A pharmacy giant in the making

Merger Terms Sheet

New company: CVS/Caremark Corporation and be headquartered in Woonsocket, Rhode Island

Structure: Stock-for-stock merger of equalsCVS to issue 1.67 shares for each Caremark share54.5% CVS / 45.5% Caremark pro forma ownership

Board of Directors: Mac Crawford will become ChairmanTom Ryan will become President and Chief Executive OfficerCaremark Senior Executive Vice President and Chief Operating Officer Howard McLure will become President of Caremark pharmacy services business

Expected Closing: 6 – 12 months

Merger - Advisors

Caremark’s advisors on the transaction were:Financial Advisors: J.P. Morgan Securities, Inc.UBS Securities LLCLawyers : King & Spalding LLP for general legal mattersJones Day LLP on regulatory matters

CVS’s advisors on the transaction were: Financial Advisors: Evercore 4 Group, LLCLehman Brothers Inc.Lawyers : Davis Polk & Wardwell for general legal matters Mintz Levin Cohn Ferris Glovsky and Popeo P.C. on regulatory matters

Merger – Strategic Rationale

Creates the premier integrated pharmacy services providerThe combined company is expected to able to offer end-to-end services like plan design, prescription fulfilment, etc.Opportunity to improve clinical outcomes, resulting in better control over healthcare costs for employers and plan providersExpected to improve the delivery of pharmacy services and healthcare decision Combines one of the nation’s leading pharmaceutical services companies with the largest pharmacy chainCombined company will be:

1 in pharmacy sales 1 in PBM lives managed 2 in mail services pharmacy sales 1 in specialty pharmacy sales 1 in retail-based clinics

Merger – Strategic Rationale – Contd.

We believe this combination is the logical evolution of the pharmacy services industry, and enables CVS/Caremark to better address emerging trends and challenges in healthcare The combination expects to help manage the costs and complexities of the U.S. healthcare system, driving superior healthcare outcomes and enhancing value for employers, health plans, and consumers Over time, the combination will create a platform to drive growth and offer new and innovative personalized services to consumers and employers

Industry Overview

Structure Market value US $250 billion Segmented industry – Many players

Trends Average Growth rate of 4% to 5% US spends more as a % of GDP than any other country US spends 16% of GDP on health care – expected to reach 17.5% by 2007 Consolidation among different players both vertical and horizontal

Market Share – CVS Corp.

Geographical Presence – CVS

Why Caremark?

Caremark – second largest PBM21 licensed specialty pharmacies for delivery of advanced medications Caremark has 60000 pharmacies attached to it.

Caremark’s wider coverage of clientsCost synergies and improved cash collections

Why Caremark? – Contd.

Merger of Equals CVS - $37 billion revenue and Caremark – $35.9 billion in 2005 Hybrid – deliver drugs by mail and corner drugstore Bigger the better – Price negotiating power and prevention of foot traffic to mail order medicines- savings to consumers Better leverage on CVS’s managed drug care programs Stronger avenues to compete with Wal-Mart and also With Walgreen's and Rite Aid Compelling Macro Economic Factors indicating rapid growth in pharmacy benefits services. Firm specific Factor of industry's only FDA-regulated repackaging plant.

WeaknessIntegrationPossible customer and vendor conflictsPotential that problems at Caremark may be driving the merger

Merger - SWOT Analysis

StrengthsCVS, the No. 2 U.S. drugstore chain, would buy Caremark, a leading pharmacy benefits managerA force against the growth of mail channel in retail pharmacyEliminate a major competitor for its retail drug business and potentially result in scale and distribution efficienciesA better/improved credit rating.

ThreatsPossible Merger of other PBM’sFront store sales might go down because of aggressive competitionWal-Mart's $4 generic drug program.

SWOT Analysis – Contd.

OpportunitiesFacilitate lower mail order pricing without suffering margin erosion Required pricing power Opportunity to tap the new markets Deal layered upon another

Stock Performance – 3 Months

Last 1 Month

CVS – 11% up

CMX – 23% up

S&P – 3% up

DCF Model Assumptions

Synergies Valuation

* See Exhibit 3 for assumptions and detailed calculation

Caremark Valuation

Refer to Exhibit 1 and Exhibit 2

Sensitivity Analysis of FCFE Valuation

Exhibit 1 : FCFE Valuation - Caremark

Value in $ millions

Exhibit 2 : Relative Valuation - Caremark

P/E Multiples

P/BV Multiples

Value $ 18.54 Billion

Value $ 22.34 Billion

Exhibit 3 – Synergy Valuation

Cautionary Statement Regarding Forward-Looking Statements

This document contains certain forward-looking statements about CVS and Caremark. When used in this document, the words “anticipates”, “may”, “can”, “believes”, “expects”, “projects”, “intends”, “likely”, “will”, “to be” and any similar expressions and any other statements that are not historical facts, in each case as they relate to CVS or Caremark, the management of either such company or the transaction are intended to identify those assertions as forward-looking statements. In making any of those statements, the person making them believes that its expectations are based on reasonable assumptions. However, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected or anticipated. These forward-looking statements are subject to numerous risks and uncertainties. There are various important factors that could cause actual results to differ materially from those in any such forward-looking statements, many of which are beyond the control of CVS and Caremark, including macroeconomic condition and general industry conditions such as the competitive environment for retail pharmacy and pharmacy benefit management companies, regulatory and litigation matters and risks, legislative developments, changes in tax and other laws and the effect of changes in general economic conditions, the risk that a condition to closing of the transaction may not be satisfied, the risk that a regulatory approval that may be required for the transaction is not obtained or is obtained subject to conditions that are not anticipated and other risks to consummation of the transaction.

Thank You