<PAGE>

                                                                    EXHIBIT 10.7
                                                                    ------------



                                     FORM OF


                 INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT


                                 BY AND BETWEEN


                               MERCK & CO., INC.,


                                       AND

                           MEDCOHEALTH SOLUTIONS, INC.









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                               Table of Contents
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ARTICLE I            INDEMNIFICATION..............................................................................1
    Section 1.1      Indemnification by Medco.....................................................................1
    Section 1.2      Indemnification by Merck.....................................................................2
    Section 1.3      Procedures for Defense, Settlement and Indemnification of Third Party Claims.................3
    Section 1.4      Additional Matters...........................................................................5
    Section 1.5      Survival of Indemnities......................................................................6
ARTICLE II           INSURANCE MATTERS............................................................................6
    Section 2.1      Insurance Coverage...........................................................................6
    Section 2.2      Notification.................................................................................7
    Section 2.3      Reinstatement and Replacement Requirements...................................................8
    Section 2.4      Cooperation and Agreement Not to Release Carriers............................................8
    Section 2.5      Medco Insurance Coverage After the Insurance Period..........................................9
    Section 2.6      Responsibilities for Self-insured Obligations................................................9
    Section 2.7      Management of Claims.........................................................................9
    Section 2.8      Cooperation..................................................................................9
    Section 2.9      No Assignment or Waiver......................................................................9
    Section 2.10     No Liability.................................................................................9
    Section 2.11     No Restrictions.............................................................................10
    Section 2.12     Further Agreements..........................................................................10
ARTICLE III          DISPUTE RESOLUTION..........................................................................10
    Section 3.1      Negotiation.................................................................................10
    Section 3.2      Binding Arbitration.........................................................................10
    Section 3.3      Specific Performance........................................................................12
ARTICLE IV           PRIVILEGED INFORMATION......................................................................12
    Section 4.1      Privileged Information......................................................................12
ARTICLE V            MISCELLANEOUS...............................................................................13
    Section 5.1      Entire Agreement............................................................................13
    Section 5.2      Governing Law; Forum........................................................................13
    Section 5.3      Notices.....................................................................................14
    Section 5.4      Binding Effect; Assignment; Third-Party Beneficiaries.......................................14
    Section 5.5      Offset......................................................................................15
    Section 5.6      Other Agreements Evidencing Indemnification Obligations.....................................15
    Section 5.7      Counterparts................................................................................15
    Section 5.8      Severability................................................................................15
    Section 5.9      Failure or Indulgence Not Waiver............................................................15
    Section 5.10     Amendment...................................................................................16
    Section 5.11     Interpretation..............................................................................16
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ARTICLE VI           DEFINITIONS.................................................................................16
    Section 6.1      Action......................................................................................16
    Section 6.2      Dispute.....................................................................................16
    Section 6.3      Indemnitee..................................................................................16
    Section 6.4      Indemnifying Party..........................................................................16
    Section 6.5      Insurance Period............................................................................16
    Section 6.6      Insurance Policies..........................................................................16
    Section 6.7      Intercompany Agreements.....................................................................16
    Section 6.8      Liabilities.................................................................................16
    Section 6.9      Material Adverse Effect.....................................................................17
    Section 6.10     Medco Assets................................................................................17
    Section 6.11     Medco Balance Sheet.........................................................................17
    Section 6.12     Medco Indemnitees...........................................................................17
    Section 6.13     Medco Liabilities...........................................................................17
    Section 6.14     Merck Indemnitees...........................................................................19
    Section 6.15     Merck Insurance Policy......................................................................19
    Section 6.16     Merck Liabilities...........................................................................19
    Section 6.17     Merck's Share of the Shared Liability Actions...............................................20
    Section 6.18     Privileged Information......................................................................20
    Section 6.19     Securities Liabilities......................................................................20
    Section 6.20     Separation Agreement........................................................................20
    Section 6.21     Shared Liability Actions....................................................................20
    Section 6.22     Subsidiary..................................................................................20
    Section 6.23     Taxes.......................................................................................20
    Section 6.24     Third Party Claim...........................................................................20
    Section 6.25     Type of Coverage............................................................................21
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                                       ii

<PAGE>

                 INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT

         THIS INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT (this "Agreement")
is entered into as of [         ], 2002, by and between Merck & Co., Inc., a
New Jersey corporation ("Merck"), MedcoHealth Solutions, Inc., a Delaware
corporation ("Medco"). Certain capitalized terms used herein are defined in
Article VI. Capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed to such terms in the Separation Agreement (defined
below).

                                    RECITALS

         WHEREAS, the Merck Board has determined that it is appropriate and
desirable for Merck to separate the Medco Group from the Merck Group; and

         WHEREAS, as part of the foregoing, Merck and Medco have entered into
the Master Separation and Distribution Agreement, dated as of the date hereof
(the "Separation Agreement"), which provides, among other things, for the IPO of
Medco Common Stock, the declaration of the Merck Dividend prior to the IPO
Closing Date, the subsequent Distribution by Merck of its remaining shares of
Medco Common Stock to the holders of Merck's common stock and the execution and
delivery of certain other agreements in order to facilitate and provide for the
foregoing; and

         WHEREAS, in connection therewith, the parties desire to set forth
certain agreements regarding indemnification and insurance.

         NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth below, the parties hereto agree as follows:

                                   ARTICLE I

                                 INDEMNIFICATION

Section 1.1       Indemnification by Medco.
                  ------------------------

         (a) Indemnification. Except as otherwise provided in this Agreement,
Medco shall, for itself and as agent for each member of the Medco Group,
indemnify, defend and hold harmless the Merck Indemnitees from and against any
and all Liabilities that any third party seeks to impose upon any of the Merck
Indemnitees, or which are imposed upon any of the Merck Indemnitees, if and to
the extent such Liabilities relate to, arise out of or result from any of the
following items (without duplication):

               (i) any breach by Medco or any member of the Medco Group of the
          Separation Agreement or any of the Ancillary Agreements (including
          this Agreement), other than breaches of the Managed Care Agreement,
          which shall be covered by the provisions thereof; or

               (ii) any Medco Liability.

<PAGE>

         (b) Reduction of Liability. In the event that any member of the Medco
Group makes a payment to any Merck Indemnitee hereunder, and the Liabilities on
account of which such payment was made are subsequently diminished or reduced,
either directly or through a third-party recovery (other than as a result of a
recovery under a Merck Insurance Policy, unless such recovery is pursuant to (x)
any insurance coverage maintained by Merck for the benefit of Medco Covered
Persons pursuant to Section 2.1(a) or the last sentence of Section 2.1(b) or (y)
the Credit Support Insurance Coverage, if any), Merck will promptly repay (or
will procure the relevant Merck Indemnitee promptly to repay) such member of the
Medco Group the amount by which the payment made by such member of the Medco
Group exceeds the actual cost of the associated indemnified Liabilities.

         (c) Joint and Several Liability; No Modification to Other Agreements.
The liability of the members of the Medco Group under this Section 1.1 shall be
joint and several. Nothing in this Section 1.1 shall modify or limit the rights
and remedies of Merck under the Separation Agreement or any of the Ancillary
Agreements (other than this Agreement) relating to, arising out of or resulting
from any breach by Medco or any member of the Medco Group of the Separation
Agreement or any of the Ancillary Agreements (other than this Agreement),
including without limitation, any provisions relating to the measure of damages,
consequential damages, liquidated damages, limitation of damages and/or specific
performance.

