Document:

EX-10.3 SOFTWARE LICENSE AND SERVICES AGREEMENT

 

EXHIBIT 10.3

SOFTWARE LICENSE AND SERVICES AGREEMENT

     This software license and services agreement (“Agreement”) is by and between
inPharmative, Inc. (“inPharmative”), a Nevada corporation, having its principal place of business
at 10975 Benson Drive, Suite 100, Overland Park, KS 66210, and National Medical Health Card
Systems, Inc.(“NMHC” or “Client”) a Delaware corporation, having its principal place of business at
26 Harbor Park Drive, Port Washington, NY 11050.

     This Agreement sets forth the terms and conditions upon which inPharmative will provide a
limited license for use of it’s proprietary rebate administration and financial modeling software
(“Software”) and certain support services to NMHC for an agreed upon fee.

     In consideration of the mutual promises, covenants, warranties and representations set forth
herein, the parties agree as follows:

General Nature of the Agreement and Agreement of the Parties:

A. inPharmative shall provide a turnkey; outsource solution for a significant part of NMHC’s
business.

B. inPharmative’s production shall be stable, accurate, predictable and timely.

C. The Software shall include full-featured functionality that keeps pace with the
industry.

D. inPharmative will function as NMHC’s development department for the Software and will
develop a mutually agreed upon and reasonable amount of NMHC-specific functionality
including current & future “gaps” in the Software functionality.

E. NMHC shall have full access to documentation of NMHC accessible data structures and the
data housed and / or processed by the Software. NMHC can directly access the data located
on inPharmative servers, the data will also be replicated onto NMHC servers located at NMHC
at the option of NMHC and the data will be supplied in the form of periodic data extracts
in a mutually agreed format and frequency. inPharmative will provide reasonable support
and training to enable NMHC to access the data.

F. inPharmative will conduct its operations using robust best practices and controls
consistent with public company requirements. inPharmative commits to do whatever is
necessary to keep NMHC in compliance with Sarbanes-Oxley Section 404 including, but not
limited to obtaining a SAS70 Type II audit within one month from the date of this Agreement
and annually thereafter.

G. inPharmative acknowledges that speed of implementation of the Software is of key value
to NMHC and a key driver of the decision to use the Software. inPharmative will use best
efforts to implement the Software into production within 30 days of the date of this
Agreement. Failure to comply within the required timeframe will result in penalties as
calculated in accordance with the terms of Exhibit A.

CONFIDENTIAL

 

 

ARTICLE 1: SCOPE OF LICENSE

1.1  — Grant of License

inPharmative hereby grants to NMHC a non-exclusive, limited license to use the Software in the
United States of America and its Territories as set forth in this Agreement.

1.2 — Intellectual Property Ownership

The Software is the intellectual property of and is owned by inPharmative. The structure,
organization and code of the Software are the valued trade secrets and confidential information of
inPharmative. This Agreement does not grant NMHC any intellectual property rights in the Software
and all rights not expressly granted are reserved by inPharmative. Notwithstanding the foregoing,
all data is the intellectual property of and owned by NMHC and shall be held in confidence. This
Agreement provides no intellectual property rights to inPharmative with respect to NMHC data, in
raw form or aggregated, and provides only for inPharmative’s use of the data strictly for the
purpose of rebate processing on behalf of NMHC.

1.3  — Restrictions

NMHC shall not attempt to copy, modify, adapt, duplicate, reproduce or translate the Software
without the prior written consent of inPharmative. NMHC shall not reverse engineer, decompile,
disassemble or otherwise attempt to discover the source code of the Software. Notwithstanding the
foregoing, NMHC is not restricted from independently developing software that is substantially
similar to the Software.

1.4  — Transfer

NMHC may transfer its license to the Software to any of its subsidiaries or affiliates or to a new
entity that results from a merger and / or acquisition of NMHC provided that the new entity agrees
to abide by the terms of this agreement.

1.5 — Location and Access to Software

The production Software will reside on inPharmative’s servers located at the First National
Technology Solutions data center with an address of 12851 Foster Street, Overland Park, KS 66213.
The hosting location will not be changed by inPharmative without NMHC’s consent, which consent
shall not be unreasonably withheld. The Software will be accessible to NMHC via a mutually agreed
upon VPN, Internet or other connection. NMHC has the option to host the Software at an internal
NMHC site, which fees shall be negotiated between the parties upon NMHC’s exercise of this option.

ARTICLE 2: PERFORMANCE OF SERVICES

2.1 Contract Management System Hosting

inPharmative shall host all Software applications unless NMHC elects to host the Software
internally in accordance with Section 1.5. Regardless of hosting location, inPharmative shall
provide system enhancements, new Software versions and routine system data updates as they become
available, at no additional cost to NMHC.

2.2 Software Training

inPharmative will provide to designated NMHC staff, Software training, in the form of one initial
on-site training session with assistance in initial contract data input. Subsequent staff training
and on-going support will be provided via on-line and telephone tutorials. At the request of NMHC,
inPharmative will also provide at least two on-site training sessions per year to update NMHC on
enhancements/changes the Software.

2.3 Technical Support

inPharmative will provide on-going technical support via toll-free telephone or e-mail access
during normal business hours of 8am to 6pm CST and during NMHC’s quarterly rebate processing
period. inPharmative will provide 24 hour technical support access via toll-free telephone access.

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2.4 Report Creation

inPharmative will provide NMHC with web-based standard rebate performance report templates that
will be updated with each processing cycle. In addition, inPharmative will provide a reasonable
number of reports designed to NMHC’s specifications to support P&T Committee, contracting, client
account management and other needs. NMHC may also internally develop reports that access data
processed and / or stored by the Software. inPharmative will provide reasonable support to assist
NMHC in developing these reports, if any.

2.5 Software Enhancements

inPharmative shall provide enhancements to the Software, whenever needed to maintain compliance at
all times with all governmental regulations and industry standards including, but not limited to
Sarbanes-Oxley 404, Medicare Part D regulations and the Centers for Medicare and Medicaid Services
(CMS) regulations, HIPAA, applicable NCPDP standards, and other applicable state and federal
regulations and requirements.

inPharmative and NMHC agree to meet no less often than twice per year for the purpose of reviewing
industry trends and practices and to review inPharmative future development schedule for Software
enhancements. inPharmative will insure that the Software includes full-featured functionality that
keeps pace with the industry. inPharmative shall make continuous improvements to the Software which
collectively add significant levels of functionality no less often than 2 times per year and
regular additions of lesser levels of functionality no less often than once per quarter.

inPharmative will insure that enhancements to the Software will accommodate backwards compatibility
for data extracts and other data structures that are accessed by NMHC for at least 120 days or
other mutually agreed upon time period.

2.6 Service Level Standards and Penalties

inPharmative agrees to comply with the service level standards and penalties set forth in Exhibit A.

ARTICLE 3: WARRANTIES

3.1 — Warranty of Title

inPharmative hereby represents and warrants to NMHC that inPharmative is the owner of the Software
or otherwise has the right to grant to NMHC the rights set forth in this Agreement, including
without limitation, any third party software, data and materials included in the Software.

3.2 — Warranty of Functionality
inPharmative warrants that, for the entire term of this Agreement, the Software shall perform in
all material respects according to inPharmative’s specifications concerning the Software when used
with the appropriate computer equipment. inPharmative will insure that the appropriate computer
equipment is used at the inPharmative hosting facility to operate the Software. inPharmative will
insure that the Software will maintain compatibility with current and future versions of Microsoft
Internet Explorer.

