National Medical Health Card Systems (NMHC)

Compensation of Directors

Our bylaws provide that our directors may, by resolution of our board of directors, be paid a fixed fee and expenses for attendance at each regular or annual meeting of our board of directors and committee meetings. Directors who are our employees and directors who are New Mountain Capital professionals are not entitled to additional compensation. Directors who are neither our employees nor current New Mountain Capital professionals (the “non-employee directors”) are entitled to receive the cash and equity compensation described below.

Non-employee directors receive $25,000 per year for four quarterly board of directors meetings attended, $1,000 per session for any additional meetings attended in person and no additional compensation is paid for any additional meetings attended telephonically. Each member of the audit committee is paid an additional $5,000 for its service on the committee. An additional $5,000 is paid to the chairperson of the audit committee and the chairperson of the compensation committee. In December 2005, the per session compensation for any additional meetings attended in person was increased from $1,000 to $1,250 and non-employee directors were also eligible to receive the same $1,250 per session compensation for any additional meetings attended telephonically. Upon being appointed as a board of director, a non-employee director will be granted an option to purchase up to 20,000 shares of our common stock. The options will have an exercise price equal to the price at the close of business on the date of the grant of the options, vest over a four year period and expire after seven years. Immediately following each annual meeting, all non-employee directors will be granted options. The options will have a seven year term and will terminate 90 days after the date the non-employee director ceases to be a director or consultant or 12 months if termination is due to death or disability. Each option will vest over four years at a rate of 25% of the total shares on the anniversary of the date of grant, so long as the non-employee director remains a director or consultant. We paid an aggregate of $151,500 in directors’ fees during the fiscal year ended June 30, 2006. We reimburse directors for out-of-pocket expenses incurred in connection with attending board of directors and committee meetings.

In December 2005, following our annual meeting, we granted each of our non-employee directors, Messrs, Angowitz, Konigsberg and Hébert, a grant of options to purchase 5,000 shares of common stock with an exercise price of $27.90 per share (the closing price on the date of the grant). Such options vest over a four-year period commencing December 2006 and expire in December 2012.