Section 1.2       Indemnification by Merck.
                  ------------------------

         (a) Indemnification. Except as otherwise provided in this Agreement,
Merck shall, for itself and as agent for each member of the Merck Group,
indemnify, defend and hold harmless the Medco Indemnitees from and against any
and all Liabilities that any third party seeks to impose upon any of the Medco
Indemnitees, or which are imposed upon any of the Medco Indemnitees, if and to
the extent such Liabilities relate to, arise out of or result from (without
duplication):

               (i) any breach by Merck or any member of the Merck Group of the
          Separation Agreement or any of the Ancillary Agreements (including
          this Agreement), other than breaches of the Managed Care Agreement,
          which shall be covered by the provisions thereof; or

               (ii) any Merck Liability;

provided, however, that notwithstanding anything to the contrary herein, in no
event shall Merck or any member of the Merck Group be obligated to indemnify,
defend or hold harmless the Medco Indemnitees from, against or in respect of any
Medco Liability.

         (b) Reduction of Liability. In the event that any member of the Merck
Group makes a payment to any Medco Indemnitee hereunder, and the Liabilities on
account of which such payment was made are subsequently diminished or reduced,
either directly or through a third-party recovery, Medco will promptly repay (or
will procure a Medco Indemnitee to promptly repay) such member of the Merck
Group the amount by which the payment made by such member of the Merck Group
exceeds the actual cost of the associated indemnified Liabilities.


                                       2

<PAGE>

         (c) Joint and Several Liability; No Modification to Other Agreements.
The liability of the members of the Merck Group under this Section 1.2 shall be
joint and several. Nothing in this Section 1.2 shall modify or limit the rights
and remedies of Medco under the Separation Agreement or any of the Ancillary
Agreements (other than this Agreement) relating to, arising out of or resulting
from any breach by Merck or any member of the Merck Group of the Separation
Agreement or any of the Ancillary Agreements (other than this Agreement),
including without limitation, any provisions relating to the measure of damages,
consequential damages, liquidated damages, limitation of damages and/or specific
performance.

Section 1.3       Procedures for Defense, Settlement and Indemnification of
                  ---------------------------------------------------------
Third Party Claims.
-------------------

         (a) Notice of Claims. If an Indemnitee shall receive notice or
otherwise learn of the assertion of any Third Party Claim with respect to which
a party may be obligated to provide indemnification to such Indemnitee pursuant
to Section 1.1 or 1.2, Merck or Medco (as applicable) shall ensure that such
Indemnitee shall give the potential Indemnifying Party written notice thereof
(including any pleadings relating thereto) within twenty (20) days after
becoming aware of such Third Party Claim. Any such notice shall describe the
Third Party Claim in reasonable detail. Notwithstanding the foregoing, any delay
or failure of any Indemnitee to give notice as provided in this Section 1.3(a)
shall not relieve the Indemnifying Party of its obligations under this Article
I, except to the extent that the Indemnifying Party is actually and
substantially prejudiced by such delay or failure to give notice.

         (b) Defense by Indemnifying Party. For any Third Party Claim concerning
which notice is required to be given under Section 1.3(a), the Indemnifying
Party may elect to defend and, subject to Section 1.3(f), may settle or
compromise the Third Party Claim using counsel appointed by the Indemnifying
Party, which counsel shall be reasonably satisfactory to the Indemnitee. An
Indemnifying Party electing to defend a Third Party Claim must (i) notify the
Indemnitee of its election to defend within twenty (20) days of receipt of
notice of such claim pursuant to Section 1.3(a) or sooner if the nature of the
Third Party Claim so requires and (ii) subject to Section 1.3(c), acknowledge
and agree in writing that if such Third Party Claim is adversely determined,
such Indemnifying Party will have an obligation to indemnify the Indemnitee in
respect of all Liabilities relating to, arising out of or resulting from such
Third Party Claim and that such Indemnifying Party irrevocably waives in full
all defenses it may have to contest such obligation.

         (c) Defense by Merck. Notwithstanding Section 1.3(b), Merck, in its
sole discretion, upon written notice to Medco, may elect to defend (or may at
any time assume the defense of) and, subject to Section 1.3(f), may settle or
compromise, any Third Party Claim or series of related Third Party Claims,
regardless of whether Merck is obligated to indemnify any member of the Medco
Group in respect of such Third Party Claim or series of related Third Party
Claims or whether Merck acknowledges any obligation to indemnify any Medco
Indemnitee if:

               (i) any member of the Merck Group is named as a party to any of
          such Third Party Claims; or


                                       3

<PAGE>

               (ii) both Merck and Medco may be Indemnifying Parties with
          respect to such Third Party Claim(s).

     Except as provided in the definition of "Merck Share of the Shared
Liability Actions," if Merck elects to defend against a Third Party Claim
pursuant to this Section 1.3(c) all costs and expenses incurred by members of
the Merck Group in connection with such defense shall be paid by Merck and Medco
pro rata based on their respective proportionate liability for any Liabilities
relating to, arising out of or resulting from such Third Party Claim (after
taking into account the parties' respective indemnification obligations under
this Agreement, other than with respect to payment of defense costs).

         (d) Defense By Non-Electing Party. If the party having the right to
elect to defend a Third Party Claim pursuant to Section 1.3(b) or 1.3(c) elects
not to defend, or does not within any time frame required thereunder elect to
defend, a particular claim, the other party shall defend such Third Party Claim.
In such case, (i) the other party shall have the right, subject to Sections
1.3(c) and 1.3(f), to compromise, settle or consent to the entry of any judgment
with respect to such Third Party Claim (but such compromise, settlement or
judgment shall not necessarily be determinative of which party hereunder is
entitled to indemnification) and (ii) the Indemnifying Party shall bear all
costs and expenses of defending such Third Party Claim; provided, however, that
if both parties may be Indemnifying Parties with respect to such Third Party
Claim, the Non-Defending Party (defined below) shall reimburse the Defending
Party for the Non-Defending Party's pro rata share of all costs and expenses
incurred by the Defending Party in connection with its defense of such Third
Party Claim, based on the Non-Defending Party's proportionate liability for any
Liabilities relating to, arising out of or resulting from such Third Party Claim
(after taking into account the parties' indemnification obligations under this
Agreement, other than with respect to payment of defense costs).

         (e) Participation by Non-Defending Party. In the event that a party (a
"Defending Party") elects or is required to defend a particular Third Party
Claim pursuant to Sections 1.3(b), 1.3(c) or 1.3(d), the other party (the
"Non-Defending Party") shall have the right to participate in the defense of
such Third Party Claim; provided, however, that (i) the Defending Party shall
control, manage and direct the defense of such Third Party Claim; and (ii) the
costs and expenses of participating in such defense by the Non-Defending Party
shall be the sole responsibility of the Non-Defending Party. Nothing in this
Section 1.3(e) shall affect the rights of Merck under Section 1.3(c) at any time
to assume the defense of any Third Party Claim and to be indemnified for costs
and expenses of such defense in accordance with Section 1.3(c).

         (f) No Settlement, Compromise or Consent to Judgments.

               (i) No Non-Defending Party may compromise or settle or consent to
          the entry of judgment or determination of liability with respect to
          any Third Party Claim without the consent of the Defending Party.

               (ii) Notwithstanding anything to the contrary herein, no
          Defending Party shall compromise, settle or consent to the entry of
          judgment or determination of liability concerning any Third Party
          Claim without providing at least 10 days' prior written notice of such
          compromise, settlement or consent to the Indemnitor (if the Indemnitor
          is other than the Defending Party) and without



                                       4

<PAGE>

          the consent of the Non-Defending Party (such approval not to be
          unreasonably withheld) if the terms or conditions of such compromise,
          settlement or consent would have a Material Adverse Effect on the
          Non-Defending Party's Group.