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* Confidential Information Has Been Omitted and Filed Separately With the Commission.

3.3 — Warranty of Performance

inPharmative represents and warrants that all services provided under this Agreement will be
performed promptly in a good and workmanlike manner consistent with best industry practices and in
accordance with the service level standards agreed upon in Exhibit A of this Agreement. Failure to
meet service level standards will result in applicable penalties as defined in Exhibit A.

3.4 — Warranty of Authority

inPharmative represents and warrants that it has the full right and authority to execute and
deliver this Agreement and to perform its obligations under this Agreement, and that neither the
execution nor delivery of this Agreement by inPharmative, nor consummation of the transactions
contemplated hereby, will result in a breach or default under the terms and conditions of any
contract, order, license, charter document or other agreement by which inPharmative is bound.

3.5 — Warranty of Organization

inPharmative represents and warrants that it is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and has all requisite
power and authority to own, lease and operate its properties and to carry on its business as it is
now being conducted.

ARTICLE 4: FEE PAYMENT 

4.1 -Fee Structure

NMHC will pay inPharmative fees for rebate contract administration services and client total paid
prescription claims that are eligible for rebates processing (“Eligible Paid Claims”) as follows:

     a) Provision of Software and Hosting Infrastructure:

$[       ]* per Eligible Paid Claim — for first [       ]* Eligible Paid Claims per calendar year
(minimum of $[       ]* per month). However, the minimum will not apply until the entire NMHC book
of business has been fully implemented; a full month of Eligible Paid Claims has been processed in
production mode through the Software.

$[       ]* per Eligible Paid Claim — for each additional Eligible Paid Claim over [       ]* per
year.

Eligible Paid Claims will only include those claims that are eligible for rebates processing.
Certain types of claims including, but not limited to claims for cash discount card programs are
not eligible for rebates processing and will be filtered out of processing through the Software.
All ineligible claims of this nature will be excluded from the counts of Eligible Paid Claims and
will not incur any fees whether they are filtered out by NMHC before sending to inPharmative or
filtered out by inPharmative during processing by the Software.

This fee will be waived for the claims processed for the period January 1, 2007 through June 30,
2007 for the Medicare Part D business segment, provided that NMHC pays the rebate contract
administration services fee for that period in accordance with the terms outlined below.

In the event that there are significant industry events and/or significant changes in NMHC’s
business that materially reduce revenues available to NMHC from processing rebates then the parties
will negotiate in good faith to reduce or eliminate the minimum fee as defined above. If such an
event occurs and the total NMHC Eligible Paid Claims falls below [       ]* per year, then the fee
will be the actual count of Eligible Paid Claims times the applicable per claim fee and the minimum
fee will not apply.

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* Confidential Information Has Been Omitted and Filed Separately With the Commission.

     b) Provision of Manufacturer Rebate Contract Administration Services:

For the fee of $[       ]* per month, inPharmative will provide the rebate contract administrative
services as described herein. NMHC’s engagement of manufacturer rebate contract administration
services by inPharmative requires an [       ]* fee commitment commencing as of January 1, 2007,
with the initial payment for the six month period ending June 30, 2007 invoiced concurrent with the
execution of this agreement.

     I. Contract Management System Maintenance

Initial input, of all current and future executed manufacturer rebate agreements and
continuous update of inPharmative contract management system data requirements, as provided to
inPharmative by NMHC in an agreed upon format, including NMHC’s manufacturer rebate contract
terms and associated changes, formulary drug list, membership and group identification,
relevant co-pay information and prescription claims data. Any modifications to these items
must be submitted to inPharmative no later than 15 days prior to the end of the quarter to be
included in that quarters’ claims submission.

     II. Quarterly estimates

inPharmative will provide the following information to support the finance estimation process
in an agreed upon format within twenty one (21) days from the end of each quarter:

a). Rebate estimates by manufacturer and NDC;

b). An equivalent to the NMHC 2587 Estimation by mfr-ca.xls - lists out the
rebate-eligible claim counts (Retail and Mail) and estimated rebate and admin fee
amounts by customer/client and by manufacturer.

c). An equivalent to the NMHC 2588 Claim counts by CA. xls- lists out
the paid claim counts (Retail and Mail) by customer/client and by
manufacturer.

     Examples of these reports are being provided separately.

     III. Rebate Processing and Manufacturer Submission

Perform all functions associated with end-of-quarter processing of NMHC rebate reimbursements
and submission of electronic invoice and prescription claim data requirements to respective
manufacturers.

     IV. Payment Reconciliation

Reconciliation of invoiced rebate amounts to actual payments with reporting of variances.
inPharmative will serve as the first line of communication with manufacturers to resolve
variances.

     V. Reporting

inPharmative will provide NMHC with web-based access to standard rebate performance reporting
(e.g. manufacturer, units, price, rebate amounts) updated with each processing cycle. In
addition, inPharmative will provide a reasonable number of reports specifically designed to
NMHC’s specifications at no additional charge to NMHC.

     VI. Audits

inPharmative will support NMHC in its response to internal, CMS, client and/or manufacturer
audits as the needs relate to services and/or calculations performed under this agreement
during the term of this agreement.

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4.2-Fee Payment Schedule

NMHC agrees to pay inPharmative the fee on a monthly basis, due on the last day of the following
month. The first payment will be due after completion of implementation and production processing
of a full month of Eligible Paid Claims. Interest of 1% per month (12% per annum) will be charged
on the outstanding balance of any invoice that is not paid by its due date. NMHC agrees to pay
inPharmative all costs incurred in collecting delinquent payments, including, but not limited to
reasonable attorney’s fees, court costs and collection agency fees.

ARTICLE 5: CONFIDENTIALITY

inPharmative recognizes and respects the confidential and competitive nature of such information
and agrees to limit access to such information to only those officers or employees who shall
reasonably need to know such information.

This Agreement and all information contained herein shall be kept confidential by both parties.
Each party agrees not to disclose to any third party any such information unless the disclosing
party obtains written release from the other party or is required by court order.

ARTICLE 6: TERM AND TERMINATION

6.1 — Term of Agreement.

This Agreement shall commence upon January 1, 2007 and remain in effect until May 31, 2010 unless
terminated sooner pursuant hereto. After this initial term, the contract will automatically renew
for successive one year terms unless notification is provided by either party that the contract
will not be renewed. Such notification should occur at least 90 days prior to the expiration of
the contract.

6.2  — Termination of Agreement.

This Agreement may be terminated by either party if:

a) The other party becomes insolvent, is dissolved or liquidated, makes a general assignment of the
benefits of its creditors, files or has filed against it a petition in bankruptcy, or has a
receiver appointed for a substantial part of its assets.

b) The other party has committed a material breach and such breach has not been cured within thirty
(30) days of receipt of a written notice of such breach.

c) Any change in law or regulation that would: (i) make this Agreement or material portion of a
party’s performance under this Agreement illegal, or (ii) require that any material terms of this
Agreement be extended to any non-party.

d) This Agreement may be terminated by NMHC at any time without cause upon ninety (90) days written
notice to inPharmative.

6.3 — Obligations upon Termination.

