Document:

EXHIBIT 4.2
                          REGISTRATION RIGHTS AGREEMENT

     REGISTRATION RIGHTS AGREEMENT (the "Agreement") made as of this ___ day
of __________, 2002 by and among NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC., a
New York corporation (the "Company"), and the individuals whose names are set
forth on Schedule I hereto (each, a "Noteholder" and, collectively, the
"Noteholders").

                              W I T N E S S E T H:

     WHEREAS,  the  Company  is  proposing  to issue and sell up to  $11,600.000
aggregate principal amount of its 12% Convertible Promissory Notes (the "Notes")
pursuant to a private placement; and

     WHEREAS,  the Notes are  convertible  into shares of Common Stock  (defined
below) in accordance with the terms of the Notes; and

     WHEREAS,  the parties hereto desire to promote the interests of the Company
and the interests of the  Noteholders by  establishing  herein certain terms and
conditions upon which the Company will register  certain of the shares of Common
Stock issuable upon conversion of the Notes; and

     NOW,  THEREFORE,  in consideration of the premises and mutual covenants and
agreements herein contained, and for other good and valuable consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereto
agree as follows:

     1. Certain Definitions.  As used herein, the following terms shall have the
following respective meanings:

     "Business  Day"  shall  have  the  meaning  ascribed  thereto  in  the  12%
Convertible Note.

     "Changing Event shall have the meaning  ascribed  thereto in Section 3.4(d)
hereof.

     "Closing Date" shall have the meaning ascribed thereto in the Recitals.

     "Common  Stock" means the common  stock,  par value $.01 per share,  of the
Company.

     "Commission" shall mean the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.

     "Correction  Event"  shall  have the  meaning  ascribed  thereto in Section
3.4(d) hereof.

     "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

     "Holder" shall mean any holder of Registrable Securities.

     "Register",  "registered" and "registration"  shall refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities  Act  and  applicable  rules  and  regulations   thereunder  and  the
declaration or ordering of the effectiveness of such registration statement.

     "Registrable  Securities"  shall mean the shares of (i) Common Stock issued
or  issuable  to the  Holders  upon  conversion  of the Notes  (the  "Conversion
Shares") and (ii) Common Stock issuable or issued to the Holders,  in respect of
the  Conversion  Shares,   upon  any  stock  split,   stock  dividend,   merger,
consolidation,  recapitalization  or similar  event,  excluding  all such shares
which (x) have been registered  under the Securities Act, (y) have been publicly
sold  pursuant to Rule 144, or (z) are  eligible  for sale  without  restriction
under Rule 144(k).

     "Registration  Expenses" shall mean all expenses  incurred in compliance by
the  Company  with  Section  3  hereof,  including,   without  limitation,   all
registration,  qualification  and filing fees,  exchange listing fees,  expenses
incurred in connection with the  preparation,  printing and  distribution of the
registration statement and prospectus, fees and disbursements of counsel for the
Company and  independent  public  accountants of the Company,  blue sky fees and
expenses,  and the expense of any special audits  incident to or required by any
such  registration  (but excluding the compensation of regular  employees of the
Company, which shall be paid in any event by the Company).

     "Rule 144" shall mean Rule 144, or any successor rule, under the Securities
Act.

     "Rule 144(k)"  shall mean Rule 144(k),  or any  successor  rule,  under the
Securities Act.

     "Securities Act" shall mean the Securities Act of 1933, as amended.

     "Selling  Expenses"  shall  mean all  underwriting  discounts  and  selling
commissions  applicable to the sale of  Registrable  Securities and all fees and
disbursements of counsel for any Holder.

     2. Notice of Transfers.  Promptly  following a transfer of any  Registrable
Securities  (except  under  circumstances  described in Section 3 hereof),  each
Holder agrees to give written notice to the Company of such transfer,  including
the number of  Registrable  Securities,  the date of  transfer  and to whom such
Registrable Securities were transferred.

3.  Registration Rights.

     3.1.  Request  for  Registration.  (a) At any time  following  the 18 month
anniversary of the date hereof,  pursuant to this Section 3.1(a),  Holders shall
be entitled to present to the Company a written  request (a "Request")  that the
Company effect a registration of Registrable  Securities held by the Holder.  If
the Company  shall  receive  from a Holder or Holders a Request that the Company
effect a  registration  with  respect to such  Holder's  Registrable  Securities
having a market value of not less than  $1,000,000  as of the date of a Request,
the Company will use its  reasonable  best efforts to effect a  registration  (a
"Demand  Registration")  as soon as practicable  after receipt of the Request to
permit  or  facilitate  the  sale  and  distribution  of  all  such  Registrable
Securities as are specified in such Request.

     (b) If all or any  portion  of  the  Registrable  Securities  covered  by a
Request  are,  at the request of the Holder,  to be  distributed  by means of an
underwriting,  the Holder  shall so advise the Company as a part of the Request.
If the Holder  disapproves  of the terms of the  underwriting,  such  person may
elect  to  withdraw   therefrom  by  written  notice  to  the  Company  and  the
underwriter.   The  securities  so  withdrawn   shall  also  be  withdrawn  from
registration.

     (c) The  Company  shall not be  required to effect more than one (1) Demand
Registration  in  any  twelve  month  period,   or  more  than  two  (2)  Demand
Registrations in total.

     (d) The Company  shall have the right to defer its  obligation  to effect a
registration  for up to one hundred and twenty  (120)  calendar  days if, in the
Company's  good faith  judgment,  effecting a  registration  would be materially
detrimental  to the Company and an executive  officer of the Company so notifies
the Holders in writing.

     (e) The registration statement filed pursuant to Section 3.1(a) may include
other  securities  of the Company which are held by officers or directors of the
Company  or which are held by  persons  who,  by virtue of  agreements  with the
Company  are  entitled  to include  their  securities  in any such  registration
(collectively,  "Other Stockholders"). The Company shall promptly give notice of
any registration proposed under this Section 3.1 to such Other Stockholders.

     (f) Suspension of Sales. Notwithstanding anything to the contrary contained
herein, the Company shall have the right to suspend further open market sales of
Registrable  Securities (the  "Suspension  Right")  whenever,  in the reasonable
judgment of the Company after  consultation with counsel,  there is or may be in
existence  (i) material  undisclosed  information  or events with respect to the
Company or (ii) a Changing Event.  Such suspension shall continue for the period
of time  reasonably  necessary for (x) disclosure to occur at a time that is not
detrimental  to the  Company  or its  stockholders  or  until  such  time as the
information  or event is no longer  material,  or (y) a Correction  Event as the
case may be, each as determined in good faith after  consultation  with counsel.
The Company will use  reasonable  efforts to give the Holders two days'  written
notice of any such  suspension and will use all  reasonable  efforts to minimize
the length of such suspension.

