bylaws, as amended and in existence on July 10, 2007, to
indemnify Employee shall survive the execution of this Agreement in accordance with their
respective terms and conditions.

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     15. Should any provision of this Agreement be declared or determined by any court to be
illegal, invalid or unenforceable, the validity of the remaining parts, terms and provisions
shall not be effected thereby and any said illegal, invalid or unenforceable part, terms or
provisions shall be deemed stricken and severed from this Agreement.

     16. The obligations of the Company as set forth in paragraph 2 above shall survive the
death or disability of Employee and upon the death of Employee, payments shall be made to
the estate of Employee or as Employee may otherwise designate in writing to the Company or
in any will or trust executed after the date hereof.

     17. This Agreement may be executed in one or more counterparts, and each effective
counterpart shall be effective as a signed original.

     18. The Company makes no representations to Employee concerning the tax consequences
arising out of any payments under this Agreement, including, without limitation, whether any
of the payments hereunder are subject to 26 U.S.C. § 409A. The Company urges Employee to
obtain his own tax counsel with regard to any tax consequences arising out of or relating to
this Agreement.

     19. EMPLOYEE ACKNOWLEDGES THAT EMPLOYEE HAS CAREFULLY READ THIS AGREEMENT; THAT
EMPLOYEE HAS HAD AT LEAST 45 DAYS IN WHICH TO CONSIDER AND RETURN THIS AGREEMENT; THAT
EMPLOYEE HAS HAD AN OPPORTUNITY TO CONSULT WITH ANY ATTORNEY OF EMPLOYEE’S CHOICE IN
CONNECTION WITH THIS AGREEMENT; THAT EMPLOYEE FULLY UNDERSTANDS THE TERMS, CONDITIONS, AND
SIGNIFICANCE AND CONSEQUENCES OF THIS AGREEMENT; AND THAT EMPLOYEE HAS EXECUTED THIS
AGREEMENT KNOWINGLY AND VOLUNTARILY, AND OF EMPLOYEE’S OWN FREE WILL.

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     IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date below.

NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.

	 	 	 	 	 
	By:
	 	/s/ Thomas W. Erickson	 	 
	 

	 	 	 	 
	 

	 	                        , its authorized representative
	 	 
	 
	 	 	 	 
	Date: August 1, 2007	 	 
	 
	 	/s/ Tery Baskin	 	 
	 	 	 
	Tery

	 	Baskin	 	 

Date:
August 1, 2007

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 Exhibit “A”

	 	 	 	 	 	 	 
	 	 	 	 	 	 	OFFERED SEVERANCE PROPOSAL
	    
             
           JOB TITLE	 	AGE	 	OR NOT (Y/N)
	Chief Human Resource Officer
	 	 	 	51	 	N
	Chief Clinical Officer
	 	 	 	46	 	N
	Chief Specialty Officer
	 	 	 	44	 	N
	Chief Services Officer
	 	 	 	48	 	Y
	Chief Financial Officer
	 	 	 	46	 	N
	Senior Vice President, Sales
	 	 	 	47	 	N
	President and Chief Executive Officer
	 	 	 	58	 	Y
	Chief Marketing Officer
	 	 	 	53	 	Y
	Chief Information Officer
	 	 	 	56	 	Y
	Chief Legal Officer
	 	 	 	37	 	Y
	Vice President Marketing
	 	 	 	44	 	Y
	Controller
	 	 	 	48	 	Y

11Ex-10.29

 

EXHIBIT
10.29

DEPARTURE AGREEMENT AND GENERAL RELEASE

(PLEASE READ CAREFULLY. THIS DEPARTURE AGREEMENT AND GENERAL RELEASE HAS IMPORTANT LEGAL
CONSEQUENCES.)

     This Departure Agreement and General Release (this “Agreement”) is between National Medical
Health Card Systems, Inc. (“Company”) and James F. Smith (“Employee”) and is a complete, final and
binding settlement of all claims and potential claims, if any, with respect to their employment
relationship. Employee and the Company may sometimes be referred to collectively as the “Parties.”

     WHEREAS, the Company and Employee are parties to an Employment Agreement dated on or about
August 30, 2004 (the “Employment Agreement”); and

     WHEREAS, the Company and Employee have agreed on certain terms and conditions regarding the
termination of employment under the Employment Agreement,

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, be it
agreed as follows:

     1. As of May 21, 2007 (the “Termination Date”), Employee’s employment relationship with the
Company and under the Employment Agreement terminated and Employee ceased to be an officer or
manager with the Company (including any and all subsidiaries or affiliated entities). Effective
immediately upon his execution of this Agreement, Employee resigns as a member of the Board of
Directors of the Company (the “Board”).