Upon termination:

a) inPharmative agrees to return to NMHC or destroy all raw data files and a record of all
transactions executed during the term of this Agreement. inPharmative will notify NMHC before any
raw data files or transactions are destroyed and NMHC shall have the right to take possession of
all such files and records in lieu of their destruction.

b) NMHC shall immediately discontinue use of Company’s services and system applications.

c) NMHC shall pay inPharmative any amounts due under this Agreement up to and including the date of
termination.

d) Parties shall continue to adhere to the confidentiality obligations of Article III.

6.4 — Change-in-Control of inPharmative

a) Pursuant to Article 5 of this Agreement, inPharmative shall treat all NMHC data and other
proprietary information as confidential at all times including during any due diligence or other
activities that may occur at inPharmative as a part of a contemplated sale, merger, joint venture,

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strategic partnership or similar event with regards to ownership and operations of inPharmative. In
the event of a sale of inPharmative, NMHC shall have the right to internally host the Software and
to prohibit any acquirer or other third party with an interest in inPharmative from accessing and /
or processing NMHC data or other information.

6.5 — Change-in-Control of NMHC

a) Pursuant to Article 5 of this Agreement, NMHC shall treat all inPharmative applications and
other proprietary information as confidential at all times including during any due diligence or
other activities that may occur at NMHC as a part of a contemplated sale, merger, joint venture,
strategic partnership or similar event with regards to ownership and operations of NMHC.

ARTICLE 7: SOURCE CODE ESCROW

For the protection of the parties, it is agreed that the source code of the Software and all
documentation necessary to operate and maintain the Software (the “Related Materials”), and any
updates or modifications thereto, shall be maintained in the hands of in the hands of Payne &
Jones, located at 11000 King Street, Overland Park, KS 66210, who shall serve as an escrow agent
for that purpose. NMHC reserves the right to designate another, mutually agreeable escrow agent
whose services, if used, will be at NMHC’s expense. inPharmative shall deposit Software and
Related Materials with the escrow agent within 10 days of the receipt of the first payment by NMHC
and no less often than once per calendar quarter thereafter and upon completion of any significant
updates or modifications. Escrow agent will notify NMHC when initial and subsequent deposits are
made into escrow along with a list of contents that are being held in escrow. The costs of said
escrow shall be paid by inPharmative during the term of this Agreement. Escrow Agent shall hold
the Software source code and Related Materials and shall not deliver the same to either party
except as provided herein. In the event that inPharmative becomes insolvent, is dissolved or
liquidated or files for bankruptcy, Escrow Agent shall deliver the Software source code and Related
Materials to NMHC upon receipt of all escrow fees plus the sum of one dollar ($1.00). Escrow Agent
shall provide notice to the other party who shall have ten (10) days to serve written notice of
objection to the break of escrow. In the event objection is received in a timely manner, Escrow
Agent agrees to continue to hold in escrow the Software source code and Related Materials until
such time as the matter has been resolved and Escrow Agent is ordered to deliver the same to one
party or the other. In the event any objection is timely filed, the parties agree to submit the
matter to arbitration under the rules of the American Arbitration Association, with each party to
bear their own costs.

ARTICLE 8: MISCELLANEOUS

8.1 — Entire Agreement

This Agreement contains the entire agreement and understanding of the parties and shall supersede
any prior agreements and understandings of the parties with respect to the subject matter hereof.

8.2 — Compliance with Laws and Severability

In the performance of its duties and obligations under this Agreement, inPharmative and NMHC shall
each at all times comply with all applicable federal, state and local laws, statutes, regulations,
rules, orders and ordinances now in effect or as hereafter enacted, amended or promulgated. If any
clause or provision of this Agreement is held to be invalid or unenforceable by any court of
competent jurisdiction, the remainder of this Agreement shall not be affected thereby. All other
clauses or provisions of this Agreement, not found invalid or unenforceable shall be and remain
valid and enforceable.

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8.3 — HIPAA Compliance

inPharmative recognizes that NMHC is a covered entity under HIPAA rules and that inPharmative, when
performing required services under this Agreement will be considered a business associate.
inPharmative agrees to comply with all applicable sections of the HIPAA rules and applicable
compliance dates. inPharmative agrees to ensure that any agent, including a subcontractor, working
on behalf of inPharmative agrees to the same conditions.

8.4 — Indemnity

inPharmative recognizes that they serve only to process information relating to contractual
agreements between NMHC and various pharmaceutical manufacturers. Therefore, NMHC agrees to
indemnify inPharmative and hold inPharmative harmless from and against any and all liabilities,
damages, costs or expenses (including reasonable attorney’s fees) claimed by any third party while
inPharmative is performing services in accordance with the terms of this Agreement; provided,
however, that said liability, damage, expense, cost was not the result of any act or omission of
inPharmative.

inPharmative agrees to indemnify NMHC and hold NMHC harmless from and against any and all
liabilities, damages, costs or expenses (including reasonable attorney’s fees) claimed by any third
party as a result of a breach of the terms of this Agreement by inPharamctive; provided, however,
that said liability, damage, expense, cost was not the result of any act or omission of NMHC.

8.5 — Limited Liability

Except as otherwise provided in this Agreement, by law or inPharmative’s negligent act, omission or
misconduct, inPharmative is not responsible for any loss, injury or damage, whether direct,
indirect, incidental, special or consequential, caused by inPharmative’s services including, but
not limited to the use of inPharmative’s software. This limitation on liability includes, but is
not limited to, the transmission of any viruses which may infect a user’s equipment, failure of
mechanical or electronic equipment or communication lines, telephone or other interconnect
problems, unauthorized access, theft, operator error, strikes or other labor problems or any other
cause the result of force majeure.

8.6 — Enjoinment

If NMHC is enjoined (either temporarily or permanently) from using the Software in the manner
described herein the inPharamtive shall, at its option, either (1) replace the application, without
additional charge, with a comparable, functionally equivalent and non-infringing product; (2)
modify the Software to avoid the infringement; (3) obtain a license for NMHC to continue to use the
Software for the duration of the term and pay for any additional fee required for such license; or
(4) if none of the foregoing alternatives are possible even after inPharmactive’s exercise of
reasonable commercial efforts, inPharmative shall refund to NMHC a pro-rata portion of the fees, if
applicable, based on the remaining portion of the term.

8.7 — Amendments and Captions

The terms of this Agreement may only be modified or amended in writing signed by duly authorized
representatives of both parties. The captions of this Agreement are for convenience and reference
only and in no way define, limit or describe the scope of this Agreement or the intent of any
provision hereof.

8.8 — Notices

Any notice to be given by either party to the other shall be in writing and shall be given by
sending such notice postage pre-paid by certified mail or by overnight carrier and addressed to the
other party at the location specified below:

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If to inPharmative:

Bob Rase

inPharmative, Inc.

10975 Benson Dr, Suite 100

Overland Park, KS 66210

If to NMHC:

Chief Information Officer

NMHC

26 Harbor Park Drive

Port Washington, NY 11050

and a copy to

Chief Legal Officer

NMHC

26 Harbor Park Drive

Port Washington, NY 11050

8.9 — Attorney’s Fees

If any party hereto commences an action to enforce the terms of, or resolve a dispute concerning
this Agreement, the prevailing party in such action shall be entitled to recover from the other
party all costs and expenses incurred by such party in connection therewith, including reasonable
attorney’s fees.