     3.2. Company  Registration.  (a) If the Company shall determine to register
any of its  securities  either for its own  account or the account of a security
holder  or  holders  exercising  demand   registration   rights  (other  than  a
registration  relating solely to employee benefit plans, a registration relating
solely  to  a  Commission   Rule  145  transaction  or  a  registration  on  any
registration form which does not permit secondary  sales),  the Company will (i)
within ten (10) days after such determination give to each Holder written notice
thereof; and (ii) include in such registration and in any underwriting  involved
therein,  all the  Registrable  Securities  specified  in a written  request  or
requests,  made by any  Holder  within  twenty  (20) days  after  receipt of the
written  notice from the Company  described  in clause (i) above,  except as set
forth in Section 3.2(b) below. Such written request may specify all or a part of
a Holder's Registrable Securities.

     (b)  If the  registration  of  which  the  Company  gives  notice  is for a
registered  public  offering  involving an  underwriting,  the Company  shall so
advise the Holders by written notice.  All Holders proposing to distribute their
Registrable  Securities  through  such  underwriting  shall  (together  with the
Company   distributing   its  securities  for  its  own  account   through  such
underwriting)  enter into an  underwriting  agreement in customary form with the
underwriter or underwriters  selected by the Company.  Notwithstanding any other
provision of this Section 3.2, if the representative of the underwriters advises
the  Company  in writing  that,  in its  opinion,  marketing  factors  require a
limitation  on the number of shares to be  underwritten,  the  Company  shall so
advise all Holders requesting registration, and the number of shares that may be
included in the registration  and  underwriting  shall be allocated first to the
Company for securities  being sold for its account or to the security  holder or
holders  exercising  demand  registration  rights for securities  being sold for
their  account,  as the case may be, and then in the following  manner:  (i) the
securities  requested to be  registered  by officers or directors of the Company
(other than officers or directors  who are also Holders)  shall be excluded from
such  registration and underwriting to the extent required by such limitation in
proportion,  as nearly as practicable,  to the respective  amounts of securities
requested  to be  registered  by such  officers  and  directors,  and  (ii) if a
limitation on the number of shares is still required,  the securities being sold
for the account of the  Holders  shall be excluded  from such  registration  and
underwriting to the extent required by such limitation in proportion,  as nearly
as practicable,  to the respective amounts of Registrable  Securities which they
had  requested  to be  included  in such  registration.  If any  Holder  who has
requested  inclusion in such  registration as provided above  disapproves of the
terms of the  underwriting,  such  person  may elect to  withdraw  therefrom  by
written notice to the Company and the underwriter.

     3.3.  Expenses of  Registration.  The Company  shall bear all  Registration
Expenses and the selling Holders shall bear all Selling Expenses (in proportion,
as nearly as  practicable,  to the  Registrable  Securities of each Holder being
registered)  incurred in  connection  with any  registration,  qualification  or
compliance pursuant to the provisions of Sections 3.1 and 3.2.

     3.4. Registration Procedures.  In the case of each registration effected by
the Company pursuant to this Agreement, the Company will keep each participating
Holder  advised in writing as to the initiation of such  registration  and as to
the completion thereof. At its expense, the Company will:

     (a) Keep such registration  statement effective until the earlier of (x) 12
months from the effective date of such registration statement or (y) the date on
which all of the Holders  have  completed  the  distributions  described  in the
registration statement relating thereto;

     (b) Prepare and file with the Commission such amendments and supplements to
such  registration  statement and the  prospectus  used in connection  with such
registration  statement as may be necessary to keep such registration  statement
effective and free of material misstatements or omissions and to comply with the
provisions of the Securities  Act with respect to the  disposition of securities
covered by such registration statement and respond as promptly as practicable to
any comments received with respect thereto;

     (c) Furnish to each Holder such number of prospectuses  and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a selling Holder from time to time may reasonably request in order to facilitate
the disposition of Registrable Securities covered by them;

     (d) Notify each seller of such Registrable  Securities,  at any time when a
prospectus  relating  thereto is required to be delivered  under the  Securities
Act, of the happening of any event as a result of which, the prospectus included
in such registration  statement  contains an untrue statement of a material fact
or omits a fact necessary to make the statements therein not misleading in light
of the circumstances  under which they were made (a "Changing Event"),  and, the
Company  will as  soon as  possible  prepare  and  furnish  to  such  seller  (a
"Correction  Event")  a  reasonable  number  of  copies  of a  supplement  to or
amendment to such prospectus so that, as thereafter  delivered to the purchasers
of such  Registrable  Securities,  such  prospectus  will not  contain an untrue
statement or omit to state any fact necessary to make the statements therein not
misleading in the light of the circumstances under which they were made;

     (e) Cause all Registrable  Securities  included in such  registration to be
listed  on  each,  if any,  securities  exchange  or  system  on  which  similar
securities issued by the Company are then listed; and

     (f) Register or qualify for offer and sale the  Registrable  Securities  by
the time the  registration  is declared  effective by the  Commission  under all
applicable  state  securities  or "blue sky" laws of the 50 states of the United
States  or  obtain  appropriate   exemptions   therefrom,   to  keep  each  such
registration  or  qualification  effective  during the  period the  registration
statement is required to be kept effective, and to do any and all other acts and
things which may be  reasonably  necessary or advisable to enable each Holder to
consummate  the  disposition  in  each  such  jurisdiction  of  the  Registrable
Securities owned by such Holder;  provided,  however, that the Company shall not
be required to submit to the general service of process in any such jurisdiction
unless the Company is already subject to such service in such jurisdiction;

     (g) During the period that the Company is required to keep the registration
statement  effective,  the Company  will advise the Holders  within a reasonable
time (i) when the  prospectus or any  prospectus  supplement  or  post-effective
amendment thereto has been filed, and when the same has become  effective,  (ii)
of any  request by the  Commission  for any  amendments  to, or  issuance by the
Commission of any stop order with respect to the  registration  statement or any
prospectus  or  amendment  thereto,  or  (iii)  of the  issuance  by  any  state
securities  commission or other regulatory authority of any order suspending the
registration or qualification or exemption from registration or qualification or
any proceedings for that purpose;

     (h) If reasonably requested by Holders' counsel or any Holder,  incorporate
as  promptly  as  practicable  in  a  prospectus  supplement  or  post-effective
amendment  such  information as such Holder or Holders'  counsel  requests to be
included therein, including, without limitation, with respect to the Registrable
Securities  being sold by such Holder to any  underwriter or  underwriters,  the
purchase price being paid therefor by such  underwriter or underwriters  and any
other terms of any  underwritten  offering of the  Registrable  Securities to be
sold in such offering,  and the Company shall promptly make all required filings
of such prospectus supplement or post-effective amendment;

     (i) Cooperate  with the Holders to facilitate  the timely  preparation  and
delivery of certificates  (which shall not bear any  restrictive  legends unless
required under applicable law) representing  Registrable Securities sold under a
registration  statement to the purchasers  thereof,  and enable such Registrable
Securities  to be in such  denominations  and  registered  in such  names as the
managing  underwriter or  underwriters,  if any, or such Holders may request and
keep available and make  available to the Company's  transfer agent prior to the
effectiveness of such registration statement a supply of such certificates;

     (j) Enter into such customary  agreements  (including,  if  applicable,  an
underwriting  agreement  in customary  form) and take such other  actions as the
Holders  or  the  underwriters  retained  by  the  Holders  participating  in an
underwritten  public  offering,  if any,  may  reasonably  request  in  order to
expedite or facilitate  the  disposition of  Registrable  Securities;  provided,
however, that such underwriters are reasonably acceptable to the Company;

     (k)  Furnish to each  Holder of  Registrable  Securities  included  in such
offering  and to each  underwriter,  if any,  if  requested  by such  Holder  or
underwriter, a signed counterpart,  addressed to such Holder or underwriter,  of
(i) an opinion or opinions  of counsel to the Company and (ii) a comfort  letter
or comfort letters from the Company's  independent public  accountants,  each in
customary form and covering matters of the type customarily  covered by opinions
or comfort letters, as the case may be.