     2. In consideration for the covenants and promises set forth herein, following the execution
of the Agreement by Employee ( the “Execution Date”):

     (a) Company will pay Employee’s present salary for a period not to exceed two years
from the Termination Date (such period to be referred to as the “Severance Period”), but
only so long as Employee has not breached and does not breach the provisions of paragraphs 6
through 11 of the Employment Agreement, for a total sum not to exceed $750,000, plus a
payment in the amount of $600.00 per month in respect of Employee’s former car payment (the
“Total Severance Amount”), payable as follows: (i) Employee shall receive an amount, in one
lump sum payment within fourteen (14) days after the Execution Date, equal to the portion of
the Total Severance Amount that would have accrued during the period commencing on the
Termination Date and ending on the Execution Date had the Company been obligated to pay
Employee severance payments from and after the Termination Date; and (ii) the remaining
portion of the Total Severance Amount shall be paid in accordance with the Company’s general
payroll practices in bi-weekly payments of $14,423.08 each (plus the $600.00 per month
payment described above) following the Execution Date, in each case less applicable federal,
state, and local legally required deductions and less any deductions authorized by Employee
to pay his portion to continue group health coverage (such lump sum and

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installment payments to become payable only when Employee has executed, and has not
revoked, this Agreement as provided herein).

     (b) Employee received all accrued salary through the Termination Date in accordance
with the Company’s general payroll practices, less applicable federal, state, and local
legally required deductions.

     (c) For the period for which Employee is eligible to continue benefits under the
Consolidated Omnibus Budget Reconciliation Act (“COBRA”), Company will pay the Company’s
portion of the premiums for Employee’s medical, dental, and prescription coverage from the
Termination Date through the end of such period of eligibility but not to exceed the end of
the Severance Period, subject to Employee’s strict compliance with paragraphs 6 through 11
of the Employment Agreement and the terms and provisions of this Agreement.

     (d) In addition, and in lieu of any remaining benefits for health, dental, and
pharmaceutical coverage for the remainder of the Severance Period for which COBRA is not
available, the Company will pay Employee a one-time payment of $19,750, within fourteen (14)
days of the execution of this Agreement.

     (e) Employee received all reimbursable expenses pursuant to the Company’s Travel &
Entertainment policy incurred through the Termination Date and submitted within thirty (30)
days after the Termination Date.

     (f) Employee received all accrued vacation pay to which Employee is entitled through
and including the Termination Date, which amount is $11,893.63.

     (g) The Company will reimburse Employee for attorney’s fees reasonably incurred in the
review and execution of this Agreement, not to exceed $5,000. Such request for
reimbursement must be submitted no later than thirty (30) days after the execution of this
Agreement and will be paid within thirty (30) days after Employee presents a summary invoice
for such services.

     (h) Employee acknowledges and agrees that he is not entitled to any additional wages,
bonus payments, benefits or other compensation from the Company except as set forth herein.

     3. For purposes of the National Medical Health Card Systems, Inc. 1999 Stock Option Plan, as
amended (the “Stock Option Plan”), and the National Medical Health Card Systems, Inc. Amended and
Restated 2000 Restricted Stock Grant Plan (the “Restricted Stock Plan”), the termination of
Employee’s employment will be considered as an involuntary termination without cause. Accordingly,
under the terms of the Stock Option Plan, Employee will have 90 days following the Termination Date
to exercise any of his vested options. The Parties acknowledge that, on the Termination Date,
Employee will forfeit and have no further right, title or interest in or with respect to, any and
all non-vested options, shares of restricted stock and restricted stock unit awards held by
Employee under the Stock Option Plan and/or the Company’s Restricted Stock Plan. Employee affirms
the provision of any Restricted Stock

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Agreement that the Company shall have the right to instruct the Company’s transfer agent to
transfer any unvested restricted stock to the Company.