8.10 — Assignments

inPharmative and NMHC shall not assign this Agreement to a third party without prior written
consent of the other party except that NMHC shall have the right to transfer its license to
the Software to a new entity that results from a merger and / or acquisition of NMHC provided that
the new entity agrees to abide by the terms of this agreement. Any permitted assignee shall
assume all obligations of its assignor under this Agreement. inPharmative and NMHC shall have the
right to assign this Agreement to its parent company, subsidiary or affiliated company. This
Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their
respective assigns as permitted under this Agreement.

8.11 — Force Majeure

Neither party shall be considered in default of its obligations hereunder, or be liable for damages
or otherwise, for failure or delay in performance which is due to, including but not limited to the
following: (i) Acts of God (ii) regulations or laws of any government (iii) war or civil commotion
(iv) destruction of facilities (v) fire, earthquake or storm (vi) labor disturbances (vii) failure
of public utilities or common carrier.

8.12 — Sales and Use Tax

inPharmative shall pay all sales, service, use taxes, if any, arising from this Agreement.

8.13 —  No Waiver of Rights

No waiver by either inPharmative or NMHC with respect to any breach or default or of any right or
remedy and no course of dealing shall be deemed to constitute a continuing waiver of any other
breach or default or of any other right or remedy, unless such a waiver be expressed in writing by
the party to be bound.

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8.14 —  Record-keeping

inPharmative shall maintain records, including all databases, reports and financial documents for a
period of the longer of (i) retention requirements mandated by CMS or other state or federal
regulatory body, or (ii) twenty-five (25) months following receipt of fee payment by NMHC or
termination of this Agreement, if sooner. InPharmative shall provide historical electronic data and
other records from archives within three (3) business days from the date of request by NMHC.

8.15 — Governing Law

The provisions of this Agreement and all questions with respect to the construction and enforcement
thereof and the rights and liabilities of the parties hereto shall be governed by, and construed
and enforced in accordance with, the laws of the State of New York. The venue of any action
construing or enforcing this Agreement initiated by any party hereto shall be filed in the state or
federal courts servicing New York.

The parties to this Agreement, by their signatures below, agree to the terms set forth herein.

	 	 	 
	/s/ Jason E. Knaust
 

inPharmative, Inc (signature)	 	
/s/ Stuart Diamond
 

(NMHC Systems, Inc (signature)
	Jason E. Knaust
 

inPharmative, Inc (printed name)	 	
Stuart Diamond
 

(NMHC Systems, Inc (printed name)
	President
 

(Title)	 	
CFO
 

(Title)
	8/7/2007
 

[Date]	 	
 
 

[Date]

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EXHIBIT A

Service Level Standards

	 	 	 	 	 	 	 
	Service Standard	 	Definition of Standard	 	How measured	 	Penalty
	 
	InPharmative website 

Availability

	 	Availability of online
system 99.5% of the
time during normal
business hours (6:00am
— 6:00pm CST),
excluding scheduled
downtime for
maintenance or system
upgrades.
	 	Measurement is on a
monthly basis.

Any experienced
downtime will be
immediately
reported by Client
via email and/or
telephone.
	 	Warning: None

Failure to meet
standard = Penalty
	 
	 
	 	 	 	 	 	 
	 
	Upload of Claims
Data to
InPharmative
databases.

	 	From the time a
client’s utilization
file, is received by
inPharmative that file
shall be loaded and
processed by
inPharmative within 24
hours of receipt
excluding weekends.
	 	Any experienced
latency will be
immediately
reported by
Client’s via email
and/or telephone.
	 	Warning: None

Failure to meet
standard = Penalty
	 
	Processing time of
on-line
inPharmative
reports

	 	From the time a link,
button or other web
navigation mechanism
is activated the
processing time for
any given report shall
not exceed 24 hours,
99% of the time.
	 	Any experienced
latency will be
immediately
reported by Client
via email and/or
telephone.
	 	Warning: None

Failure to meet
standard = Penalty
	 
	Notification of
InPharmative
outages or
performance
problems.

	 	If InPharmative or
portions of
inPharmative are
unavailable or
malfunctioning or if
performance based
Service Standards are
not being met,
customer shall be
notified within 60
minutes from the start
of the problem.
inPharmative shall
notify customer
through phone calls
and emails -
distribution list
provided by Client.
	 	Any experienced
notification gaps
will be immediately
reported by Client
via email and/or
telephone.
	 	Warning: None

Failure to meet
standard = Penalty

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	Service Standard	 	Definition of Standard	 	How measured	 	Penalty
	 
	Service Requests

	 	inPharmative will
respond to all urgent
requests within 4
hours and resolve
within 1 business day

inPharmative will
respond to all
non-urgent requests
within 1 business day
and will resolve
within 4 business day.

Examples of urgent
requests include but
are not limited to
major functional
errors that prevent
processing, any errors
that result in
incorrect
calculations.
Non-urgent request
include but are not
limited to questions
on contract set-up and
Software
functionality.
	 	Tracked via a
Service Request
Log. Monthly
report listing open
trouble tickets,
final outcome, and
turnaround time.
	 	Warning: None

Failure to meet
standard = Penalty
	 
	Accuracy of Data
Processing

	 	All material Software
calculations/reports
/etc will be
accurate.
	 	Calculation errors
will be tracked by
Client and reported
back to
inPharmative on a
quarterly basis.
	 	Warning: None

Failure to meet
standard = Penalty

Service Level Agreement Penalties Defined

inPharmative will provide a statement of its compliance with all agreed upon service levels, in a
format agreed to by the parties, on a quarterly basis signed by an officer of the company.
Variations from agreed upon service levels, if any, will be noted.

Penalty — inPharmative will provide Client with a 5% credit of the total InPharmative monthly fees
for each failure to meet a Service Standard as defined above. Under no circumstances will the
cumulative monthly Penalties exceed 15% of total monthly fees in a given month, except as set forth
below.

If inPharmative receives a Penalty for failing to meet a service standard during three consecutive
months (“Three Consecutive Months”), then (i) inPharmative will provide Client with an additional
15% credit and if such service standard failure is not corrected, an additional 15% credit shall be
provided to Client for each additional month after the Three Consecutive Months and (ii) Client
shall have the right to terminate this Agreement immediately upon notice to inPharmative. In such
event, inPharmative shall refund to Client the amount of any unused service credits that exist on
the date of termination.

12Ex-10.4

 

Exhibit 10.4

AMENDMENT NO. 4 AND WAIVER

TO CREDIT AGREEMENT

     AMENDMENT NO. 4 AND WAIVER, dated as of September 30, 2007 (this “Amendment and Waiver“) to
the Credit Agreement, dated as of January 28, 2005 (as amended, restated, modified or otherwise
supplemented, from time to time, the “Credit Agreement”), by and among NATIONAL MEDICAL HEALTH CARD
SYSTEMS, INC. (the “Borrower”), JPMORGAN CHASE BANK, N.A., as Administrative Agent and the LENDERS
from time to time party thereto (each, a “Lender” and, collectively, the “Lenders”).

     WHEREAS, the Borrower has requested, and the Required Lenders have agreed, subject to the
terms and conditions of this Amendment and Waiver, to amend and waive certain provisions of the
Credit Agreement as set forth herein.

     NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein
contained, the parties hereto agree as follows:

1. Amendments.

     a. The definition of the term “Applicable Rate” in Section 1.01 of the Credit Agreement is
hereby amended by adding the following sentence at the end thereof:

“Notwithstanding anything to the contrary herein, the Applicable Rate will be
determined based on a ratio of Consolidated Debt to Consolidated EBITDA of greater
than or equal to 2.00:1.00 for all periods from the Effective Date through the
Maturity Date.”

     b. The last sentence of the definition of “Commitments” in Section 1.01 of the Credit
Agreement is hereby amended and restated in its entirety to provide as follows:

“The aggregate amount of the Lenders’ Commitments is $25,000,000.”

     c. The first sentence of the definition of the term “Consolidated Fixed Charge Coverage Ratio”
is hereby amended and restated in its entirety to provide as follows:

“Consolidated Fixed Charge Ratio” means the ratio of (1) Consolidated EBITDA
minus Consolidated Unfunded Capital Expenditures to (2) the sum of (a) the
current portion of Consolidated Debt, including cash “earn-out” payments made by the
Borrower and its Subsidiaries in the twelve (12) months preceding the date of
calculation, plus (b) interest expense plus (c) cash taxes paid by
the Borrower and its Subsidiaries.

     d. The definition of the term “Maturity Date” in Section 1.01 of the Credit Agreement is
hereby amended and restated in its entirety to provide as follows:

“Maturity Date” means March 31, 2008.

     e. The following definitions are hereby added to Section 1.01 of the Credit Agreement in their
appropriate alphabetical order:

 

 

“Borrowing Base” shall mean an amount equal to the sum of (1) seventy five (75%)
percent of all Eligible Receivables, plus (2) the lesser of (a) fifty percent (50%)
of Eligible Inventory or (b) $7,500,000; provided, however, the Required Lenders may
increase or decrease such percentages from time to time in their reasonable
discretion. Any such revision to advance rates or to the inventory limitation would
become effective five (5) days after notice of such change is delivered to the
Borrower, unless a Default or an Event of Default is then existing, in which case
such revision shall be effective immediately upon delivery of such notice.
Notwithstanding anything to the contrary herein, the Required Lenders will not
decrease the advance rate for Eligible Receivable to a rate less than 50% at any
time prior to the occurrence and continuance of an Event of Default.

“Borrowing Base Certificate” shall mean the Borrowing Base Certificate in the form
set forth as Exhibit G attached hereto.

“Customer” shall mean and include the account debtor or obligor with respect to any
Receivable.

“Effective Date” shall mean September 30, 2007.

“Eligible Inventory” shall mean the gross amount of the Borrower’s finished goods
and raw materials inventory located in the United States of America, less the
following items: any packaging materials and supplies; work-in-process; supplies
(other than supplies held for sale), damaged or unsalable goods, damaged or
unsalable goods returned or rejected by Customers; obsolete goods; goods to be
returned to the Borrower’s suppliers; goods in transit to third parties; consigned
inventory; inventory in transit; and inventory located at facilities where the
Administrative Agent has not (a) been granted a first priority perfected security
interest and (b) received landlord or warehousemens’ waiver letters, as appropriate,
if the facility is not owned and occupied by the Borrower, provided “Eligible
Inventory” shall exclude all other inventory which is otherwise regarded by the
Required Lenders in its sole discretion as unsuitable collateral for the Loans. If
any inventory is moved to a location where the Lenders’ security interest therein
becomes unperfected upon such move under applicable law, such inventory shall not be
Eligible Inventory (a) until 91 days after the date on which the Lenders’ security
interest therein has become perfected under applicable law and (b) such inventory
meets all of the other requirements set forth in this definition. The value of all
Eligible Inventory shall be determined at the lower of cost or market value on a
first in first out basis in accordance with Generally Accepted Accounting Principles
applied on a consistent basis.

“Eligible Receivables” shall mean Receivables created by the Borrower in the
ordinary course of business arising out of the sale or lease of goods or rendition
of services by the Borrower, which are and at all times shall continue to be
acceptable to the Required Lenders in all respects. Standards of eligibility may be
fixed and revised from time to time solely by the Required Lenders in the Required
Lenders’ exclusive judgment. In general, without limiting the foregoing, a
Receivable shall in no event be deemed to be an Eligible Receivable unless: (a) all
payments due on the Receivable have been invoiced and the underlying goods shipped
or services performed, as the case may be; (b) no more than ninety (90) days have
elapsed from the invoice date and not more than sixty (60) days have elapsed from
the invoice due date; (c) the payments due on more than 50% of all Receivables from
the same Customer are not more than ninety (90) days past the invoice date or more
than sixty (60) days past due the invoice due date; (d) the

2

 

Receivable arose from a completed and bona fide transaction (and with respect
to a sale of goods, a transaction in which title has passed to the Customer) which
requires no further act under any circumstances on the part of the Borrower in order
to cause such Receivable to be payable in full by the Customer; (e) the Receivable
is in full conformity with the representations and warranties made by the
Administrative Agent and Lenders with respect thereto and is free and clear of all
security interests and Liens of any nature whatsoever other than any security
interest deemed to be held by the Borrower or any security interest created pursuant
to the Security Documents or permitted by Section 7.02 hereof; (f) the Receivable
constitutes an “account” or “chattel paper” within the meaning of the Uniform
Commercial Code of the state in which the Receivable is located; (g) the Customer
has not asserted that the Receivable, and the Borrower is not aware that the
Receivable, arises out of a bill and hold, consignment or progress billing
arrangement or is subject to any setoff, rebate, contrast, net-out contract, offset,
deduction, dispute, credit, counterclaim or other defense arising out of the
transactions represented by the Receivables or independently thereof and the
Customer has finally accepted the goods from the sale out of which the Receivable
arose and has not objected to its liability thereon or returned, rejected or
repossessed any of such goods, except for complaints made or goods returned in the
ordinary course of business for which, in the case of goods returned, goods of equal
or greater value have been shipped in return; (h) the Receivable arose in the
ordinary course of business of the Borrower; (i) the Customer is not (x) the United
States government or the government of any state or political subdivision thereof or
therein, or any agency or department of any thereof or any foreign government unless
there has been compliance to the satisfaction of the Administrative Agent with the
Federal Assignment of Claims Act or similar state or foreign statutes or (y) an
Affiliate of the Borrower or any Guarantor or any Subsidiary of any thereof; (j)
such Receivable is from a Customer which is (i) a United States person, or (ii) an
obligor in the United States; (k) the Receivable complies with all material
requirements of all applicable laws and regulations, whether federal, state or local
(including, without limitation, usury laws and laws, rules and regulations relating
to truth in lending, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and privacy); (1) the Receivable is in
full force and effect and constitutes a legal, valid and binding obligation of the
Customer enforceable in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium and other similar laws
affecting the enforcement of creditors’ rights generally and by general equity
principles; (m) the Receivable is denominated in and provides for payment by the
Customer in U.S. dollars; (n) the Receivable has not been and is not required to be
charged off or written off as uncollectible in accordance with Generally Accepted
Accounting Principles or the customary business practices of the Borrower; (o) the
Administrative Agent on behalf of the Lenders possesses a valid, perfected first
priority security interest in such Receivable as security for payment of the
Obligations; (p) the Receivable does not arise with respect to a Customer or a
pharmacy located in the State of Ohio; (q) the Customer has executed the Borrower’s
standard form of Pharmacy Benefit Management Agreement; and (p) the Required Lenders
are satisfied with the credit standing of the Customer in relation to the amount of
credit extended.