     4.  Indemnification.  (a) The Company will indemnify and hold harmless each
Holder, its partners, officers,  directors,  trustees, employees and agents, and
each person, if any, who controls any Holder within the meaning of Section 15 of
the  Securities  Act or  Section  20 of the  Exchange  Act,  together  with  the
partners,   officers,   directors,   trustees,  employees  and  agents  of  such
controlling  person,  each Holder and each underwriter,  if any, and each person
who controls such  underwriter  within the meaning of the  Securities Act or the
Exchange Act, against all claims,  losses,  damages and liabilities (or actions,
proceedings or settlements  in respect  thereof)  arising out of or based on any
untrue  statement (or alleged untrue  statement) of a material fact contained in
any prospectus or other document (including any related registration  statement,
any  amendments  thereto and all documents  incorporated  by reference  therein)
incident to any such registration,  qualification or compliance, or based on any
omission (or alleged  omission) to state  therein a material fact required to be
stated therein or necessary to make the statements  therein not misleading,  and
will  reimburse  each such  person,  for any legal  and  other  expenses  as are
reasonably  incurred in connection by them with  investigating and defending any
such claim,  loss, damage,  liability or action,  provided that the Company will
not be liable in any such case to the extent that any such claim,  loss, damage,
liability  or  expense  arises  out of or is based on any  untrue  statement  or
omission based upon written information  furnished to the Company by such Holder
or underwriter  and stated to be  specifically  for use therein or to the extent
due to the  failure  of  such  Holder  or  underwriter  to  provide  an  updated
prospectus  or other  document  to a  purchaser  at a time when the  Company has
informed such Holder or underwriter of a material  misstatement or omission in a
prospectus  or other  document and has provided  updated  prospectuses  or other
documents correcting such misstatement or omission.

     (b) Each  Holder (on a several  and not joint  basis)  will  indemnify  the
Company, its officers, directors, employees and agents, and each person, if any,
who controls the Company  within the meaning of Section 15 of the Securities Act
or  Section 20 of the  Exchange  Act,  together  with the  officers,  directors,
employees and agents of such controlling  person, and each underwriter,  if any,
and each  person  who  controls  such  underwriter  within  the  meaning  of the
Securities Act, and each other Holder,  against all claims,  losses, damages and
liabilities (or actions,  proceedings or settlements in respect thereof) arising
out of or based on any untrue  statement  (or  alleged  untrue  statement)  of a
material fact contained in any such registration statement,  prospectus or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated  therein or necessary to make the  statements  therein not
misleading, and will reimburse each such person for any legal and other expenses
as are reasonably incurred by them in connection with investigating or defending
any such claim, loss,  damage,  liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or  omission  (or  alleged  omission)  is made in such  registration  statement,
prospectus or other  document in reliance  upon and in  conformity  with written
information   furnished  to  the  Company  by  such  Holder  and  stated  to  be
specifically  for use therein;  provided,  that in no event shall any  indemnity
under this Section 4(b) exceed the net  proceeds  from the offering  received by
such  Holder,  and no Holder  shall be liable  under this  Section  4(b) for any
statements or omissions of any other Holder.

     (c) Each  party  entitled  to  indemnification  under  this  Section 4 (the
"Indemnified  Party")  shall give  notice in writing  to the party  required  to
provide   indemnification   (the  "Indemnifying   Party")  promptly  after  such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought,  and shall  permit the  Indemnifying  Party to assume the defense of any
such claim or any litigation resulting therefrom,  provided that counsel for the
Indemnifying  Party,  who  shall  conduct  the  defense  of  such  claim  or any
litigation  resulting  therefrom,  shall be  approved by the  Indemnified  Party
(whose approval shall not unreasonably be withheld),  and the Indemnified  Party
may participate in such defense at such Indemnified  Party's expense;  provided,
however,  that the  Indemnifying  Party shall pay the expense of one counsel for
all similarly situated Indemnified Parties if representation of such Indemnified
Parties by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential  differing  interests between the Indemnified Parties
and any other party represented by such counsel in such proceeding, and provided
further  that the  failure of any  Indemnified  Party to give notice as provided
herein shall not relieve the  Indemnifying  Party of its obligations  under this
Section  4,  unless  such  failure  materially  prejudices  the  ability  of the
Indemnifying Party to defend against the claims asserted against the Indemnified
Party.  No  Indemnifying  Party, in the defense of any such claim or litigation,
shall,  except with the consent of each Indemnified  Party,  consent to entry of
any  judgment  or enter  into  any  settlement  which  does  not  include  as an
unconditional  term  thereof  the giving by the  claimant or  plaintiff  to such
Indemnified  Party of a release  from all  liability in respect of such claim or
litigation,  and no Indemnified  Party shall consent to entry of any judgment or
settle  such  claim or  litigation  without  the prior  written  consent  of the
Indemnifying  Party.  Each  Indemnified  Party shall  furnish  such  information
regarding  itself  or  the  claim  in  question  as an  Indemnifying  Party  may
reasonably request in writing and as shall be reasonably  required in connection
with the defense of such claim and litigation resulting therefrom.

