CVS Caremark Corporation (CVS)

ITEM 3:  APPROVAL OF THE 2007 EMPLOYEE STOCK PURCHASE PLAN

In 1999, the Company’s stockholders approved an employee stock purchase plan under which 14.8 million shares of its common stock were authorized for sale to participating employees. Offerings have been made every 6 months on approximately January 1 and July 1 of each year, and the Company believes this program plays an important role in encouraging stock ownership by employees and thereby providing an incentive for employees to contribute to the Company’s continued profitability and success.

As of March 30, 2007 there are approximately 1,772,548 shares available for future offerings (including the offering period that is presently open), which is not sufficient for the program to continue beyond 2007. In order to continue this valuable program, on March 7, 2007, the Board of Directors adopted the 2007 Employee Stock Purchase Plan (the “2007 ESPP”), subject to approval by our stockholders. The 2007 ESPP will provide a means for our employees to authorize payroll deductions on a voluntary basis to be used for the periodic purchase of CVS common stock. All employees participating in the 2007 ESPP will have equal rights and privileges. Under the 2007 ESPP, eligible participants will be able to purchase shares at a price not less than the lesser of 85% of the fair market value of CVS/Caremark common stock at the beginning of an offering period or 85% of the fair market value of CVS/Caremark common stock at the end of the offering period. The Board believes the 2007 ESPP offers a convenient means for such employees who might not otherwise own CVS/Caremark common stock to purchase and hold common stock, and that the discounted sale feature of the 2007 ESPP provide a meaningful inducement to participate. The Board believes that employees’ continuing economic interest, as stockholders, in the performance and success of CVS will enhance the entrepreneurial spirit of the Company, which can greatly contribute to its long-term growth and profitability. The 2007 ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”).

Summary of the 2007 ESPP

The 2007 ESPP is set forth in full as Exhibit D to this proxy statement. The following description of the material features of the 2007 ESPP is qualified in its entirety by reference to Exhibit D.

The maximum number of shares that may be purchased under the 2007 ESPP is 15 million shares, subject to appropriate adjustment in the case of any stock split or reverse stock split, stock dividend, combination, reclassification, or other extraordinary corporate event affecting CVS/Caremark common stock. Shares delivered under the 2007 ESPP will be either authorized but unissued shares or shares acquired by the Company in the open market.

The 2007 ESPP will be administered by a committee appointed by the Board of Directors, except to the extent the Board elects to administer the 2007 ESPP. The Board or such committee will have authority to interpret the 2007 ESPP, construe terms, adopt rules and regulations, prescribe forms, and make all determinations under the 2007 ESPP.

Any employee of the Company or any designated subsidiary will be eligible to participate in the 2007 ESPP upon completing six months of service, excluding any employee who owns five percent or more of the total combined voting power or value of all outstanding shares of all classes of securities of CVS/Caremark or any subsidiary. Approximately 152,000 Company employees currently would be eligible to participate in the 2007 ESPP.

An eligible employee may enroll for an offering period by filing an enrollment form with the Company before the commencement of the offering period. After initial enrollment in the 2007 ESPP, the employee will be automatically re-enrolled in the 2007 ESPP for subsequent offering periods unless he or she files a notice of withdrawal before such offering period begins, terminates employment, or otherwise becomes ineligible to participate.

Upon enrollment in the 2007 ESPP, the employee must elect a rate at which he or she will make payroll contributions for the purchase of CVS/Caremark common stock. An employee may elect to make

56

Table of Contents

contributions in an amount not less than 1% nor more than 15% of such employee’s compensation, as defined in the 2007 ESPP, although an employee’s contributions will be adjusted downward to the extent necessary to ensure that he or she will not purchase during any calendar year CVS/Caremark common stock that has a fair market value in excess of $25,000. The fair market value is determined as of the first day of each offering period and prior to applying the 15% discount. All employee contributions will be made by means of direct payroll deduction. The contribution rate elected by a participant will continue in effect until modified by the participant, except that an employee may not increase his or her previously elected contribution rate during an offering period and, unless otherwise authorized by the Committee, may elect to decrease his or her previously elected contribution rate no more than once during a given offering period. No additional contributions are permitted by a participant during a given offering period if his or her contribution rate is reduced to zero.