Section 1.4       Additional Matters.
                  ------------------

         (a) Other Claims for Indemnification. Any claim in respect of a
Liability which does not relate to, arise out of or result from a Third Party
Claim shall be asserted by written notice from the Indemnitee to the
Indemnifying Party stating the specific provisions of this Agreement or any
Ancillary Agreement upon which such claim is based. Such Indemnifying Party
shall have a period of twenty (20) days from actual receipt of the notice within
which to respond thereto. If such Indemnifying Party does not respond within
such 20-day period, then such Indemnifying Party shall be deemed to have denied
responsibility for such claim.

         (b) Contribution. If with respect to any Securities Liabilities an
Indemnitee's right to indemnification therefor contained in this Article I is
for any reason held by a court or other tribunal to be unavailable on policy
grounds or otherwise, the Indemnifying Party shall contribute to any amount
payable by the Indemnitee as a result of such Securities Liabilities in such
proportion as to reflect the relative benefit received by the members of the
Indemnifying Party's Group and such Indemnitee from the transaction or
disclosure giving rise to such Securities Liability. If the contribution
provided above is not permitted by applicable law, the Indemnifying Party shall
contribute to any amount payable by the Indemnitee as a result of such
Securities Liabilities in such proportion as to reflect the relative benefit
received by the members of the Indemnifying Party's Group and such Indemnitee
from the transaction and the statements and omissions giving rise to such
Securities Liability, and the relative fault of such members and the Indemnitee
in connection with such statements or omissions. The relative fault of the
members of the Indemnifying Party's Group and such Indemnitee shall be
determined by reference to, among other things, their relative intent,
knowledge, access to information and opportunity to prevent or correct the
statements or omissions giving rise to such Securities Liability.

         (c) Subrogation. In the event of payment by or on behalf of any
Indemnifying Party to or on behalf of any Indemnitee in connection with any
Third Party Claim, such Indemnifying Party shall be subrogated to and shall
stand in the place of such Indemnitee, in whole or in part based upon whether
the Indemnifying Party has paid all or only part of the Indemnitee's Liability,
as to any events or circumstances in respect of which such Indemnitee may have
any right, defense or claim relating to such Third Party Claim against any
claimant or plaintiff asserting such Third Party Claim or against any other
Person. Such Indemnitee shall cooperate with such Indemnifying Party in a
reasonable manner, and at the cost and expense of such Indemnifying Party, in
prosecuting any subrogated right, defense or claim.

         (d) Effect of Insurance on Indemnification/Contribution Obligations. No
Indemnitee shall be required to pursue any claim under any Insurance Policies of
which it is a beneficiary in connection with any Liability for which such
Indemnitee is entitled to indemnification hereunder. The amount of
indemnification or contribution to which such Indemnitee may be entitled
hereunder shall not be reduced as a result of any claim such


                                       5

<PAGE>

Indemnitee may pursue, or have the right to pursue, under any Insurance Policy
in respect of the Liability to which such right to indemnification or
contribution relates, unless the Indemnitee shall have actually recovered any
portion of such Liability from its insurance carrier(s), in which case, whether
or not the amount of indemnification or contribution to such Indemnitee shall be
reduced shall be determined in accordance with Section 1.1(b) and 1.2(b), as
applicable.

         (e) Not Applicable to Taxes. Notwithstanding anything to the contrary
contained herein, this Agreement shall not apply to Taxes (which are covered by
the Tax Agreement).

Section 1.5       Survival of Indemnities. Subject to Section 5.4, the rights
                  ------------------------
and obligations of the members of the Merck Group and the Medco Group under this
Article I shall survive the sale or other transfer by any party of any assets or
businesses or the assignment by it of any Liabilities or the sale by any member
of the Merck Group or the Medco Group of the capital stock or other equity
interests of any Subsidiary to any Person.

                                   ARTICLE II

                                INSURANCE MATTERS

Section 2.1       Insurance Coverage.
                  ------------------

         (a) Merck Maintenance of Insurance for Medco. Subject to insurance
market conditions and other factors beyond its control, Merck shall maintain
each Type of Coverage, for the Insurance Period with respect thereto, for the
benefit of members of the Medco Group and their respective directors, officers,
employees and other covered persons (collectively, the "Medco Covered Persons")
at a level that is comparable in scope and amount of coverage and retention and
deductible levels to the level at which such Type of Coverage is generally
maintained for such period by Merck for the benefit of members of the Merck
Group and their respective directors, officers, employees and other covered
persons (provided to the extent that, with respect to a Type of Coverage, a
different amount of coverage or deductible level is specified with respect
thereto in the definition of Type of Coverage (for all or any portion of the
Insurance Period with respect thereto), such Type of Coverage shall only be
required to be maintained by Merck (for all or such portion of the Insurance
Period with respect thereto, as applicable) for an amount of coverage, and/or
with deductible levels specified therein); provided, however, if Merck
determines that, with respect to any Type of Coverage, (i) the amount or scope
of such Type of Coverage for any portion of the Insurance Period with respect
thereto will be reduced under the Merck Insurance Policy providing such Type of
Coverage to a level materially inferior to the amount or scope of such Type of
Coverage in existence immediately prior to the date of this Agreement, or (ii)
the retention or deductible levels applicable to such Type of Coverage or the
cost thereof under such Merck Insurance Policy, for any portion of such
Insurance Period with respect thereto, will be increased to a level materially
greater than the levels in existence immediately prior to the date of this
Agreement, Merck shall give Medco notice of such determination as promptly as
practicable. Upon notice of such determination, (a) Medco shall be entitled to
up to sixty (60) days to evaluate its options regarding continuance of such Type
of Coverage, (b) Merck may cancel Medco's interest in all or any portion of such



                                       6

<PAGE>

Type of Coverage after such sixty (60) day period, and (c) Medco may cancel its
interest in all or any portion of the such Type of Coverage as of any day within
such sixty (60) day period.

         (b) Medco Insurance Coverage. Notwithstanding anything contained in
Section 2.1(a), Merck shall not be required to maintain any insurance coverage
for the benefit of the members of the Medco Group or the directors, officers or
employees of any member of the Medco Group other than in accordance with Section
2.1(a). Medco shall be required to maintain the insurance coverage specified on
Schedule 2.1(c) for periods, in scope and amount of coverage and with retention
and deductible levels set forth on such Schedule 2.1(c), for the benefit of the
members of the Medco Group and the directors, officers and employees of the
members of the Medco Group. In the event that Medco fails to maintain any such
insurance coverage, Merck may (but shall not be obligated to) maintain such
insurance coverage for the benefit of one or more of the members of the Medco
Group and/or their directors, officers and/or employees under any new or
existing Merck Insurance Policies.

         (c) Reimbursement for Premiums and Expenses. Medco shall promptly pay
or reimburse Merck for premium expenses and all other costs and expenses (valued
at current market rates), which Merck may incur in connection with the insurance
coverages covering periods after the Separation Date maintained for the benefit
of Medco Covered Persons pursuant to Section 2.1(a). In the event that (i) Medco
fails to maintain any insurance coverage for any period for which Medco is
required to maintain such insurance coverage pursuant to Section 2.1(b) and (ii)
in accordance with the last sentence thereof, Merck maintains such insurance
coverage under new or existing Merck Insurance Policies, Medco shall promptly
pay or reimburse Merck for premium expenses and all other costs and expenses
(valued at current market rates), which Merck may incur in respect of any
insurance coverage Merck maintains for the benefit of one or more of the members
of the Medco Group and/or their directors, officers and/or employees under any
new or existing Merck Insurance Policies in accordance with the last sentence of
Section 2.1(b). The amount of costs and expenses incurred by Merck in connection
with the insurance coverages maintained for the benefit of Medco Covered Persons
pursuant to Section 2.1(a), and the amount of costs and expenses incurred by
Merck in respect of insurance coverage Merck elects to maintain in accordance
with the last sentence of Section 2.1(b), in each case to be paid or reimbursed
by Medco shall be as reasonably determined by Merck, including any costs and
expenses Merck may incur to pursue insurance recoveries under Merck Insurance
Policies on behalf of Medco Covered Persons. All payments and reimbursements by
Medco shall be made within fifteen (15) days after receipt of an invoice from
Merck.