     (d) If the indemnification provided for in this Section 4 is unavailable to
an Indemnified  Party in respect of any losses,  claims,  damages or liabilities
referred to therein,  then each Indemnifying Party, in lieu of indemnifying such
Indemnified  Party,  shall  contribute  to the  amount  paid or  payable by such
Indemnified Party as a result of such losses,  claims, damages or liabilities in
such  proportion as is appropriate to reflect the relative fault of the Company,
on the one hand,  and such Holder,  on the other hand,  in  connection  with the
statements  or  omissions  which  resulted in such  losses,  claims,  damages or
liabilities,  as  well  as any  other  relevant  equitable  considerations.  The
relative fault of the Company,  on the one hand, and Holder,  on the other hand,
shall be determined  by reference to, among other things,  whether the untrue or
alleged untrue statement of material fact or the omission or alleged omission to
state a material fact relates to information  supplied by the Company or by such
Holder and the parties'  relevant intent,  knowledge,  access to information and
opportunity to correct or prevent such statement or omission. The parties hereto
agree that it would not be just and equitable if  contribution  pursuant to this
Section  4(d)  were  based  solely  upon  the  number  of  entities   from  whom
contribution  was requested or by any other method of allocation  which does not
take account of the equitable  considerations  referred to above in this Section
4(d).  The amount  paid or payable  by an  Indemnified  Party as a result of the
losses,  claims,  damages and liabilities referred to above in this Section 4(d)
shall be deemed to include any legal or other  expenses  reasonably  incurred by
such  Indemnified  Party in connection with  investigating or defending any such
action or claim,  subject to the  provisions  of Section 4(d) hereof.  No person
guilty of  fraudulent  misrepresentation  (within the meaning of the  Securities
Act) shall be  entitled  to  contribution  from any person who was not guilty of
such  fraudulent  misrepresentation.  The  obligations of each Holder under this
Section 4(d) are several and not joint,  and are subject to the  limitation  set
forth in the proviso to Section 4(b) above.

     5.  Information  by Holders.  Each Holder shall furnish to the Company such
information  regarding such Holder and the distribution  proposed by such Holder
as the Company  may  reasonably  request in writing  and as shall be  reasonably
required  in  connection  with any  registration,  qualification  or  compliance
referred to in this Agreement.

     6. "Lock-Up" Agreement. Each Holder, if requested by the Company and the
managing underwriter of an offering by the Company of Common Stock or other
securities of the Company pursuant to a registration statement, shall agree in
writing (the "Lock-Up Agreement") not to sell publicly or otherwise transfer or
dispose of any shares of Common Stock or other securities of the Company held by
such Holder (other than those included in the registration, if applicable) for a
specified period of time (not to exceed 180 days) following the effective date
of such registration statement.

     7. Rule 144  Reporting.  With a view to making  available  the  benefits of
certain rules and  regulations  of the  Commission  which may permit the sale of
restricted securities to the public without registration, the Company agrees to:

     (a) use its  reasonable  best  efforts  to make  and  keep  current  public
information  available  as those  terms are  understood  and defined in Rule 144
under the Securities Act at all times;

     (b) use its reasonable best efforts to file with the Commission in a timely
manner  all  reports  and other  documents  required  of the  Company  under the
Securities Act and the Exchange Act; and

     (c) furnish to the Holders  forthwith  upon request a written  statement by
the Company as to its compliance  with the reporting  requirements  of Rule 144,
and of the Securities Act and the Exchange Act, a copy of the most recent annual
or quarterly  report of the  Company,  and such other  reports and  documents so
filed as the Holders may reasonably  request in availing  themselves of any rule
or regulation of the Commission allowing the Holders to sell any such securities
without registration.

     8. No Transfer or Assignment of  Registration  Rights.  The rights to cause
the Company to register  securities  granted to the Holders by the Company under
Section 3 may not be transferred or assigned  without the prior written  consent
of the Company.

     9.  Amendment;  Waiver.  No amendment,  alteration or  modification of this
Agreement shall be valid unless in each instance such  amendment,  alteration or
modification is expressed in a written instrument executed by Holders who own at
least a majority of the  Registrable  Securities.  No waiver of any provision of
this  Agreement  shall be valid unless it is  expressed in a written  instrument
duly  executed by the party or parties  making such waiver;  it being agreed and
understood  that  execution  by Holders  who own a majority  of the  Registrable
Securities  shall  constitute  a waiver by all the  Holders.  The failure of any
party to insist,  in any one or more  instances,  on  performance  of any of the
terms and  conditions  of this  Agreement  shall not be construed as a waiver or
relinquishment of any rights granted  hereunder or of the future  performance of
any such  term,  covenant  or  condition  but the  obligation  of any party with
respect thereto shall continue in full force and effect.

     10. Specific Performance,  Remedies.  The parties hereby declare that it is
impossible  to measure in money the damages  which will accrue to a party hereto
by reason of a failure to perform any of the  obligations  under this Agreement.
Therefore,  all parties  hereto shall have the right to specific  performance of
the  obligations  of the other  parties under this  Agreement,  and if any party
hereto shall institute an action or proceeding to enforce the provisions hereof,
any person  (including  the Company)  against whom such action or  proceeding is
brought  hereby  waives  the claim or  defense  therein  that such  party has an
adequate  remedy at law,  and such  person  shall not urge in any such action or
proceeding the claim or defense that such remedy at law exists.

     11.  Notices.  All notices and other  communications  required or permitted
hereunder shall be in writing and shall be mailed by  first-class,  certified or
registered mail, postage prepaid,  return receipt  requested,  or transmitted by
facsimile or delivered either by hand, by messenger or by nationally  recognized
overnight courier, addressed:

     (a) if to the Holders,  at the  addresses  set forth on Schedule I attached
hereto or at such other  address as they shall have  furnished to the Company in
writing.

     (b) if to the Company,  at the following address,  or at such other address
as the Company shall have furnished to the Holders,

                   National Medical Health Card Systems, Inc.
                   26 Harbor Park Drive
                   Port Washington, New York 11050
                   Attn:  Chief Financial Officer

                  with a copy to:

                   National Medical Health Card Systems, Inc.
                   26 Harbor Park Drive
                   Port Washington, New York 11050
                   Fax: (516) 605-6989
                   Attention:  Jonathan Friedman, Esq.

     Alternatively,  to such other  address as a party  hereto  supplies to each
other party in writing.

     12. Successors and Assigns.  All the terms and provisions of this Agreement
shall be  binding  upon and inure to the  benefit of and be  enforceable  by the
respective permitted transferees,  successors and assigns of the parties hereto,
whether so expressed or not.

     13.  Governing  Law.  This  Agreement is to be governed by and  interpreted
under the laws of the State of New York without  giving effect to the principles
of conflicts of laws thereof.

     14. Titles and Subtitles.  The titles of the sections of this Agreement are
for the convenience of reference only and are not to be considered in construing
this Agreement.

     15.  Severability.  The invalidity or unenforceability of any provisions of
this Agreement shall not be deemed to affect the validity or  enforceability  of
any other provision of this Agreement.

     16.  Entire  Agreement.  This  Agreement  constitutes  the full and  entire
understanding  and  agreement  between the parties  with  respect to the subject
matter  hereof  and  supersedes  all  previous   agreements,   arrangements  and
understandings,  whether  written or oral,  with  respect to the subject  matter
hereof.

     17.  Counterparts.  This  Agreement  may  be  executed  in  any  number  of
counterparts,  each of which  shall be an  original,  but all of which  together
shall constitute one instrument.

     18. Termination.  This Agreement shall terminate and be of no further force
or effect upon the fourth anniversary of the date of this Agreement.

                                      [This space intentionally left blank.]

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

                                    NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.