“Receivables” shall mean any and all rights of the Borrower to payment for goods
sold or leased or for services rendered, including accounts, contract rights,
general intangibles and any such right evidenced by chattel paper, instruments or
documents.

     f. The first sentence of Section 2.01 of the Credit Agreement is hereby amended and restated
in its entirety to provide as follows:

3

 

“Subject to the terms and conditions set forth herein, each Lender agrees to make
Revolving Loans to the Borrower from time to time during the Availability Period in
an aggregate principal amount that will not result in (a) such Lender’s Revolving
Credit Exposure exceeding such Lender’s Commitment or (b) the sum of the total
Revolving Credit Exposures exceeding the lesser of (x) the total Commitments and (b)
the Borrowing Base.”

     g. The second sentence of Section 2.02(c) of the Credit Agreement is hereby amended and
restated in its entirety to provide as follows:

“At the time that each ABR Revolving Borrowing is made, such Borrowing shall be in
an aggregate amount that is an integral multiple of $500,000 and not less than
$1,500,000; provided that an ABR Revolving Borrowing may be in an aggregate amount
that is equal to the lesser of (a) the Borrowing Base and (b) the entire unused
balance of the total Commitments or that is required to finance the reimbursement of
an LC Disbursement as contemplated by Section 2.06(e).”

     h. Section 2.04 of the Credit Agreement is hereby amended and restated in its entirety to
provide as follows:

“Intentionally omitted”

     i. The first sentence Section 2.05(a) of the Credit Agreement is hereby amended and restated
in its entirety to provide as follows:

“Subject to the terms and conditions set forth herein, the Swingline Lender agrees
to make Swingline Loans to the Borrower from time to time during the Availability
Period, in an aggregate principal amount at any time outstanding that will not
result in (i) the aggregate principal amount of outstanding Swingline Loans
exceeding $5,000,000 or (ii) the sum of the total Revolving Credit Exposures
exceeding the lesser of (x) the total Commitments and (b) the Borrowing Base;
provided that the Swingline Lender shall not be required to make a Swingline Loan to
refinance an outstanding Swingline Loan.”

     j. The last sentence of Section 2.06(b) of the Credit Agreement is hereby amended and restated
in its entirety to provide as follows:

“A Letter of Credit shall be issued, amended, renewed or extended only if (and upon
issuance, amendment, renewal or extension of each Letter of Credit the Borrower
shall be deemed to represent and warrant that), after giving effect to such
issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed
$5,000,000 and (ii) the sum of the total Revolving Credit Exposures shall not exceed
the lesser of (x) the total Commitments and (y) the Borrowing Base.”

     k. Section 2.09(b) of the Credit Agreement is hereby amended and restated in its entirety to
provide as follows:

“The Borrower may at any time terminate, or from time to time reduce, the
Commitments; provided that (i) each reduction of the Commitments shall be in an
amount that is an integral multiple of $1,000,000 and not less than $5,000,000 and
(ii) the Borrower shall not terminate or reduce the Commitments if, after giving
effect to any

4

 

concurrent prepayment of the Loans in accordance with Section 2.11, the sum of the
Revolving Credit Exposures would exceed the lesser of (x) the total Commitments and
(b) the Borrowing Base.”

     l. Section 2.11(a) of the Credit Agreement is hereby amended to add the following sentence at
the end thereof:

“In addition, to the extent that the Revolving Credit Exposures exceeds the
Borrowing Base as in effect at any time, the Borrower shall immediately prepay the
Loans to the extent necessary to cause compliance with the Borrowing Base.”

     m. Section 4.03 of the Credit Agreement is hereby amended to (a) add the following new
subsection “(c)” immediately following subsection “(b)” therein:

“(c) The Borrower shall have delivered to the Administrative Agent a duly completed
Borrowing Base Certificate, dated such date and signed by a Financial Officer of the
Borrower.

and (b) to delete the reference to “(a) and (b)” in the third line of the unnumbered paragraph at
the end thereof and replace it with “(a), (b) and (c).”

     n. Section 5.01(b) of the Credit Agreement is hereby amended by adding an “(i)” immediately
following “(b)” therein and by adding new clause “(ii)” at the end of such subsection as follows:

"(ii) within 45 days after the end of each of calendar month (other than March,
June, September and December) of each fiscal year of the Borrower, its consolidated
balance sheet and related statements of operations, stockholders’ equity and cash
flows as of the end of and for such fiscal quarter and the then elapsed portion of
the fiscal year, setting forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance sheet, as of the
end of) the previous fiscal year, all certified by one of its Financial Officers as
presenting fairly in all material respects the financial condition and results of
operations of the Borrower and its consolidated Subsidiaries on a consolidated basis
in accordance with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes;

     o. Section 5.01 of the Credit Agreement is hereby further amended by (a) deleting the “and” at
the end of subsection “(g)” thereof, (b) deleting the period at the end of subjection “(h)” thereof
and replacing it with “; and” and by adding a new subsection “(i)” immediately following subsection
“(h)” as follows:

“(i) (x) simultaneously with the request for a Loan or issuance, amendment, renewal
or extension of a Letter of Credit, a completed Borrowing Base Certificate and (y)
within fifteen (15) days after (A) the end of each fiscal quarter at any time that
the total Revolving Credit Exposures are $0 and (B) the end of each calendar month
at any time that the total Revolving Credit Exposure are greater than $0;”

     p. Section 6.06 of the Credit Agreement is hereby amended and restated in its entirety to
provide as follows:

“The Borrower will not, and will not permit any of its Subsidiaries to, declare or
make, or

5

 

agree to pay or make, directly or indirectly, any Restricted Payment, except (a) the
Borrower may declare and pay dividends with respect to its Equity Interests payable
solely in additional shares of its common stock, (b) Subsidiaries may declare and
pay dividends ratably with respect to their Equity Interests, (c) the Borrower may
make Restricted Payments (other than payments of cash, securities and other
property) pursuant to and in accordance with stock option plans or other benefit
plans for management or employees of the Borrower and its Subsidiaries, and (d)
scheduled (non-special) dividends with respect to the Series A Preferred in the form
of additional shares of Series A Preferred (it being acknowledged that a dividend or
other Restricted Payment does not occur solely as a result of increases in the
Accrued Value of the Series A Preferred (as such term is defined therein).”

     q. Section 6.13 of the Credit Agreement is hereby deleted in its entirety.

     r. Schedule 2.01 of the Credit Agreement is hereby amended and replaced with Schedule 2.01
attached to this Amendment and Waiver. Exhibit G attached to this amendment and Waiver is hereby
added as Exhibit G to the Credit Agreement.

2. Waiver.

     Compliance with Section 6.12(b) of the Credit Agreement is hereby waived for the fiscal
quarter ended September 30, 2007, provided that the actual Consolidated Fixed Charge Ratio was not
less than 0.26:1.00 at the end of such quarter.

3. Conditions to Effectiveness.

     This Amendment and Waiver shall become effective upon receipt by the Administrative Agent of
(a) this Amendment and Waiver duly executed by each of the parties hereto, (b) a Revolving Credit
Note, in the form of Exhibit 1 attached hereto, duly executed by the Borrower, payable to each
Lender in the applicable Commitment Amount specified on Schedule 2.01 attached hereto, (c) a
Secretary’s Certificate, in form and substance satisfactory to the Administrative Agent, with
copies of Resolutions of the Board of Directors of the Borrower approving the execution and
delivery of this Amendment and Waiver and certifying that there have been no changes to the
Borrower’s Certificate of Incorporation and By-laws since the Closing Date, (d) a Borrowing Base
Certificate as of the date hereof, in form and substance satisfactory to the Administrative Agent,
(e) a Reaffirmation Agreement, substantially in the form of Exhibit 2 attached hereto and (f) an
amendment fee equal to the greater of (i) $25,000 or (ii) one-tenth of one percent (.10%) of the
aggregate Commitments of the Lenders after giving effect to this Amendment and Waiver, for the
pro-rata distribution to the Lenders.