     4. Release Provisions.

     (a) As a material inducement to the Employee to enter this Agreement, and in
consideration for the Company’s payments to Employee as set forth in this Agreement, and for
other good and valuable consideration, as and for Employee’s complete release of all
statutory, contract, tort and all other claims against the Company and each of its current
and former owners (including, without limitation, New Mountain Capital, L.L.C., New Mountain
Partners, L.P., New Mountain Affiliated Investors, L.P., and their respective affiliates),
predecessors, assigns, employees, representatives, attorneys, benefit plans, insurers,
parent companies, divisions, subsidiaries, affiliates, directors, managers, partners,
members, and officers, including any and all persons acting by, through, or under or in
concert with any of them (collectively “Releasees”), Employee hereby releases and forever
discharges the Releasees from any all actions, causes of action, suits, dues, sums of money,
reckonings, covenants, contracts, bonuses, controversies, agreements, claims, promises,
charges, obligations, complaints and demands whatsoever in law or equity, which Employee
(and Employee’s heirs, executors, administrators, successors and/or assigns) may now have or
hereafter can, shall, may, or may have had for, upon, or by reason of any matter, cause or
actual or alleged act, omission, transaction, practice, conduct, occurrence, or other matter
up to and including the execution of this Agreement by the Employee, including without
limitation, any claim arising out of or relating to the Employee’s employment by the Company
or service on the Board or any similar governing body of the Company and each of its
subsidiaries and affiliated entities, any and all obligations and liabilities of the Company
under the Employment Agreement or any other agreement between the Employee and any of the
Releasees, and the ownership, acquisition, offer or sale of, or rights to any equity
interest, or any option to purchase or acquire any equity interest in the Company, excepting
only the rights and obligations (i) created by this Agreement; (ii) that may exist under any
defense or indemnification agreement or the Company’s Certificate of Incorporation and
Bylaws, as amended, to indemnify Employee; (iii) created by contracts of liability
insurance; (iv) Employee’s rights under state worker’s compensation laws (for occupational
illness or injury only); (v) Employee’s vested rights under the Company’s health, dental,
pharmacy and 401(k) benefit plans; and (vi) any rights, whenever arising, Employee may have
in his capacity as a shareholder of the Company and not arising from his capacity as
officer, director, employee or agent of the Company; provided, however, that
Employee shall neither (A) initiate any claim based in whole or in part upon Employee’s
status as a shareholder of the Company nor (B) directly or indirectly counsel or encourage
another person or entity to initiate, or voluntarily provide assistance in respect of, any
claims based in whole or in part upon any person’s or entity’s status as a shareholder of
the Company; provided, further, that nothing herein is intended to nor shall
it preclude Employee from providing truthful testimony if under legal compulsion as a
witness regarding any such claim.

     (b) Without limiting the generality of the foregoing, this Agreement is intended to and
shall release Releasees from any and all claims, whether known or

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unknown, which Employee ever had, has, or may have against any Releasee with respect to
Employee’s employment, the terms, benefits, and conditions of that employment, and/or the
termination thereof, including without limitation those arising under the Civil Rights Act
of 1866, 42 U.S.C.A. Section 1981, the Civil Rights Act of 1964, as amended, 42 U.S.C.A.
Section 2000e, et seq., the Age Discrimination in Employment Act of 1967, as amended, 29
U.S.C.A. Section 621 et seq., the National Labor Relations Act, 29 U.S.C.A. Section 151 et
seq., the Fair Labor Standards Act, 29 U.S.C.A. Section 201 et seq., the Labor Management
Reporting and Disclosure Act of 1959, as amended, 29 U.S.C.A. Section 401 et seq., the
Americans with Disabilities Act, 42 U.S.C.A. Section 12101, et. Seq., the Constitution and
the laws of the United States and the State of New York, including specifically, New York’s
Human Rights Law, Executive Law Section 290 et seq., or any other federal, state, or local
human rights, civil rights, wage-hour, pension, or labor laws, rules and/or regulation,
public policy, contract or tort law; and any and all claims arising out of the ownership,
acquisition, offer or sale of, or rights to any equity interest, or relating to any option
to purchase or acquire any equity interest in the Company, that Employee has held at any
time in the Company or any of its predecessors or affiliates, including any claims, arising
under the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, any federal, state or local securities law, the rules or regulations promulgated
under any of them, or any doctrine of common law or equity applicable to the ownership,
acquisition or sale of securities or the solicitation of proxies with respect thereto; and
any and all claims for attorneys’ fees, costs, disbursements, or any action similar thereto.