                                   By:-----------------------------------------

                                    HOLDERS:

                                    --------------------------------

                                    --------------------------------

                                    --------------------------------

<PAGE>

                                   SCHEDULE IEXHIBIT 4.1

                                  FORM OF NOTE

     THIS NOTE HAS NOT BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS
AMENDED (THE "ACT"),  OR ANY STATE SECURITIES LAWS AND NEITHER THIS NOTE NOR ANY
INTEREST  THEREIN  MAY  BE  OFFERED,   SOLD,  PLEDGED,   ASSIGNED  OR  OTHERWISE
TRANSFERRED  UNLESS  (1)  A  REGISTRATION  STATEMENT  WITH  RESPECT  THERETO  IS
EFFECTIVE  UNDER THE ACT AND ANY APPLICABLE  STATE  SECURITIES  LAWS, OR (2) THE
COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF THIS NOTE, WHICH COUNSEL
AND OPINION ARE REASONABLY  SATISFACTORY  TO THE COMPANY,  THAT THIS NOTE MAY BE
OFFERED,  SOLD,  PLEDGED,  ASSIGNED OR  TRANSFERRED  IN THE MANNER  CONTEMPLATED
WITHOUT AN EFFECTIVE  REGISTRATION  STATEMENT UNDER THE ACT OR APPLICABLE  STATE
SECURITIES LAWS.

                   NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
                              12% Convertible Note

No. ___               January 22, 2002
$_______________          New York, New York
(or such greater
amount as provided
for herein)

     NATIONAL  MEDICAL HEALTH CARD SYSTEMS,  INC., a New York  corporation  (the
"Company"), for value received, hereby promises to pay to _______________,  with
an address  at_____________________,  or registered assigns (the "Holder"),  the
principal  amount  of  _______________  ($ ) on the  Maturity  Date (as  defined
below),  and to pay interest on the unpaid principal  balance hereof at the rate
(calculated  on the basis of a 360-day year  consisting of twelve 30-day months)
of 12% per annum from the date hereof until the Maturity  Date.  Interest on the
unpaid  principal  balance  hereof  shall accrue and be  compounded  and payable
quarterly.  In no event  shall any  interest  to be paid  hereunder  exceed  the
maximum rate permitted by law. In any such event, this Note shall  automatically
be deemed  amended  to permit  interest  charges  at an amount  equal to, but no
greater than, the maximum rate permitted by law.

1.       Offering and Subscription Agreement.
         -----------------------------------

     This Note is one of the notes  issued by the  Company in an  offering  (the
"Offering") of 12% Convertible Notes in the initial  aggregate  principal amount
of  $11,600,000  (collectively,  the "Notes").  The Notes are  convertible  into
shares of common  stock,  par value $.001 per share of the Company  (the "Common
Stock") at a conversion price per share equal to TWELVE DOLLAR ($12.00) (subject
to adjustment upon the occurrence of certain events) (the "Conversion Price," in
accordance  with the terms and conditions set forth herein).  In connection with
the Offering, each purchaser of Notes (collectively, the "Holders") has executed
and delivered a  Subscription  Agreement  (each a  "Subscription  Agreement" and
collectively, the "Subscription Agreements") to the Company.

2.       Payments.
         --------

(a) Principal of, and accrued interest on, this Note shall be due and payable in
full on the Maturity Date. The "Maturity Date" shall be the later of (x) January
22, 2003 (the "Stated Maturity Date") and (y) the Extension Date, as defined in
the immediately following paragraph (but only to the extent the Receivables
Purchase Agreement (as defined below) remains in effect).

     (b) On the Stated  Maturity  Date and on each date upon which the quarterly
interest shall be payable  hereunder (each an "Interest  Date"),  for so long as
the Receivables Purchase Agreement remains in effect, the Company shall not pay,
and the Holder  shall not demand  that the Company  pay,  amounts due under this
Note unless,  on the Business Day immediately  prior to the Stated Maturity Date
or Interest Date, as applicable, the chief financial officer of the Company (the
"CFO") delivers an officer's certificate to the Holder and to Healthcare Finance
Group, Inc. (each an "Officer  Certificate") stating that both immediately prior
to the Stated  Maturity Date or Interest  Date, as applicable,  and  immediately
following the making by the Company of the payment  contemplated under this Note
on the  Stated  Maturity  Date or  Interest  Date,  as  applicable,  no Event of
Termination  (as  defined  in  the  Receivables  Purchase  Agreement)  would  be
continuing under that certain Receivables Purchase and Transfer Agreement, dated
as of January 29, 2002,  among National  Medical Health Card Systems,  Inc., the
other  Providers  named  therein  and  NMHC  Funding,  LLC,  as  Purchaser  (the
"Receivables  Purchase  Agreement")  and no Event of Default  (as defined in the
Loan  Agreement)  would be  continuing  under  that  certain  Loan and  Security
Agreement,  dated as of January  29,  2002  between  NMHC  Funding,  LLC and HFG
Healthco-4 LLC (the "Loan  Agreement") (as either or both such agreements may be
amended,  modified or  supplemented  from time to time).  If with respect to the
payment to the Holder of the principal  amount hereof,  the CFO does not deliver
such Officer  Certificate,  then the Maturity  Date under this Note shall extend
until the first anniversary of the Stated Maturity Date (the "Extension  Date").
If, with respect to an interest  payment due Holder on an Interest Date, the CFO
does not deliver the requisite Officer Certificate,  the amount of such interest
payment due Holder shall be  compounded  and payable on the next  interest  date
upon which the CFO delivers the requisite Officer Certificate. The provisions of
this Section 2(a) shall not limit the rights of the Holder hereunder to exercise
its conversion rights pursuant to Section 9 below and the Holder may convert its
Note in lieu of extending the Stated Maturity Date.

     (c)  Interest on this Note shall  accrue from the date of issuance  hereof,
to, but  excluding  the  Maturity  Date,  and shall be  compounded  and  payable
quarterly.

     (d) If the Maturity Date would fall on a day that is not a Business Day (as
defined  below),  the payment due on the Maturity  Date will be made on the next
succeeding  Business  Day with  the  same  force  and  effect  as if made on the
Maturity  Date.  "Business  Day" means any day which is not a Saturday or Sunday
and is not a day on which  banking  institutions  are  generally  authorized  or
obligated to close in the City of New York, New York.

     (e) The Company may, at its  option,subject to 2(b), prepay all or any part
of the principal of this Note,  without  payment of any premium or penalty.  All
payments on this Note shall be applied first to accrued  interest hereon and the
balance to the payment of principal hereof.

     (f) Payments of principal  and interest on this Note shall be made by check
sent to the  Holder's  address set forth  above or to such other  address as the
Holder may designate for such purpose from time to time by written notice to the
Company, in such coin or currency of the United States of America as at the time
of payment shall be legal tender for the payment of public and private debts.