Section 2.2       Notification. In the event that any Medco Covered Person
                  -------------
has a claim ("Claim") that is (i) for a Type of Coverage for a period for which
Merck is required under Section 2.1(a) to maintain such Type of Coverage for the
benefit of such Merck Covered Person or (ii) for insurance coverage that Merck
maintains for the benefit of such Medco Covered Person pursuant to the last
sentence of Section 2.1(b ), such Medco Covered Person may assert such Claim for
insurance coverage (if (x) Medco has paid and reimbursed Merck for all amounts
then due and payable to Merck under Section 2.1(c) and (y) for any Claim for
insurance coverage that is for "occurrence based" insurance coverage, such Medco
Covered Person notifies Merck in writing within sixty (60) days after the
occurrence upon which such Claim is based),


                                       7

<PAGE>

and Merck may require such Medco Covered Person to assert such Claim for
insurance coverage. If a Medco Covered Person permissibly asserts a Claim in
accordance with this Section 2.2, or Merck requires a Medco Covered Person to
assert a Claim, for insurance coverage in accordance with the prior sentence
such Medco Covered Person shall provide to Merck in writing sufficient detail
regarding such Claim to permit Merck to assert such Claim under the applicable
Merck Insurance Policy in conformity with the requirements of the policy and
shall provide to Merck such additional information as Merck requests in order to
evaluate the potential impact of such Claim on the amount of insurance coverage
available under such policy or any other relevant insurance policies.

Section 2.3       Reinstatement and Replacement Requirements. (a) If in the
                  -------------------------------------------
sole judgment of Merck a Claim or series of related Claims by one or more Medco
Covered Persons which such Medco Covered Person is entitled or required, as
applicable, to assert is reasonably likely to exhaust any portion of the limits
of liability under any Merck Insurance Policy, Medco shall, at Merck's election,
either secure reinstatement (at market premiums) of the portion of the limits of
liability that in the sole judgment of Merck is reasonably likely to be
exhausted under such Merck Insurance Policy as a result of such Claim(s) or
purchase an Insurance Policy in replacement of such portion of the limits of
liability. Any such reinstatement or replacement of any Merck Insurance Policy
shall provide at least the same coverage, and contain terms and provisions
(other than premiums) which are no less favorable to the insured parties, as
existed under the Merck Insurance Policy in respect of which such reinstatement
or replacement is obtained.

         (b) In addition, in the event that a Claim or a series of related
Claims by one or more Medco Covered Persons shall at any time have exhausted any
portion of the limits of liability, if any, under any Merck Insurance Policy, to
the extent a reinstatement of such portion of such limits of liability or a
replacement policy has not previously been obtained in accordance with Section
2.3(a) above, Medco shall, within 30 days of receipt from Merck of notice that
an exhaustion of a portion of such limits of liability has occurred, at Merck's
election, either secure reinstatement (at market premiums) of such portion of
the limits of liability under such Merck Insurance Policy or purchase an
Insurance Policy in replacement of such portion of the limits of liability (in
each case in accordance with the terms and conditions of the last sentence of
Section 2.3(a)). In the event that Medco fails to secure such reinstatement or
purchase such replacement Insurance Policy during such thirty-day period, Merck
shall have the right to reinstate the portion of the limits of liability under
such Merck Insurance Policy, or purchase an Insurance Policy in replacement of
such portion of the limits of liability, exhausted as a result of such Claims
and Medco shall reimburse Merck for premium expenses and all other costs and
expenses incurred by Merck in connection with such reinstatement or replacement.

Section 2.4       Cooperation and Agreement Not to Release Carriers. Each of
                  --------------------------------------------------
Merck and Medco will share such information as is reasonably necessary in order
to permit the other to manage and conduct its insurance matters in an orderly
fashion. Each of Merck and Medco, at the request of the other, shall cooperate
with and use commercially reasonable efforts to assist the other in recoveries
for claims made under any Merck Insurance Policy for the benefit of any insured
party, and neither Merck nor Medco, nor any of their Subsidiaries, shall take
any action which would intentionally jeopardize or otherwise interfere with
either party's ability to collect


                                       8

<PAGE>

any proceeds payable pursuant to any insurance policy. Neither the last sentence
of Section 2.1(b), Section 2.2, Section 2.3, this Section 2.4 nor any other
provision of this Agreement shall be interpreted to require Merck to maintain
any insurance coverage that Merck elects to maintain pursuant to the last
sentence of Section 2.1(b).

Section 2.5       Medco Insurance Coverage After the Insurance Period. Medco,
                  ----------------------------------------------------
and Medco alone, shall be responsible for obtaining and maintaining insurance
programs for its risk of loss and such insurance arrangements shall be separate
and apart from Merck's insurance programs, except as expressly provided in
Section 2.1(c).

Section 2.6       Responsibilities for Self-insured Obligations. Notwithstanding
                  ----------------------------------------------
anything herein to the contrary, (a) Medco will be responsible for all amounts
applied against applicable self-insured retentions, amounts for fronted
policies, deductibles and retrospective premium adjustments and similar amounts
not covered under the applicable Type of Coverage in connection with Liabilities
in respect of which a Medco Covered Person asserts a Claim for such Type of
Coverage maintained pursuant to Section 2.1(a) and Medco shall reimburse Merck
for any such amounts paid by or on behalf of Merck, and (b) Medco will be
responsible for all amounts applied against applicable self-insured retentions,
amounts for fronted policies, deductibles and retrospective premium adjustments
and similar amounts not covered under the applicable Merck Insurance Policy in
connection with Liabilities in respect of which Merck permits or requires, as
applicable, a Medco Covered Person(s) to assert a Claim for insurance coverage
maintained by Merck pursuant to the last sentence of Section 2.1(b), and Medco
shall reimburse Merck for any such amounts paid by or on behalf of Merck. All
payments and reimbursements by Medco and Medco Covered Persons shall be made
within fifteen (15) days after receipt of an invoice from Merck. All amounts
owing to Merck by Medco as of the Separation Date in respect of self-insured
obligations under Merck Insurance Policies shall be settled in accordance with
Section 1.4 of the Separation Agreement.

Section 2.7       Management of Claims. Notwithstanding anything to the contrary
                  ---------------------
contained in this Article II, Merck shall have the right to manage the defense
of claims, suits or actions giving rise to potential or actual claims under a
Merck Insurance Policy.

Section 2.8       Cooperation. Merck and Medco will cooperate with each other in
                  ------------
all respects, and they shall execute any additional documents which are
reasonably necessary, to effectuate the provisions of this Article II.

Section 2.9       No Assignment or Waiver. This Agreement shall not be
                  ------------------------
considered as an attempted assignment of any policy of insurance or as a
contract of insurance and shall not be construed to waive any right or remedy of
any member of the Merck Group in respect of any Insurance Policy or any other
contract or policy of insurance.