EMPLOYEE SPECIFICALLY ACKNOWLEDGES AND AGREES THAT BY EXECUTING THIS
AGREEMENT, HE IS WAIVING ALL RIGHTS OR CLAIMS, IF ANY, THAT HE HAS
OR MAY HAVE UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT, AS
AMENDED. EMPLOYEE FURTHER ACKNOWLEDGES AND AGREES THAT HIS WAIVER
OF SUCH RIGHTS OR CLAIMS IS KNOWING AND VOLUNTARY.

     (c) Employee promises never to initiate, be represented or participate in, submit or
file, or permit to be submitted or filed on or in his behalf, any lawsuit, charge, claim,
complaint or other proceeding against any Releasee with any administrative agency, court,
arbitrator or other forum, based upon claims that were released pursuant to this Agreement.
This covenant not to sue (and the remedies provided in this Agreement, including those in
paragraph 4(d)) does not affect Employee’s right to test the knowing and voluntary nature of
his waiver of rights. Nothing in this Agreement shall be construed to affect the rights and
responsibilities of the Equal Employment Opportunity Commission, or any other state or local
agency with similar responsibilities (the “Commission”), to enforce any laws pertaining to
employment discrimination or retaliation. Likewise, this waiver will not be used to justify
interfering with the protected right of any employee to file a charge or participate in an
investigation or proceeding conducted by the Commission; however, Employee waives the right
to any benefits or recovery arising out of any such proceeding.

4

 

     (d) Subject to paragraph 4(c), if Employee materially breaches any of his promises
contained in this paragraph 4 by filing a lawsuit or administrative charge based on claims
that he has released, Employee will indemnify the Company and/or any Releasee for any costs,
including reasonable attorneys’ fees, that the Company and/or any Releasee may incur as the
result of Employee’s breach. In addition, if Employee materially breaches the promises made
in any of this Agreement (other than the promises made in paragraph 6 of this Agreement), he
must repay all benefits previously received in accordance with paragraph 2 of this
Agreement, upon the Company’s reasonable demand, and Company shall cease making further
payments, if any, pursuant to paragraph 2 above.

     5. Employee acknowledges and agrees that, for the time periods set forth in the Employment
Agreement, he shall comply with paragraphs 6 through 11 of the Employment Agreement and that such
provisions shall survive the termination of the Employment Agreement. Employee acknowledges and
agrees that the provisions of paragraphs 6 through 11 of the Employment Agreement are fully
enforceable and reasonable to protect the legitimate business interests of the Company.
Furthermore, Employee represents and warrants that he has returned to the Company any and all
identification cards, files, books, records, materials, equipment or documents in his possession or
under his control that were provided to or obtained by him in connection his employment. Without
limiting Employee’s obligations under any other provisions of this Agreement or paragraphs 6
through 11 of the Employment Agreement, for the purposes of paragraph 9 of the Employment
Agreement, the Company agrees that Employee shall not be deemed to be in breach of the provisions
of paragraph 9 of the Employment Agreement solely by reason of Employee accepting employment with
any employer which owns or operates a division or subsidiary providing PBM Services (as defined in
the Employment Agreement), so long as Employee does not directly or indirectly assist with any
aspect of such PBM Services function. At any time following the occurrence of a Change in Control
of the Company, Employee may elect, by delivering written notice to the Company (the “Election
Notice”), to forego and waive any and all rights to receive any further payments under paragraph
2(a) of this Agreement that otherwise would be payable in respect of periods after the date the
Company receives the Election Notice. From and after the date of the Company’s receipt of an
Election Notice following the occurrence of a Change in Control, Employee shall be deemed released
from any further obligations under paragraph 9 of the Employment Agreement and the Company shall be
deemed released from any further obligations under paragraph 2(a) of this Agreement. As used in
this paragraph, a “Change in Control” shall mean:

     • the transfer, through one transaction or a series of related transactions,
either directly or indirectly, or through one or more intermediaries, of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Securities and Exchange
Act of 1934) of 50% or more of either the then outstanding shares of the Company’s common
stock, $0.001 par value per share (the “Common Stock”) or the combined voting power of the
Company’s then outstanding voting securities entitled to vote generally in the election of
directors, or the last of any series of transfers that results in the transfer of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of
1934) of 50% or more of either the then outstanding Common Stock or the combined voting
power of the Company’s then outstanding voting securities entitled to vote generally in the
election of directors;

5

 