     (g) The  obligations  to make the  payments  provided  for in this Note are
absolute  and   unconditional   and  not  subject  to  any   defense,   set-off,
counterclaim,  rescission,  recoupment  or  adjustment  whatsoever.  The Company
hereby  expressly   waives  demand  and  presentment  for  payment,   notice  of
non-payment,  notice of dishonor,  protest, notice of protest,  bringing of suit
and diligence in taking any action to collect any amount  called for  hereunder,
and shall be directly and primarily liable for the payment of all sums owing and
to be owing  hereon,  regardless  of and without any notice,  diligence,  act or
omission with respect to the collection of any amount called for hereunder.

     3.  Ranking of Note.  The payment of the  principal of and interest on this
Note is unsecured in all respects.

4.       Covenants.

     The  Company  covenants  and agrees  with the Holder  that,  so long as any
amount remains unpaid on the Notes,  unless the consent of Holders of a majority
in principal amount of the outstanding  Notes of all of the Holders is obtained,
the Company shall deliver to each Holder:

     (a) as soon as  practicable  after the end of each fiscal year,  and in any
event within 90 days thereafter, audited annual financial statements and as soon
as practicable after the end of the first, second and third quarterly accounting
periods in each fiscal  year of the  Company,  and in any event,  within 45 days
thereafter,  quarterly  unaudited  financial  statements  of the Company and its
subsidiaries and such other  information as is customarily made available to the
Company's shareholders;

     (b)  promptly  after the Company  shall obtain  knowledge of such,  written
notice of all legal or arbitral proceedings, and of all proceedings by or before
any  governmental  or  regulatory   authority  or  agency,   and  each  material
development in respect of such legal or other proceedings, affecting the Company
and its subsidiaries,  except proceedings which, if adversely determined,  would
not have a material adverse effect on the Company and its subsidiaries  taken as
a whole; and

     (c) promptly after the Company shall obtain  knowledge of the occurrence of
any Event of Default (as hereinafter  defined) or any event which with notice or
lapse of time or both would  become an Event of Default  (an Event of Default or
such other event being a "Default"),  a notice  specifying that such notice is a
"Notice of Default" and describing  such Default in reasonable  detail,  and, in
such Notice of Default or as soon  thereafter as  practicable,  a description of
the action the Company has taken or proposes to take with respect thereto.

     5. Events of Default.  The occurrence of any of the following  events shall
constitute an event of default (an "Event of Default"):

     (a) A default in the payment of the principal on any Note,  when and as the
same shall become due and payable.

     (b) A default in the payment of any  interest on any Note,  when and as the
same shall become due and payable, which default shall continue for ten business
days after the date fixed for the making of such interest payment.

     (c) A default in the  performance,  or a breach,  of any other  covenant or
agreement of the Company in this Note and  continuance of such default or breach
for a period  of 15 days  after  receipt  of notice  from the  Holder as to such
breach or after the Company had or should have had knowledge of such breach.

     (d) Any  representation,  warranty  or  certification  made by the  Company
pursuant to this Note or the  Subscription  Agreements  shall prove to have been
false or misleading as of the date made in any material respect.

     (e) A default by the Company shall be declared under any indebtedness which
gives the holder thereof the right to declare such indebtedness due prior to its
stated  maturity  and such  indebtedness  is in fact  declared  due prior to its
stated maturity.

     (f) A final  judgment  or  judgments  for the payment of money in excess of
$2,000,000  in  the  aggregate   shall  be  rendered  by  one  or  more  courts,
administrative or arbitral tribunals or other bodies having jurisdiction against
the Company and the same shall not be discharged (or provision shall not be made
for such  discharge),  or a stay of  execution  thereof  shall not be  procured,
within 60 days from the date of entry thereof and the Company shall not,  within
such 60-day  period,  or such longer period  during which  execution of the same
shall have been stayed,  appeal therefrom and cause the execution  thereof to be
stayed during such appeal.

     (g) The entry of a decree or order by a court having jurisdiction adjudging
the  Company   bankrupt  or   insolvent,   or   approving  a  petition   seeking
reorganization,  arrangement,  adjustment or composition of or in respect of the
Company, under federal bankruptcy law, as now or hereafter  constituted,  or any
other applicable  federal or state bankruptcy,  insolvency or other similar law,
and the  continuance  of any such decree or order  unstayed  and in effect for a
period of 60 days; or the  commencement by the Company of a voluntary case under
federal bankruptcy law, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency, or other similar law, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief
under federal  bankruptcy law or any other  applicable  federal or state law, or
the  consent by it to the filing of such  petition  or to the  appointment  of a
receiver,  liquidator,  assignee, trustee,  sequestrator or similar official for
the Company or for any substantial part of its property,  or the making by it of
an assignment for the benefit of creditors, or the admission by it in writing of
its  inability  to pay its debts  generally as they become due, or the taking of
corporate action by the Company in furtherance of any such action.

6.       Remedies Upon Default.

     Upon the occurrence of an Event of Default  referred to in Section 5 (other
than an Event of Default  pursuant to Section  5(g),  upon which the Notes shall
immediately  become due and payable  together  with  interest  accrued  thereon,
without action of the part of the Holder),  the Holder of this Note may, at his,
her or its option, by notice in writing to the Company,  declare such Note to be
due and payable  together with interest accrued  thereon,  without  presentment,
demand,  protest or notice of any kind,  all of which are  hereby  waived by the
Company.  The Holder may institute  such actions or proceedings in law or equity
as it  shall  deem  expedient  for  the  protection  of  its  rights  hereunder.
Notwithstanding  the  foregoing,  an Event of  Default  may be  waived  with the
consent of Holders of a majority in principal amount of outstanding Notes, which
waiver shall be effective against all the Holders of Notes.

7.       Transfer.

     (a) Any Notes  issued upon the  transfer of this Note shall be numbered and
shall be registered in a Note Register as they are issued.  The Company shall be
entitled to treat the registered  holder of any Note on the Note Register as the
owner in fact thereof for all  purposes and shall not be bound to recognize  any
equitable  or other  claim to or  interest in such Note on the part of any other
person,  and shall not be liable for any registration or transfer of Notes which
are  registered or to be registered in the name of a fiduciary or the nominee of
a fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting  such  registration  or transfer,  or
with the knowledge of such facts that its  participation  therein amounts to bad
faith.  This Note shall be  transferable  only on the books of the Company  upon
delivery thereof duly endorsed by the Holder or by his duly authorized  attorney
or representative, or accompanied by proper evidence of succession,  assignment,
or  authority to  transfer.  In all cases of transfer by an attorney,  executor,
administrator,  guardian,  or other  legal  representative,  duly  authenticated
evidence of his or its authority  shall be produced.  Upon any  registration  of
transfer,  the Company shall deliver a new Note or Notes to the person  entitled
thereto.  This Note may be exchanged,  at the option of the Holder thereof,  for
another  Note,  or other  Notes of  different  denominations,  of like tenor and
representing  in the aggregate a like  principal  amount,  upon surrender to the
Company or its duly authorized agent. Notwithstanding the foregoing, the Company
shall have no  obligation to cause Notes to be  transferred  on its books to any
person if, in the  opinion of counsel to the  Company,  such  transfer  does not
comply with the provisions of the Act and the rules and regulations thereunder.