Section 2.10      No Liability. Medco does hereby, for itself and as agent for
                  -------------
each other member of the Medco Group, agree that no member of the Merck Group or
any Merck Indemnitee shall have any Liability whatsoever as a result of the
insurance policies and practices of Merck and its Subsidiaries as in effect at
any time prior to the Separation Date, including as a result of the level or
scope of any such insurance, the creditworthiness of any insurance carrier, the
terms and conditions of any policy, the adequacy or timeliness of any notice to
any insurance


                                       9

<PAGE>

carrier with respect to any claim or potential claim or otherwise.

Section 2.11      No Restrictions. Nothing in this Agreement shall be deemed to
                  ----------------
restrict any member of the Medco Group from acquiring at its own expense any
other insurance policy in respect of any Liabilities or covering any period.

Section 2.12      Further Agreements. The parties acknowledge that they intend
                  -------------------
to allocate financial obligations without violating any laws regarding
insurance, self-insurance or other financial responsibility. If it is determined
that any action undertaken pursuant to the Separation Agreement, this Agreement
or any Ancillary Agreement is violative of any insurance, self-insurance or
related financial responsibility law or regulation, the parties agree to work
together to do whatever is necessary to comply with such law or regulation while
trying to accomplish, as much as possible, the allocation of financial
obligations as intended in the Separation Agreement, this Agreement and any
Ancillary Agreement.

                                  ARTICLE III

                               DISPUTE RESOLUTION

         EXCEPT AS OTHERWISE SET FORTH IN THE SEPARATION AGREEMENT OR ANY
ANCILLARY AGREEMENT, ANY DISPUTES ARISING OUT OF OR RELATING TO THE SEPARATION
AGREEMENT OR ANY ANCILLARY AGREEMENT (INCLUDING THIS AGREEMENT), INCLUDING,
WITHOUT LIMITATION, DISPUTES CONCERNING THE VALIDITY, INTERPRETATION AND
PERFORMANCE OF OR UNDER ANY SUCH AGREEMENT, SHALL BE EXCLUSIVELY GOVERNED BY AND
SETTLED IN ACCORDANCE WITH THE PROVISIONS OF THIS ARTICLE III.

Section 3.1       Negotiation. The parties shall make a good faith attempt to
                  ------------
resolve any Dispute through negotiation. Within fifteen (15) days after notice
of a Dispute is given by either party to the other party, each party shall
select one or more representatives who are vice presidents, senior vice
presidents or executive vice presidents of such party and shall notify the other
party in writing of the names and contact details of its representatives, which
representatives shall meet and make a good faith attempt to resolve such Dispute
and shall continue to negotiate in good faith in an effort to resolve the
Dispute without the necessity of any formal proceedings. The specific format for
such negotiations will be left to the discretion of the designated
representatives but may include the preparation of agreed upon statements of
fact or written statements of position furnished to the other party.

Section 3.2       Binding Arbitration.
                  -------------------

If such representatives fail to resolve a Dispute within ten (10) days after the
date of delivery of the later of the notices of selection of the
representatives, unless otherwise mutually agreed, either party shall have the
right to submit such Dispute to final and binding arbitration. It is the intent
of the parties that any such arbitration be structured in such a way as to
result in a resolution of such Dispute as promptly as practicable in accordance
herewith. Except as otherwise provided in this Article III, any arbitration
shall be conducted pursuant to

                                       10

<PAGE>

the then current Rules for Non-Administered Arbitration of the Center for Public
Resources ("CPR Rules") and the site of the arbitration shall be in New York
County, New York.

         (b) A party (a "Disputing Party") shall institute any arbitration
proceeding hereunder by providing written notice thereof to the other party (the
"Arbitration Demand") which shall describe in reasonable detail the nature of
the Dispute, the claims of the Disputing Party and the requested relief and, if
the Disputing Party is Merck, setting forth a list of at least five potential
independent and impartial arbitrators selected by Merck, each of whom shall not
have a personal or financial interest in the result of the arbitration or the
parties to the arbitration (provided that the ownership of shares in a mutual
fund that owns securities of either of the parties shall not be considered a
personal or financial interest for this purpose) and shall be experienced in
representing clients in commercial arbitration. Within thirty (30) days after
the other party's receipt of the Arbitration Demand, such other party shall
furnish the Disputing Party with a written statement (a "Response Statement")
(1) answering the claims set forth in the Arbitration Demand, (2) asserting any
counterclaim, describing in reasonable detail the nature of the Dispute relating
to such counterclaim and the requested relief for such counterclaims, and (3) if
such other party is Medco, selecting as the sole arbitrator for the proceeding
one of the potential arbitrators listed in the Arbitration Demand or if such
other party is Merck setting forth a list of at least five potential impartial
arbitrators selected by Merck, each of whom shall not have a personal or
financial interest in the result of the arbitration or the parties to the
arbitration (provided that the ownership of shares in a mutual fund that owns
securities of either of the parties shall not be considered a personal or
financial interest for this purpose) and shall be experienced in representing
clients in commercial arbitration. If the Disputing Party is Medco, Medco shall
notify Merck within ten (10) days of Medco's receipt of the Response Statement
of Medco's selection as the sole arbitrator for the proceeding from the
potential arbitrators listed in the Arbitration Demand. If Medco fails within
the applicable time period to select an arbitrator from the list of potential
arbitrators included in Merck's Arbitration Demand or Response Statement, as
applicable, an arbitrator shall be selected in accordance with the CPR Rules
from such list of potential arbitrators.

         (c) The arbitrator shall be instructed to use best efforts to complete
all arbitration hearings no later than three (3) months from the date of the
arbitrator's appointment and use best efforts to render a decision within four
(4) months from such date.

         (d) With respect to discovery in an arbitration proceeding, the
arbitrator must allow either party to make discovery requests for documents of
the other party where the information sought is reasonably calculated to lead to
the discovery of admissible evidence, and each party agrees to respond to such
discovery request within a reasonable time. The arbitrator is obligated to
construe the term "document" literally to encompass data compilations in any
form.

         (e) The prevailing party in any arbitration as determined by the
arbitrator shall be entitled to expenses, including costs and reasonable
attorneys' and other professional fees, incurred in connection with the
arbitration.

         (f) In connection with any Dispute, the arbitrator shall be obligated
to apply solely principles of law.



                                       11

<PAGE>

         (g) The decision of the arbitrator shall be final and non-appealable
and may be enforced in any court of competent jurisdiction.

         (h) The use of any alternative dispute resolution procedures will not
be construed under the doctrine of laches, waiver or estoppel to adversely
affect the rights of either party.

Section 3.3       Specific Performance. The parties agree and acknowledge that
                  ---------------------
each would suffer irreparable harm in the event that the other fails to perform
any of its obligations under Article IV hereunder in accordance with its
specific terms or otherwise breaches any of such obligations. Each of the
parties further agrees and acknowledges that money damages may be an inadequate
remedy for such failure to perform or breach of Article IV by it. Accordingly,
notwithstanding anything herein to the contrary, and without waiving any remedy
hereunder, each of the parties shall be entitled to seek specific performance by
the other of its obligations under Article IV hereunder and/or injunctive or
other equitable relief to prevent or cure breaches of Article IV hereunder in an
arbitration proceeding (without first complying with the negotiation provision
of Section 3.1) or in court (subject to Section 5.2).