3. Miscellaneous.

     The amendments and waiver herein contained are limited specifically to the matters set forth
above and do not constitute directly or by implication a waiver or amendment of any other provision
of the Credit Agreement or a waiver of any Default or Event of Default which may occur or may have
occurred.

     The Borrower hereby agrees to pay all of the Administrative Agent’s reasonable attorneys’ fees
incurred in connection with the preparation, execution and delivery of this Amendment and Waiver,
including all outstanding amounts, promptly following receipt of a statement describing such fees.

6

 

     Capitalized terms used herein and not otherwise defined herein shall have the same meanings as
defined in the Credit Agreement.

     Except as expressly amended hereby, or as may have been previously amended, the Credit
Agreement shall remain in full force and effect in accordance with the original terms thereof.

     The Borrower hereby represents and warrants that (a) after giving effect to this Amendment and
Waiver, the representations and warranties in the Credit Agreement and the other Loan Documents are
true and correct in all material respects as of the date hereof with the same effect as though such
representations and warranties have been made on and as of such date, unless such representation is
as of a specific date, in which case, as of such date, and (b) after giving effect to this
Amendment and Waiver, no Default or Event of Default has occurred and is continuing.

     This Amendment and Waiver may be executed in one or more counterparts, each of which shall
constitute an original, but all of which when taken together shall constitute but one instrument.

     THIS AMENDMENT AND WAIVER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.

     This Amendment and Waiver shall constitute a Loan Document.

[the next page is the signature page]

7

 

     IN WITNESS WHEREOF, the Borrower, the Lenders and the Administrative Agent have caused this
Amendment and Waiver to be duly executed as of the day and year first above written.

	 	 	 	 	 
	 	NATIONAL MEDICAL HEALTH CARD
SYSTEMS, INC.

 	 
	 	By:  	/s/ Stuart
Diamond	 
	 	 	Name:  	Stuart Diamond 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	JPMORGAN CHASE BANK, N.A., as
Administrative Agent and as a Lender
 	 
	 	By:  	/s/ Stephen
Zajac	 
	 	 	Name:  	Stephen Zajac 	 
	 	 	Title:  	Senior Vice President 	 
	 

	 	 	 	 	 
	 	HSBC BANK USA, NATIONAL ASSOCIATION, as a Lender

 	 
	 	By:  	/s/ John
Garside	 
	 	 	Name:  	John Garside 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	WACHOVIA BANK, N.A., as a Lender

 	 
	 	By:  	/s/ Edward
P. Nallan Jr.	 
	 	 	Name:  	Edward P. Nallan Jr. 	 
	 	 	Title:  	 	 

8

 

	 	 	 	 	 

CONSENT

     Each of the undersigned, not parties to the Credit Agreement but each a Guarantor under a
Corporate Guaranty, hereby consents to and acknowledges the terms of the Amendment to which this
consent is attached and confirms that its Corporate Guaranty is in full force and effect and
reaffirms its continuing liability under its Corporate Guaranty in respect of the Credit Agreement
as amended hereby and all the documents, instruments and agreements executed pursuant thereto or in
connection therewith, without offset, defense or counterclaim (any such offset, defense or
counterclaim as may exist being hereby irrevocably waived by such guarantor).

NMHCRX MAIL ORDER, INC.

INTEGRAIL, INC.

NMHC FUNDING, LLC
NMHCRX, INC.

INTEQ CORP.

INTEQ TX CORP.

INTEQ PBM, L.P.

PORTLAND PROFESSIONAL PHARMACY

PORTLAND PROFESSIONAL PHARMACY ASSOCIATES

SPECIALTY PHARMACY CARE, INC.

CENTRUS CORPORATION

NATIONAL MEDICAL HEALTH CARD IPA, INC.

NMHCRX CONTRACTS, INC.

PHARMACY ASSOCIATES, INC.

INTERCHANGE PMP, INC.

PCN DE CORP.

PHARMACEUTICAL CARE NETWORK

NMHC GROUP SOLUTIONS INSURANCE, INC.

	 	 	 	 	 
	 	 	 
	 	By:  	/s/
 Stuart Diamond	 
	 	 	Stuart Diamond, the Treasurer of each of the 	 
	 	 	foregoing entities 	 

9

 

	 	 	 	 	 

Schedule 2.01

Lender Commitment Amount

	 	 	 	 	 
	Lender	 	Commitment Amount	 
	JPMorgan Chase Bank, N.A.
	 	$	9,615,384.60	 
	HSBC Bank USA
	 	$	7,692,307.70	 
	Wachovia Bank, N.A.
	 	$	7,692,307.70	 

10

 

Exhibit 1

AMENDED AND RESTATED

REVOLVING CREDIT NOTE

	 	 	 
	$____________

	 	Melville, New York
	 

	 	September 30, 2007

     FOR VALUE RECEIVED, NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC., a Delaware corporation (the
“Borrower”), promises to pay to the order of
___ (the “Lender”), on or before the
Maturity Date, the principal amount of ___ ($___) DOLLARS, or, if
less, the unpaid principal amount of all Loans made by the Lender to the Borrower under the Credit
Agreement referred to below.

     The Borrower promises to pay interest on the unpaid principal amount hereof from the date
hereof until paid in full at the rates and at the times which shall be determined, and to make
principal repayments on this Note at the times which shall be determined, in accordance with the
provisions of the Credit Agreement referred to below.

     This Note is issued at the request of the Lender pursuant to Section 2.10(c) of the Credit
Agreement, dated as of January 28, 2005 by and among the Borrower, the Lender, JPMorgan Chase Bank,
N.A., as Administrative Agent and the other Lenders party thereto (as the same may be amended,
restated, modified or supplemented from time to time, the “Credit Agreement”) and is entitled to
the benefits of the Credit Agreement to which reference is hereby made for a more complete
statement of the terms and conditions under which the Loans evidenced hereby were made and are to
be repaid. Capitalized terms used herein without definition shall have the meanings set forth in
the Credit Agreement.

     Each of the Lender and any subsequent holder of this Note agrees, by its acceptance hereof,
that before transferring this Note it shall record the date, Type and amount of each Loan and the
date and amount of each payment or prepayment of principal of each Loan previously made hereunder
on the grid schedule annexed to this Note; provided, however, that the failure of
the Lender or holder to set forth such Loans, payments and other information on the attached grid
schedule shall not in any manner affect the obligation of the Borrower to repay the Loans made by
the Lender in accordance with the terms of this Note.

     This Note is subject to prepayment pursuant to Section 2.11 of the Credit Agreement.

     Upon the occurrence of an Event of Default, the unpaid balance of the principal amount of this
Note together with all accrued but unpaid interest thereon, may become, or may be declared to be,
due and payable in the manner, upon the conditions and with the effect provided in the Credit
Agreement.

     All payments of principal and interest in respect of this Note shall be made in lawful money
of the United States of America in immediately available funds at the office of the Administrative
Agent at its offices located at 131 South Dearborn Avenue, 5th Floor, Chicago, Illinois
60603, or at such other place as shall be designated in writing for such purpose in accordance with
the terms of the Credit Agreement.