     (b) The Holder  acknowledges  that he has been  advised by the Company that
this Note and any shares of Common Stock  issuable upon  conversion  hereof have
not been  registered  under the Act, that this Note is being issued on the basis
of the statutory  exemption  provided by Section 4(2) of the Act or Regulation D
promulgated  thereunder,  or both,  relating  to  transactions  by an issuer not
involving any public offering,  and that the Company's reliance thereon is based
in part upon the  representations  made by the  original  Holder in the original
Holder's  Subscription  Agreement  executed and delivered in accordance with the
terms of the Offering.  The Holder acknowledges that he has been informed by the
Company of, or is otherwise familiar with, the nature of the limitations imposed
by the  Act  and  the  rules  and  regulations  thereunder  on the  transfer  of
securities.  In  particular,  the  Holder  agrees  that no sale,  assignment  or
transfer of this Note shall be valid or effective,  and the Company shall not be
required to give any effect to any such sale, assignment or transfer, unless (i)
the sale,  assignment or transfer of this Note is  registered  under the Act, it
being  understood  that this Note is not currently  registered for sale and that
the Company has no  obligation  or intention  to so register the Notes,  or (ii)
this  Note  is  sold,  assigned  or  transferred  in  accordance  with  all  the
requirements and limitations of Rule 144 under the Act, it being understood that
Rule 144 is not available at the time of the original  issuance of this Note for
the sale of this  Note and that  there can be no  assurance  that Rule 144 sales
will be available at any  subsequent  time, or (iii) such sale,  assignment,  or
transfer is otherwise exempt from registration under the Act.

8.   Additional Representations and Covenants

     The Company hereby represents and warrants as follows:

     (a) The  execution,  delivery and  performance  by the Company of this Note
will not (A)  conflict  with or result in a breach  or  violation  of any of the
terms or provisions of,  constitute a default or result in the  acceleration  of
any obligation  under,  result in the  acceleration of any obligation  under, or
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or its subsidiaries  pursuant to, the terms of
any indenture,  mortgage, loan agreement, note or other evidence of indebtedness
or any other  contract,  agreement  or  instrument  to which the  Company or its
subsidiaries  (if  any)  is a  party  or by  which  the  Company  or  any of its
properties  or assets  are bound or  affected,  or (B)  violate  any  applicable
statute, law, rule, code, administrative regulation,  ordinance, judgment, order
or decree of any government,  governmental  instrumentality,  court, arbitration
panel or other body having jurisdiction over the Company or its subsidiaries (if
any) or any of their  respective  properties or obligations  which,  in any such
case,  would  have a material  adverse  effect on the  Company or its  financial
condition.

     (b) No consent,  approval,  authorization,  license or order of or from, or
registration,  qualification,  declaration or filing with,  any federal,  state,
local, foreign or other governmental  authority,  court  administrative  agency,
tribunal  or other body is required  for the  consummation  of the  transactions
contemplated  by this Note  except as may have been made or  obtained  under any
federal or state securities laws.

     (c) the Company has outstanding (A) 7,183,996  shares of Common Stock,  (B)
warrants,  rights or options  to  subscribe  for or  purchase  from the  Company
1,195,232  shares of  Common  Stock  and (C) no other  obligations  to issue any
shares of Common Stock or securities  convertible or exchangeable into shares of
Common Stock.

     (d) There is no action,  suit or  proceeding  pending or, to the  Company's
knowledge,  threatened  before or by any  federal  or state  court,  commission,
regulatory body,  administrative  agency or other governmental body, domestic or
foreign,  to which the Company is or may become a party or of which any property
of the Company is subject or affected that, if adversely  determined against the
Company,  might  individually or in the aggregate  result in a material  adverse
effect to the Company or its financial condition.

     (e) The Company is not (A) in violation  of its Charter or By-laws,  (B) in
violation of any statute, law, rule, code, administrative regulation, ordinance,
judgment,  order or  decree  of any  government,  governmental  instrumentality,
court,  domestic or foreign, or arbitration panel or other body applicable to it
where such violation would have a material  adverse effect on the Company or its
financial  condition or (C) in default in the  performance  or observance of any
contract where such defaults, singly or in the aggregate,  would have a material
adverse effect on the Company or its financial condition.

     (f) The Company is duly qualified to do business in all jurisdictions where
required for the conduct of its business  except where the failure to so qualify
would not have a material  adverse  affect on the  Company or its  ability to so
conduct such business.

     (g) As of the date hereof and since January 1, 2000,  the Company has filed
with the Securities and Exchange  Commission all periodic reports required under
the Securities Exchange Act of 1934, as amended.

9.       Conversion.

     (a) A Holder of a Note may convert the  principal  amount of such Note into
shares of Common  Stock at any time after the date of  original  issuance of the
Note to the close of business on the Business Day prior to the Maturity Date, or
any extension thereof. The Conversion Price is TWELVE DOLLARS ($12.00) per share
of Common Stock (subject to adjustment in certain  circumstances).  To determine
the number of shares  issuable  upon  conversion  of a Note  (collectively,  the
"Conversion  Shares"),  divide  the  principal  amount  to be  converted  by the
Conversion  Price and round the result to the nearest 1/100th share. The Company
is not required to issue fractional  shares of Common Stock upon conversion and,
instead, will pay a cash amount representing the difference to the Holder.

     (b) To convert a Note a Holder must (1)  complete  and sign the  Conversion
Notice attached hereto, with appropriate signature guarantee, on the back of the
Note,  (2)  surrender  the  Note  to  the  Company,   (3)  furnish   appropriate
endorsements  and transfer  documents if required by the Company or its transfer
agent,  (4) pay the  amount  of  interest,  if any,  the  Holder  may be paid as
provided in the last sentence of the above paragraph and (5) pay any transfer or
similar tax if required. A Holder may convert a portion of a Note if the portion
is $1,000 principal amount or a whole multiple of $1,000 principal amount.

     (c) Any Conversion  Shares shall bear a legend  restricting  transfer until
after the second  anniversary  of the later of the issue date for the Conversion
Shares and the last date on which the  Company or any  Affiliate  of the Company
was the owner of such  shares or Note (or any  predecessor  Note) from which the
shares were  converted  (or such  shorter  period of time as  permitted  by Rule
144(k) under the Securities Act or any successor provision  thereunder) (or such
longer  period of time as may be required by the  Securities  Act or  applicable
state  securities  laws,  unless  otherwise agreed by the Company and the Holder
thereof.

     (d) If the Company at any time while this Note  remains  outstanding  shall
split,  subdivide,  combine its Common Stock or other capital stock or declare a
dividend, the Conversion Price then in effect shall be proportionately decreased
in the case of a split, subdivision or dividend, or proportionately increased in
the case of a combination.  Any adjustment  under this Section 9(d) shall become
effective when the split, subdivision or combination becomes effective.