                                   ARTICLE IV

                             PRIVILEGED INFORMATION

Section 4.1       Privileged Information.  In furtherance of the rights and
                  ----------------------
obligations of the parties set forth in the Separation Agreement and the
Ancillary Agreements:

         (a) Each party hereto acknowledges that (i) each of the Merck Group on
the one hand, and the Medco Group on the other hand, has or may obtain
Information regarding a member of the other Group, or any of its operations,
employees, assets or liabilities (whether in documents or stored in any other
form or known to its employees or agents), as applicable, that is or may be
protected from disclosure pursuant to the attorney-client privilege, the work
product doctrine or other applicable privileges ("Privileged Information"); (ii)
there are a number of actual, threatened or future litigations, investigations,
proceedings (including arbitration proceedings), claims or other legal matters
that have been or may be asserted by or against, or otherwise affect, each or
both of Merck and Medco (or members of either Group) ("Litigation Matters");
(iii) Merck and Medco have a common legal interest in Litigation Matters, in the
Privileged Information, and in the preservation of the confidential status of
the Privileged Information, in each case relating to the Merck Business or the
Medco Business or any former businesses or the assets or liabilities of each
party as it or they existed prior to the Separation Date or relating to or
arising in connection with the relationship between the constituent elements of
the Groups on or prior to the Separation Date; and (iv) Merck and Medco intend
that the transactions contemplated by the Related Agreements and any transfer of
Privileged Information in connection herewith or therewith shall not operate as
a waiver of any potentially applicable privilege.

         (b) Each of Merck and Medco agrees, on behalf of itself and each member
of the Group of which it is a member, not to disclose or otherwise waive any
privilege attaching to any Privileged Information relating to the Merck Business
or the Medco Business or any former

                                       12

<PAGE>

businesses or the assets or liabilities of either party as it or they existed
prior to the Separation Date or relating to or arising in connection with the
relationship between the Groups on or prior to the Separation Date, without
providing prompt written notice to and obtaining the prior written consent of
the other, which consent shall not be unreasonably withheld and shall not be
withheld if the other party certifies that such disclosure is to be made in
response to a likely threat of suspension, debarment, criminal indictment or
similar action; provided, however, that Merck may make such disclosure or waiver
with respect to Privileged Information if such Privileged Information relates
solely to the Merck Business, its former businesses (other than the Medco
Business), its assets or liabilities (other than assets or liabilities of the
Medco Business), and Medco may make such disclosure or waiver with respect to
Privileged Information if such Privileged Information relates solely to the
Medco Business, or assets or liabilities exclusively of the Medco Business. The
parties will use commercially reasonable efforts to limit any such disclosure or
waiver to the maximum extent possible and shall seek the execution of a
confidentiality agreement by the party or parties to which such disclosure or
waiver is made.

         (c) Upon any member of the Merck Group or any member of the Medco Group
receiving any subpoena or other compulsory disclosure notice from any
Governmental Authority or otherwise which requests disclosure of Privileged
Information, in the case of the Medco Group, relating to the Merck Business, its
former businesses (other than the Medco Business), its assets or liabilities
(other than assets or liabilities of the Medco Business), or, in the case of the
Merck Group, relating to the Medco Business, or assets or liabilities
exclusively of the Medco Business, as it or they existed prior to the Separation
Date or, in either case, relating to or arising in connection with the
relationship between the constituent elements of the Groups on or prior to the
Separation Date, the recipient of the notice shall promptly provide to Merck, in
the case of receipt by a member of the Medco Group, or to Medco, in the case of
receipt by a member of the Merck Group, a copy of such notice, the intended
response, and all materials or information relating to the other Group that
might be disclosed. In the event of a disagreement as to the intended response
or disclosure, unless and until the disagreement is resolved as provided in
Article III, Merck and Medco shall cooperate to assert all defenses to
disclosure claimed by either Group, at the cost and expense of the Group
claiming such defense to disclosure, and shall not disclose any disputed
documents or information until all legal defenses and claims of privilege have
been finally determined.

                                   ARTICLE V

                                  MISCELLANEOUS

Section 5.1       Entire Agreement. This Agreement, the Separation Agreement,
                  -----------------
the other Ancillary Agreements and any Annexes, Exhibits and Schedules attached
hereto and thereto, constitutes the entire agreement among the parties with
respect to the subject matter hereof and thereof and shall supersede all prior
written and oral and all contemporaneous oral agreements and understandings with
respect to the subject matter hereof and thereof.

Section 5.2       Governing Law; Forum.  This Agreement, the Separation
                  ---------------------
Agreement and all other Ancillary Agreements shall be construed in accordance
with, and all Disputes hereunder shall be governed by, the procedural (except to
the extent inconsistent with the procedures set


                                       13

<PAGE>

forth in Article III of this Agreement) and substantive laws of the State of New
York as to all matters regardless of the laws that might otherwise govern under
principles of conflicts of laws applicable thereto. Under no circumstances may
any party seek or be awarded punitive damages under this Agreement, the
Separation Agreement or any other Ancillary Agreement. Any state court sitting
in New York county, New York and/or the United States District Court for the
Southern District of New York shall have exclusive jurisdiction and venue, and
each party hereto hereby submits to such jurisdiction and venue and irrevocably
waives, to the fullest extent permitted by applicable law, any objection it may
now or hereafter have to such jurisdiction or the laying of such venue over any
Disputes between the parties that are permitted to be brought in a court, or the
enforcement of any decision of arbitrators, pursuant to Article III above. Each
of the parties hereby irrevocably waives any right to a jury trial with respect
to a Dispute.

Section 5.3       Notices. All notices and other communications required or
                  --------
permitted to be given by any party pursuant to the terms of this Agreement shall
be in writing to and shall be deemed to have been duly given when delivered in
person, by express or overnight mail delivery by a nationally recognized courier
(delivery charges prepaid), or by registered or certified mail (postage prepaid,
return receipt requested), as follows:

                  if to Merck:

                           Merck & Co., Inc.
                           One Merck Drive
                           P.O. Box 100
                           Whitehouse Station, New Jersey 08889
                           Attention: General Counsel

                  if to Medco:

                           MedcoHealth Solutions, Inc.
                           100 Parsons Pond Drive
                           Franklin Lakes, New Jersey  07417
                           Attention: General Counsel

or to such other address as the party to whom notice is given may have
previously furnished to the other in writing in the manner set forth above. All
notices and other communication shall be deemed to have been given and received
on the date of actual delivery.

Section 5.4       Binding Effect; Assignment; Third-Party Beneficiaries. Medco
                  ------------------------------------------------------
may not, directly or indirectly, in whole or in part, whether by operation of
law or otherwise, assign or transfer this Agreement or its rights or obligations
hereunder, without Merck's prior written consent and, except as otherwise
permitted hereby, any attempted assignment, transfer or delegation without such
prior written consent shall be voidable at the sole option of Merck. Nothing in
this Agreement shall restrict any transfer of this Agreement by Merck, whether
by operation of law or otherwise. Without limiting the foregoing, this Agreement
shall be binding upon Merck and the other members of the Merck Group and Medco
and the other members of the Medco Group and inure solely to the benefit of the
Medco Indemnitees and the Merck


                                       14

<PAGE>

Indemnitees and their respective legal representatives, successors
and permitted assigns, and nothing in this Agreement, express or implied, is
intended to confer upon any other Person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.

Section 5.5       Offset. In addition to, and not in limitation of, any other
                  -------
remedies any member of the Merck Group or any Merck Indemnitee may be entitled
to under the Separation Agreement, any Ancillary Agreement (including this
Agreement) or any Intercompany Agreement, any member of the Merck Group or any
Merck Indemnitee may satisfy any amounts owed to such member of the Merck Group
or Merck Indemnitee by any member of the Medco Group by means of an offset
against any amounts any member of the Merck Group may from time to time owe to
any member of the Medco Group or an Medco Indemnitee, whether under the
Separation Agreement, any Ancillary Agreement (including this Agreement), any
Intercompany Agreement, any other agreement or arrangement existing between any
member of the Merck Group and any member of the Medco Group, or otherwise.