     • approval by the stockholders of the Company of a merger or consolidation, with
respect to which persons who were the stockholders of the Company immediately prior to such
merger or consolidation do not, immediately thereafter, own more than 50% of the combined
voting power of the merged or consolidated company’s then outstanding voting securities,
entitled to vote generally, in the election of directors or with respect to a liquidation or
dissolution of the Company or the sale of all or substantially all of the assets of the
Company;

     • the transfer, through one transaction or a series of related transactions, of
more than 50% of the assets of the Company, or the last of any series of transfers that
results in the transfer of more than 50% of the assets of the Company. For purposes of this
paragraph, the determination of what constitutes more than 50% of the assets of the Company
shall be determined based on the most recent financial statements prepared by the Company’s
independent accountants; or

     • during any fiscal year, individuals who at the beginning of such year
constituted the Board and any new director or directors whose election by the Board was
approved by a vote of a majority of the directors then still in office who either were
directors at the beginning of the year or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof.

     6. Employee further agrees never to make any statements or comments, whether oral or written
to any person or entity that would tend to disparage or harm the Company; provided, however, that
this sentence shall not be construed to constrain Employee from providing truthful testimony when
required by law in the course of a legal or administrative proceeding. Without limiting any other
legal or equitable remedy available to it under this Agreement or otherwise, the Company shall be
entitled to offset against amounts otherwise payable to Employee pursuant to paragraphs 2(a) or
2(c) above an amount equal to the amount of damages the Company suffers resulting from any such
disparaging or harmful remark. Employee understands and agrees that violation of this paragraph
shall be treated as a material breach of this Agreement.

     7. Employee expressly agrees that this Agreement is not and shall not in any way be deemed to
constitute an admission or evidence of any breach of contract, wrongdoing or liability on the part
of the Company, nor of any violation of any federal, state or municipal statute, regulation or
principle of common law or equity.

     8. Employee agrees to make himself reasonably available in connection with any information the
Company requires relating to the services Employee had provided to Company, including any
litigation the Company is or may become involved in to which the Employee has knowledge. Company
agrees to provide Employee with reasonable notice in connection with any depositions or court
appearances where his presence is necessary or reasonably desirable. The Company shall pay
Employee’s travel expenses in this regard. Employee and Company shall agree on a reasonable per
diem fee for any time the Employee is required to make himself available in person pursuant to this
paragraph.

     9. Employee and the Company acknowledge and agree:

6

 

     (a) that each of them has read and understands the contents of this Agreement;

     (b) that this Agreement does not waive rights or claims that may arise after the date
that this Agreement is executed;

     (c) that Employee waives rights or claims only in exchange for consideration that the
Employee would not be entitled to but for executing this Agreement;

     (d) that the Company has informed Employee that Employee should consult with an
attorney in connection with this Agreement; and

     (e) that Employee’s decision to consult with an attorney or not to consult with any
attorney was made without influence by the Company.

     10. Both Parties understand that the Employee shall have 45 days to consider this Agreement
before signing. Both Parties understand that the Employee shall have seven (7) days in which to
revoke this Agreement after signing, and that this Agreement shall not become effective or
enforceable until the expiration of seven (7) days after signing (the date of such expiration,
“Effective Date”), and the severance compensation payable hereunder shall not be due and owing
until after the Effective Date set forth herein. To accept the Agreement, Employee must send a
signed copy to Neil Carfagna, National Medical Health Card Systems, Inc., 26 Harbor Park Drive,
Port Washington, New York 11050, (516) 605 6802, (516) 626 4632 (facsimile), NCarfagna@nmhc.com,
such that it is received no later than 45 days after the date that this Agreement has been
presented to Employee. Any notice of revocation must also be sent such that it is received prior
to the end of the seven day revocation period by Neil Carfagna, National Medical Health Card
Systems, Inc., 26 Harbor Park Drive, Port Washington, New York 11050, (516) 605 6802, (516) 626
4632 (facsimile), NCarfagna@nmhc.com. Employee also acknowledges receipt of the following
information:

     (a) The group of individuals covered: All employees who hold positions whose
employment is being terminated on or about May 21, 2007.

     (b) Eligibility factors: A severance proposal is being offered to all employees whose
employment is being terminated on or about May 21, 2007.

     (c) Time limits: Each employee who is offered a severance proposal has 45 days to
consider the Agreement and seven (7) days to revoke acceptance after signing.