     (e) The Company will not by its Certificate of  Incorporation  or Bylaws or
through  any  reorganization,  transfer  of  assets,  consolidation  or  merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the  observance or  performance of any of the terms to be observed
or  performed  hereunder  by the  Company,  but will at all times in good  faith
assist in carrying out of all  provisions of this Section 9(e) and in the taking
of all such action as may be  necessary or  appropriate  in order to protect the
exercise and conversion rights of the Holder against impairment.

     (f) Upon the occurrence of any event  adjusting the Conversion  Price,  the
Company at its expense shall promptly  furnish the Holder written notice setting
forth such established or adjusted Conversion Price.

     (g) If any capital  reorganization or reclassification of the capital stock
of the  Company,  or any  consolidation  or merger of the Company  with  another
entity,  or the sale of all or substantially all of the assets of the Company to
another entity,  or any exchange of capital stock of the Company for cash or any
other securities or assets,  shall be effected in such a way that the holders of
the Company's capital stock shall be entitled to receive stock, securities, cash
or assets with respect to the exchange for capital stock, then as a condition of
such reorganization, reclassification,  consolidation, merger, sale or exchange,
lawful and adequate  provisions  shall be made  whereby the Holder  hereof shall
thereafter  have the right to purchase and receive,  upon the basis and upon the
terms  and  conditions  specified  in this  Note  and in lieu of  capital  stock
originally   purchasable   and  receivable  upon  the  exercise  of  the  rights
represented hereby, such shares of stock,  securities,  cash or assets as may be
issued or  payable in  connection  with such  reorganization,  reclassification,
consolidation,  merger,  sale or exchange with respect to or in exchange for the
number of shares of capital stock originally purchasable and receivable upon the
exercise of the rights represented  hereby, had the Holder exercised such rights
immediately prior to the consummation of such reorganization,  reclassification,
consolidation, merger, sale or exchange. In any such case, appropriate provision
shall be made with  respect to the rights  and  interests  of the Holder of this
Note to the end that  the  provisions  hereof  (including,  without  limitation,
provisions for adjustments of the applicable  conversion price) shall thereafter
be  applicable,  as nearly as may be  practicable,  in relation to any shares of
stock,  securities,  cash or assets  thereafter  deliverable  upon the  exercise
hereof.

     (h) The Company  shall at all times  reserve and keep  available out of the
aggregate of its authorized but unissued  Common Stock or other capital stock or
its issued Common Stock or other capital stock held in its treasury or both, for
the purpose of effecting the  conversion of this Note,  such number of shares of
Common  Stock,  capital  stock,  or capital stock  equivalents  as shall then be
issuable upon the conversion of this Note. The Company covenants that all shares
of Common Stock or capital stock issued on conversion of this Note shall be duly
and  validly  issued and fully paid and  nonassessable  and free from all taxes,
liens, and charges with respect to the issue thereof.

     10. Registration  Rights. The Holder hereof shall have certain registration
rights  with  respect  to the  Conversion  Shares as set  forth in that  certain
Registration  Rights  Agreement,  dated as of January 22, 2002, by and among the
Company and the investors participating in the Offering.

         11.      Miscellaneous.

     (a) Any notice or other  communication  required or  permitted  to be given
hereunder  shall be in writing  and shall be mailed by  certified  mail,  return
receipt  requested,  or by Federal  Express,  Express Mail or similar  overnight
delivery or courier  service or delivered  (in person or by  telecopy,  telex or
similar telecommunications equipment) against receipt to the party to whom it is
to be given, (i) if to the Company, at its address at 26 Harbor Park Drive, Port
Washington,  New York 11050,  Attention:  Chief Financial Officer (ii) if to the
Holder,  at its address set forth on the first page  hereof,  or (iii) in either
case,  to such other  address as the party  shall have  furnished  in writing in
accordance  with the provisions of this Section  11(a).  Notice to the estate of
any party  shall be  sufficient  if  addressed  to the party as provided in this
Section 11(a). Any notice or other  communication  given by certified mail shall
be  deemed  given  at the time of  certification  thereof,  except  for a notice
changing a party's  address  which shall be deemed  given at the time of receipt
thereof.  Any notice given by other means  permitted by this Section 11(a) shall
be deemed given at the time of receipt thereof.

     (b) Upon  receipt  of  evidence  satisfactory  to the  Company of the loss,
theft,  destruction  or mutilation of this Note (and upon surrender of this Note
if mutilated), the Company shall execute and deliver to the Holder a new Note of
like date, tenor and denomination.

     (c) No course of dealing and no delay or omission on the part of the Holder
in exercising any right or remedy shall operate as a waiver thereof or otherwise
prejudice the Holder's  rights,  powers or remedies.  No right,  power or remedy
conferred  by this Note upon the Holder  shall be  exclusive of any other right,
power or remedy  referred  to herein or now or  hereafter  available  at law, in
equity,  by statute or otherwise,  and all such remedies may be exercised singly
or concurrently.

     (d) This Note may be amended only by a written  instrument  executed by the
Company and the Holder hereof.  Any amendment  shall be endorsed upon this Note,
and all future Holders shall be bound thereby.

     (e) This Note has been  negotiated and consummated in the State of New York
and shall be governed by and construed in accordance  with the laws of the State
of New York, without giving effect to principles governing conflicts of law.

     IN WITNESS  WHEREOF,  the Company  has caused this Note to be executed  and
dated the day and year first above written.

                                 NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.

                                  By:_________________________________
                                  Name:

                                CONVERSION NOTICE

     To convert this Note into Common  Stock of the Company,  check the box: |_|
To convert only part of this Note,  state the  principal  amount to be converted
(must be in multiples of $1,000):

$

If you want the stock certificate made out in another person's name, fill in the
form below:

(Insert other person's soc. sec. Or tax I.D. no.)

(Print or type other person's name, address and zip code)
---------------------------------------------------------------

Date:______________    Signature(s):
                                    --------------------------

                                        (Signatures must be guaranteed by an
                                          "eligible guarantor institution"
                                          meeting the requirements of the
                                          Company and its transfer agent, which
                                          requirements include membership or
                                          participation in the Security Transfer
                                          Agent Medallion Program ("STAMP") or
                                          such other "signature guarantee
                                          program" as may be determined by the
                                          Registrar in addition to, or in
                                          substitution for, STAMP, all in
                                          accordance with the Securities
                                          Exchange Act of 1934, as amended.)

<PAGE>

     Signature(s)  guaranteed by: (Signatures must be guaranteed by an "eligible
guarantor  institution" meeting the requirements of the Company and its transfer
agent,  which  requirements  include membership or participation in the Security
Transfer Agent Medallion  Program  ("STAMP") or such other "signature  guarantee
program"  as  may  be  determined  by  the  Registrar  in  addition  to,  or  in
substitution  for, STAMP, all in accordance with the Securities  Exchange Act of
1934, as amended.)

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