     No reference herein to the Credit Agreement and no provision of this Note or the Credit
Agreement shall alter or impair the obligation of the Borrower, which is absolute and
unconditional, to pay the principal of and interest on this Note at the place, at the respective
times, and in the currency

11

 

herein prescribed.

     The Borrower and endorsers of this Note waive presentment, diligence, demand, protest, and
notice of any kind in connection with this Note.

     [This Note amends and restates in its entirety the Revolving Credit Note in the principal
amount of $20,000,000 from the Borrower in favor of the Lender dated January 25, 2005 (the
“Original Note”). The execution and delivery of this Note shall not be construed to have
constituted a repayment of any principal of, or interest on, the Original Note.] [Wachovia only]

     THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

     IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and delivered by its duly
authorized officer, as of the day and year and at the place first above written.

	 	 	 	 	 
	 	NATIONAL MEDICAL HEALTH CARD

SYSTEMS, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

12

 

	 	 	 	 	 

SCHEDULE

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Date	 	Principal	 	Type	 	 	 	 	 	Applicable	 	Amount of	 	Notation
	of	 	Amount of	 	of	 	Interest	 	Interest	 	Principal	 	Made
	Loan	 	Loan	 	Loan	 	Rate	 	Period	 	Paid	 	By

13

 

Exhibit 2

Form of

Reaffirmation Agreement

September 30, 2007

JPMorgan Chase Bank, N.A., as Administrative Agent

395 North Service Road

Melville, New York 11747

Gentlemen:

     Reference is hereby made to that certain Amendment No. 4 and Waiver to Credit Agreement dated
the date hereof (the “Amendment and Waiver”) with respect to the Credit Agreement, dated as of
January 28, 2005 by and among NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. (the “Borrower”), JPMORGAN
CHASE BANK, N.A., as Administrative Agent and the LENDERS from time to time party thereto (as
amended, the “Credit Agreement”). Capitalized terms not otherwise defined herein shall have the
meanings given to them in the Credit Agreement.

     As a condition precedent to the effectiveness of the Amendment and Waiver, the Borrower and
each Guarantor hereby:

          (a) acknowledges and confirms that, (i) all terms and provisions contained in the Loan
Documents to which they are a party are, and shall remain, in full force and effect in accordance
with their respective terms, (ii) the liens heretofore granted, pledged and/or assigned to the
Administrative Agent for the benefit of the Lenders as security for any of the undersigned’s
obligations shall not be impaired, limited or affected in any manner whatsoever by reason of the
Amendment and Waiver or this Reaffirmation, and (iii) all such liens and security interests shall
be deemed granted, pledged and/or assigned to the Bank as security for all of the undersigned’s
obligations and liabilities to the Bank, whether now existing or hereafter arising;

          (b) reaffirms and ratifies all the representations and covenants contained in their respective
Loan Documents; and

          (c) represents, warrants and confirms the non-existence of any offsets, defenses, or
counterclaims to their respective obligations under the Loan Documents to which they are a party,
including, with respect to the Borrower, the Credit Agreement.

     Except as expressly provided herein, the execution, delivery and effectiveness of this
Reaffirmation shall not operate as a waiver of any right, power or remedy of the Bank, nor
constitute a waiver of any provision of the Credit Agreement, any other Loan Document, or any other
document or agreement executed in connection therewith.

14

 

     IN WITNESS WHEREOF, the parties hereto have caused this Reaffirmation to be executed and
delivered as of the date first above written.

	 	 	 	 	 
	 	NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.

 	 
	 	By:  	/s/ Stuart
Diamond	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

NMHCRX MAIL ORDER, INC.

INTEGRAIL, INC.

NMHC FUNDING, LLC

NMHCRX, INC.

INTEQ CORP.

INTEQ TX CORP.

INTEQ PBM, L.P.

PORTLAND PROFESSIONAL PHARMACY

PORTLAND PROFESSIONAL PHARMACY ASSOCIATES

SPECIALTY PHARMACY CARE, INC.

CENTRUS CORPORATION

NATIONAL MEDICAL HEALTH CARD IPA, INC.

NMHCRX CONTRACTS, INC.

PHARMACY ASSOCIATES, INC.

INTERCHANGE PMP, INC.

PCN DE CORP.

PHARMACEUTICAL CARE NETWORK

NMHC GROUP SOLUTIONS INSURANCE, INC.

	 	 	 	 	 
	 	 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

Acknowledged and Agreed:

JPMORGAN CHASE BANK, N.A., as

Administrative Agent

	 	 	 	 	 
	 	 	 
	By:  	/s/ Stephen
Zajac	 	 
	 	Title: Senior Vice President 	 	 
	 	 	 	 

15

 

	 	 	 	 	 

Exhibit B

Form of Borrowing Base Certificate

NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC. (“NMHC”)

As of ____/____/____

	 	 	 	 	 
	Accounts Receivable Balance Per Aged Subsidiary Ledger
	 	$	 	 
	 
	 	 	 
	Less:     Ineligible Accounts Receivable Balances
	 	 	 	 
	Balances Aged > 90+ DPI (over 90 days from invoice date)
	 	$	 	 
	 
	 	 	 
	Credits in past due (over 90 days from transaction date)
	 	$	 	 
	 
	 	 	 
	Cross Aged Balances (greater than 50% of customer balance 90+ DPI)
	 	$	 	 
	 
	 	 	 
	Sponsors using Ohio Pharmacies (net of P/D)
	 	$	 	 
	 
	 	 	 
	Contra Accounts Receivable Balances (PBM Customers Rebates Payable)
	 	$	 	 
	 
	 	 	 
	Intercompany Accounts Receivable Balances
	 	$	 	 
	 
	 	 	 
	Other Rebates
	 	$	 	 
	 
	 	 	 
	Billed but not Shipped
	 	$	 	 
	 
	 	 	 
	General Ledger Reserve for Uncollectible A/R (Ascend Division)
	 	$	 	 
	 
	 	 	 
	Other
	 	$	 	 
	 
	 	 	 
	Total Ineligible Accounts Receivable Collateral
	 	$	 	 
	 
	 	 	 
	Net Eligible Accounts Receivable Collateral
	 	$	 	 
	 
	 	 	 
	Advance Rate against Eligible Accounts
	 	 	75%	
	Available Accounts Receivable @ 75%
	 	$	 	 
	 
	 	 	 
	Gross Inventory per Perpetual Reports (Mail Order/Ascend)
	 	$	 	 
	 
	 	 	 
	Net Eligible Inventory Collateral
	 	$	 	 
	 
	 	 	 
	Advance Rate against Eligible Inventory
	 	 	50%	
	Available Inventory @ 50%
	 	$	 	 
	 
	 	 	 
	Combined Available Collateral Balance
	 	$	 	 
	 
	 	 	 

16

 

The undersigned hereby represents and warrants that all information set forth herein, including
with respect to the status of NMHC’s accounts receivable and inventory, is true, complete and
correct. The undersigned further understands and acknowledges that the Lenders will rely upon the
information set forth herein in making loans to the undersigned. The undersigned further
represents and warrants that NMHC is in compliance with all of the terms and conditions contained
in the agreements between NMHC, the Lenders and JPMorgan Chase Bank, N.A.

	 	 	 	 	 
	 	National Medical Health Card Systems, Inc.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

17

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