Section 5.6       Other Agreements Evidencing Indemnification Obligations. Merck
                  --------------------------------------------------------
hereby agrees to execute, for the benefit of any Medco Indemnitee, such
documents as may be reasonably requested by such Medco Indemnitee, evidencing
Merck's agreement that the indemnification obligations of Merck set forth in
this Agreement inure to the benefit of and are enforceable by such Medco
Indemnitee. Medco hereby agrees to execute, for the benefit of any Merck
Indemnitee, such documents as may be reasonably requested by such Merck
Indemnitee, evidencing Medco's agreement that the indemnification obligations of
Medco set forth in this Agreement inure to the benefit of and are enforceable by
such Merck Indemnitee.

Section 5.7       Counterparts. This Agreement, including any Annexes, Schedules
                  -------------
and Exhibits hereto, and the other documents referred to herein, may be executed
in counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement.

Section 5.8       Severability. If any term or other provision of this Agreement
                  -------------
or any Annexes, Schedules or Exhibits attached hereto is determined by a court,
administrative agency or arbitrator to be invalid, illegal or incapable of being
enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement will nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party hereto.
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties hereto
as closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the fullest extent possible. If the parties
are unable to reach an agreement on any such modification, the arbitrator
selected in accordance with Article III of this Agreement shall have the
authority to determine such modification.

Section 5.9       Failure or Indulgence Not Waiver. No failure or delay on the
                  ---------------------------------
part of any party hereto in the exercise of any right hereunder shall impair
such right or be construed to be a waiver of, or acquiescence in, any breach of
any representation, warranty or agreement herein, nor shall any single or
partial exercise of any such right preclude other or further exercise thereof or
of any other right.

                                       15

<PAGE>

Section 5.10      Amendment. No change or amendment will be made to this
                  ----------
Agreement except by an instrument in writing signed on behalf of each of the
parties to this Agreement.

Section 5.11      Interpretation. The headings contained in this Agreement, in
                  ---------------
any Annex, Exhibit or Schedule hereto and in the table or contents to this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Any capitalized term used in any
Annex, Schedule or Exhibit but not otherwise defined therein, shall have the
meaning assigned to such term in this Agreement. When a reference is made in
this Agreement to an Article or Section, or an Annex, Exhibit or Schedule, such
reference shall be to an Article or Section of, or an Annex, Exhibit or Schedule
to, this Agreement unless otherwise indicated.

                                   ARTICLE VI

                                   DEFINITIONS

Section 6.1       Action. "Action" means any claim, demand, action, suit,
                  -------
countersuit, arbitration, inquiry, proceeding or investigation by or before any
federal, state, local, foreign or international governmental authority or any
arbitration or mediation tribunal.

Section 6.2       Dispute. "Dispute" means a dispute arising from or in
                  --------
connection with the Separation Agreement, this Agreement or any other Ancillary
Agreement, whether based on contract, tort, or otherwise.

Section 6.3       Indemnitee.  "Indemnitee" means a Merck Indemnitee or a Medco
                  ----------
Indemnitee.

Section 6.4       Indemnifying Party.  "Indemnifying Party" means any party who
                  ------------------
is required to indemnify any other Person pursuant to this Agreement.

Section 6.5       Insurance Period. "Insurance Period" shall mean, for each of
                  -----------------
the following Types of Coverage, all periods prior to the Separation Date and
any additional period set forth below for such Type of Coverage on Schedule 6.5.

Section 6.6       Insurance Policies.  "Insurance Policies" means insurance
                  ------------------
policies pursuant to which a Person makes a true risk transfer to an insurer.

Section 6.7       Intercompany Agreements. "Intercompany Agreements" means any
                  ------------------------
written agreement, arrangement or understanding between any member of the Merck
Group and any member of the Medco Group which is in effect prior to, as of or
after the Separation Date.

Section 6.8       Liabilities. "Liabilities" means all debts, liabilities,
                  ------------
guarantees, assurances, commitments and obligations, whether fixed, contingent
or absolute, asserted or unasserted, matured or unmatured, liquidated or
unliquidated, accrued or not accrued, known or unknown, due or to become due,
whenever or however arising (including, without limitation, whether arising out
of any contract or tort based on negligence or strict liability) and whether or
not the same would be required by generally accepted principles and accounting
policies to be


                                       16

<PAGE>

reflected in financial statements or disclosed in the notes thereto. For
purposes of any indemnification hereunder, "Liabilities" shall be deemed also to
include any and all damages, claims, suits, judgments, fines, penalties, costs
and expenses of any kind or character, including attorney's fees and expenses,
costs of investigation and preparation, expert witness costs and any other fees
and expenses associated with the defense of any Action whether relating to Third
Party Claims or Actions against the other party hereto.

Section 6.9       Material Adverse Effect. "Material Adverse Effect" means, with
                  ------------------------
respect to either Group, a material adverse effect on the business, results of
operations or financial conditions of the members of such Group, taken as a
whole, provided that, without limiting the events, circumstances or conditions
which may constitute or result in a Material Adverse Effect on the Merck Group,
any compromise, settlement or consent affecting the Merck Group that, if applied
to Medco or any member of the Medco Group, would result in a Material Adverse
Effect on the Medco Group, shall be deemed to result in a Material Adverse
Effect on the Merck Group.

Section 6.10      Medco Assets.  "Medco Assets" means all assets of the Medco
                  ------------
Group following the consummation of the Separation.

Section 6.11      Medco Balance Sheet.  "Medco Balance Sheet" means the
                  -------------------
consolidated balance sheets of Medco and its Subsidiaries included in the IPO
Registration Statement.

Section 6.12      Medco Indemnitees. "Medco Indemnitees" means Medco, each
                  ------------------
member of the Medco Group and each of their respective directors, officers,
employees, agents or representatives.

Section 6.13      Medco Liabilities.  "Medco Liabilities" means, collectively,
                  -----------------
all of the Liabilities of Medco and each of the other members of the Medco
Group, including without limitation:

               (i) all of the Liabilities reflected on the Medco Balance Sheet;

               (ii) all Liabilities relating to, arising out of or resulting
          from any of the Credit Support Arrangements, including, without
          limitation, any payment required to be made by a member of the Merck
          Group under any of the Credit Support Arrangements;

               (iii) all Liabilities which are incurred or arise, or which
          accrue or exist or are accrued at any time on, prior to or after the
          date of the Medco Balance Sheet and which arise or arose out of, or in
          connection with, or otherwise relate to or result from, the Medco
          Assets or the Medco Business;

               (iv) all Liabilities of each member of the Medco Group under,
          allocated to or to be retained or assumed by Medco or any of the other
          members of the Medco Group pursuant to the Realignment Transactions,
          the Separation Agreement, this Agreement or any Ancillary Agreements,
          or Intercompany Agreements;

                                       17

<PAGE>

          provided that nothing in this Agreement shall adversely effect the
          rights and remedies of Merck or Medco under the Managed Care Agreement
          relating to, arising out of or resulting from a breach of the Managed
          Care Agreement, or any Liability of either party to the other relating
          to, arising out of or resulting from such breach;

               (v) all of the Liabilities of any member of the Merck Group or
          Medco Group (whenever arising whether prior to, on or following the
          Separation Date) arising out of or in connection with or otherwise
          relating to the management or conduct prior to, on or following the
          Separation Date of the Medco Business or the Medco Assets; provided
          that nothing in this Agreement shall adversely effect the rights and
          remedies of Merck or Medco under the Managed Care Agreement relating
          to, arising out of or resulting from a breach of the Managed Care
          Agreement, or any Liability of either party to the other relating to,
          arising out of or resulting from such breach;