     (d) Employee acknowledges that Employee has received and reviewed the information
contained in Exhibit “A” to this Agreement. The information in Exhibit “A” includes the job
titles and ages of all individuals from the group of employees considered for termination on
or about May 21, 2007, and whether or not those employees were selected for termination of
employment or otherwise offered a severance proposal.

     11. This Agreement is made in the State of New York. This Agreement is to be interpreted
under the laws of the State of New York without regard to conflict of laws principles. The Parties
agree that the federal and state courts sitting in Nassau County, New York, shall be the exclusive
venue for the resolution of any dispute arising out of or relating to this Agreement.

7

 

     12. Except as provided in this Agreement, this is the entire agreement between the Employee
and the Company and supersedes any and all prior agreements or understandings between the Parties,
whether written or oral, pertaining to Employee’s employment with the Company. This Agreement may
only be amended or modified by a written document signed by both Parties. The Company has made no
promises to Employee other than those in this Agreement. Notwithstanding anything to the contrary
in this paragraph 12, except as explicitly provided otherwise in this Agreement, (i) paragraphs 6
through 11 of the Employment Agreement, and (ii) any obligation of the Company under any
indemnification agreement or the Company’s Certificate of Incorporation and Bylaws, as amended, to
indemnify, hold harmless and advance expenses to Employee shall survive the execution of this
Agreement in accordance with their respective terms and conditions.

     13. Should any provision of this Agreement be declared or determined by any court to be
illegal, invalid or unenforceable, the validity of the remaining parts, terms and provisions shall
not be effected thereby and any said illegal, invalid or unenforceable part, terms or provisions
shall be deemed stricken and severed from this Agreement.

     14. This Agreement may be executed in one or more counterparts, and each effective counterpart
shall be effective as a signed original.

     15. Company makes no representations to Employee concerning the tax consequences arising out
of any payments under this Agreement, including, without limitation, whether any of the payments
hereunder are subject to 26 U.S.C. § 409A. Company urges Employee to obtain his own tax counsel
with regard to any tax consequences arising out of or relating to this Agreement.

     16. EMPLOYEE ACKNOWLEDGES THAT EMPLOYEE HAS CAREFULLY READ THIS AGREEMENT; THAT EMPLOYEE HAS
HAD AT LEAST 45 DAYS IN WHICH TO CONSIDER AND RETURN THIS AGREEMENT; THAT EMPLOYEE HAS HAD AN
OPPORTUNITY TO CONSULT WITH ANY ATTORNEY OF EMPLOYEE’S CHOICE IN CONNECTION WITH THIS AGREEMENT;
THAT EMPLOYEE FULLY UNDERSTANDS THE TERMS, CONDITIONS, AND SIGNIFICANCE AND CONSEQUENCES OF THIS
AGREEMENT; AND THAT EMPLOYEE HAS EXECUTED THIS AGREEMENT KNOWINGLY AND VOLUNTARILY, AND OF
EMPLOYEE’S OWN FREE WILL.

8

 

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date below.

NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.

	 	 	 	 	 
	By:
	 	/s/ Stuart Diamond	 	 
	 

	 	 	 	 
	 

	 	                        , its authorized representative
	 	 
	 
	 	 	 	 
	Date: August 20, 2007	 	 
	 
	 	/s/ James F. Smith	 	 
	 	 	 
	James

	 	 F. Smith	 	 

Date:
August 17, 2007

9

 

Exhibit “A”

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	OFFERED SEVERANCE
	     

          JOB TITLE	 	 	AGE	 	PROPOSAL OR NOT (Y/N)
	Chief Human Resource Officer	 	 	 
	 	51	 	N
	Chief Clinical Officer	 	 	 
	 	46	 	N
	Chief Specialty Officer	 	 	 
	 	44	 	N
	Chief Services Officer	 	 	 
	 	48	 	Y
	Chief Financial Officer	 	 	 
	 	46	 	N
	Senior Vice President, Sales	 	 	 
	 	47	 	N
	President and Chief Executive Officer	 	 	 
	 	58	 	Y
	Chief Marketing Officer	 	 	 
	 	53	 	Y
	Chief Information Officer	 	 	 
	 	56	 	Y
	Chief Legal Officer	 	 	 
	 	37	 	Y
	Vice President Marketing	 	 	 
	 	44	 	Y
	Controller	 	 	 
	 	48	 	Y

10

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