               (vi) Subject to the proviso set forth at the end of this Section,
          all Liabilities relating to, arising out of or resulting from the
          Shared Liability Actions, all Actions in respect of which as of the
          date of this Agreement any member of the Medco Group has been named as
          a defendant (the "Existing Actions"), any of the facts, circumstances
          and events giving rise to Shared Liability Actions or the Existing
          Actions and any Actions involving similar claims or which are based
          upon similar facts, circumstances or events, whether involving the
          same parties or other parties, in each case whether relating to,
          arising out of or resulting from facts, circumstances or events prior
          to, on or after the Separation Date;

               (vii) all Liabilities relating to, arising out of or resulting
          from, any Third Party Claim relating to, arising out of or resulting
          from (1) the Managed Care Agreement or (2) any infringement or alleged
          infringement by the Patents or the Patent License (or the use thereof)
          on any intellectual property or other rights of any Person;

               (viii) all Securities Liabilities relating to, arising out of or
          resulting from (A) the IPO, Notes Offering, the Distribution and any
          documents, information or data (financial or otherwise) furnished or
          provided, orally or in writing, to purchasers or transferees or
          potential purchasers and transferees (or any of their respective
          representatives), in connection therewith or filed or furnished in
          connection therewith with or to any Governmental Authority or any
          securities exchange or securities market, including, without
          limitation, the Registration Statements, (B) any other offer,
          issuance, sale, exchange or other transfer of securities of or by
          Medco or any member of the Medco Group prior to, on or after the
          Separation Date, or any documents, information or data (financial or
          otherwise) furnished or provided, orally or in writing, to transferees
          or purchasers or potential transferees or purchasers (or any of their
          respective representatives) of such securities or filed or furnished
          in connection therewith with or to any

                                       18

<PAGE>

          Governmental Authority or securities exchange or securities market,
          including, without limitation, any registration statement, (C) any
          oral or written disclosure made, whether or not included in documents
          filed with or furnished to any Governmental Authority or securities
          exchange or securities market, by Medco or any member of the Medco
          Group, or on behalf of Medco or any Member of the Medco Group, prior
          to, on or after the Separation Date or any disclosure made (other than
          by a member of the Merck Group), orally or in writing, of information
          or data (financial or otherwise) relating to or concerning Medco or
          any other member of the Medco Group, the business, operations and
          management of the Medco Business and/or Medco or any other member of
          the Medco Group, and (D) any oral or written disclosure made, whether
          or not included in documents filed with or furnished to any
          Governmental Authority or securities exchange or securities market, by
          Merck or any member of the Merck Group prior to, on or after the
          Separation Date based on any information or data (financial or
          otherwise) provided by or on behalf of Medco or any member of the
          Medco Group; and

               (ix) all other Liabilities arising out of, relating to or
          resulting from any Action or Third Party Claim by any Governmental
          Authority or any other Person that is based on (A) any violations or
          alleged violations by Medco, its Subsidiaries and/or any of their
          respective directors, officers, employees, agents or representatives
          of any of the provisions of the Securities Act, Exchange Act, or the
          rules and regulations of the Commission promulgated thereunder or any
          other securities or similar law, or (B) any breach or alleged breach
          of fiduciary duty by the Medco Board or any Committee of the Medco
          Board (or any member of the Medco Board or any Committee thereof) or
          the board of directors or similar body or any Committee of the board
          of directors or similar body (or any member of any such board or
          similar body or any Committee thereof) of any other member of the
          Medco Group, or by any officer or employee of any member of the Medco
          Group;

provided, however, that (x) Medco Liabilities shall not include the Merck
Defendant Robinson-Patman Act Liabilities (as defined in Section 6.16) and (y)
Merck shall be responsible for the Merck Share of the Shared Liability Actions.

Section 6.14      Merck Indemnitees. "Merck Indemnitees" means Merck, each
                  ------------------
member of the Merck Group and each of their respective directors, officers,
employees, agents and representatives.

Section 6.15      Merck Insurance Policy.  "Merck Insurance Policy" shall mean
                  ----------------------
each Insurance Policy owned or maintained by a member of the Merck Group.

Section 6.16      Merck Liabilities.  "Merck Liabilities" means all Liabilities
                  ------------------
of any member of the Merck Group under, allocated to or to be retained or
assumed by Merck or any of the other members of the Merck Group pursuant to, the
Realignment Transactions, the Separation Agreement, this Agreement or any other
Ancillary Agreement (other than


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<PAGE>

               (i) Liabilities resulting from a breach of the Managed Care
          Agreement, which shall be subject to the terms thereof), and

               (ii) all Liabilities incurred by members of the Merck Group in
          connection with the management or conduct prior to, on or following
          the Separation Date of the Merck Business (other than Liabilities
          resulting from a breach of the Managed Care Agreement, which shall be
          subject to the terms thereof); and

               (iii) all Liabilities arising out of those Actions set forth on
          Schedule 6.16 (but not including any lost sales or profits resulting
          from any of such Actions) (the "Merck Defendant Robinson-Patman Act
          Liabilities");

provided, however, that Merck Liabilities shall not include any Liability that
constitutes a Medco Liability.

Section 6.17      Merck Share of the Shared Liability Actions. "Merck Share of
                  --------------------------------------------
the Shared Liability Actions" shall have the meaning set forth on Schedule 6.17.

Section 6.18      Privileged Information.  "Privileged Information" has the
                  ----------------------
meaning set forth in Section 4.1(a).

Section 6.19      Securities Liabilities. "Securities Liabilities" means any and
                  -----------------------
all losses, liabilities, penalties, claims, damages, demands, costs or expenses
or other Liabilities whatsoever that are assessed, imposed, awarded against,
incurred or accrued by a Person arising out of or relating in whole or in part
to any Action, any potential or threatened Action, any Third Party Claim or any
potential or threatened Third Party Claim by any Governmental Authority or any
other Person that is based on any violations or alleged violations of the
Securities Act, the Exchange Act, and any of the rules or regulations of the
Commission promulgated under the Securities Act or Exchange Act, or any other
securities or other similar laws, rules or regulations, including, without
limitation, state securities or "blue sky" laws, rules or regulations, foreign
securities laws, rules or regulations and rules or regulations of any securities
exchange or market.

Section 6.20      Separation Agreement.  "Separation Agreement" has the meaning
                  --------------------
set forth in the Recitals hereof.

Section 6.21      Shared Liability Actions.  "Shared Liability Action" means the
                  ------------------------
Action set forth on Schedule 6.21.

Section 6.22      Subsidiary.  "Subsidiary" has the meaning set forth in the
                  ----------
Separation Agreement.

Section 6.23      Taxes.  "Taxes" has the meaning set forth in the Tax
                  -----
Agreement.

Section 6.24      Third Party Claim.  "Third Party Claim" means an Action
                  -----------------
brought, asserted, commenced or pursued by a Person (including any Governmental
Authority) other than


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<PAGE>

a member of the Merck Group or the Medco Group.

Section 6.25      Type of Coverage.  "Type of Coverage" shall mean each of the
                  ----------------
following types of insurance coverage set forth on Schedule 6.25.















                         [SIGNATURES ON FOLLOWING PAGE]



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<PAGE>

         IN WITNESS WHEREOF, each of the parties has caused this Indemnification
and Insurance Matters Agreement to be executed on its behalf by its officers
thereunto duly authorized on the day and year first above written.


                                    MERCK & CO., INC.



                                    By:_________________________________
                                    Name:
                                    Title:



                                    MEDCOHEALTH SOLUTIONS, INC.



                                    By:_________________________________
                                    Name:
                                    Title:





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