The contributions of an employee will be credited to an account maintained on behalf of such employee. The 2007 ESPP provides that each “offering period” means the approximately six-month period commencing on the first trading day after January 1 and July 1 each year and terminating on the last trading day in the following June and December. The committee may change the beginning date, ending date, and duration of offering periods on a prospective basis, provided that offering periods will in all cases comply with applicable limitations under Section 423 of the Code.

As described above, the Company will sell shares directly to the custodian for employees’ accounts at a price not less than the lesser of 85% of the fair market value of CVS/Caremark common stock at the beginning of the offering period or 85% of the fair market value of CVS/Caremark common stock at the end of the offering period. Shares purchased under the 2007 ESPP will be credited to the accounts maintained by the custodian for each participant based upon the cost of all shares purchased. The custodian will initially be The Bank of New York. No interest will be credited on payroll contributions pending investment in CVS/Caremark common stock. Dividends paid on CVS/Caremark common stock credited to participants’ accounts will be automatically reinvested in additional shares by the custodian, either through purchases in the market or directly from the Company (no discounts will apply to such dividend reinvestment purchases).

Participants will have the exclusive right to vote or direct the voting of shares credited to their accounts, but are not permitted to withdraw, transfer, or sell their shares during the first two years after the first day of an offering period during which the shares were acquired except in the case of a personal hardship or the death of a Participant. Participants’ rights under the 2007 ESPP are nontransferable except pursuant to the laws of descent and distribution.

A participant’s enrollment in the 2007 ESPP may be terminated at any time, effective for payroll periods or offering periods beginning after the filing of a notice of termination of enrollment. Enrollment will also terminate upon termination of a participant’s employment by the Company and its subsidiaries. The custodian will continue to hold CVS/Caremark common stock for the account of such a participant until the participant sells or withdraws the common stock. No refunds from a participant’s cash account are permitted except upon termination of enrollment due to termination of employment.

The Company will pay costs and expenses incurred in the administration of the 2007 ESPP and maintenance of accounts, and will pay brokerage fees and commissions for purchases. The Company will not pay brokerage fees and expenses relating to sales by participants, and participants may be charged reasonable fees by the custodian for withdrawals of share certificates and other specified services. The custodian will be responsible for furnishing account statements to participants.

The Board of Directors may amend, alter, suspend, discontinue, or terminate the 2007 ESPP without further stockholder approval, except stockholder approval must be obtained within one year after the effectiveness of such action if required by law or regulation or under the rules of the securities exchange on which CVS/Caremark common stock is then quoted or listed, or if such stockholder approval is necessary in order for the 2007 ESPP to continue to meet the requirements of Section 423 of the Code. Thus, stockholder approval will not necessarily be required for amendments that might increase the cost of the plan or broaden

57

Table of Contents

eligibility. The 2007 ESPP will continue until terminated by action if the Board, although as noted above the number of shares authorized under the 2007 ESPP is limited.

On March 29, 2007, the last reported sale price of CVS/Caremark common stock on the New York Stock Exchange was $34.16 per share.

Federal Income Tax Consequences

Rights to purchase shares under the 2007 ESPP are intended to constitute “options” issued pursuant to an “employee stock purchase plan” within the meaning of Section 423 of the Code. The Company believes that under present law the following Federal income tax consequences would generally result under the 2007 ESPP:

(1) No taxable income results to the participant upon the grant of a right to purchase or upon the purchase of shares for his or her account under the 2007 ESPP (although the amount of a participant’s payroll contributions under the 2007 ESPP will be taxable as ordinary income to the participant).

(2) If the participant disposes of shares within two years after the first day of an offering period with respect to which he or she purchased the shares or within one year after the purchase date, then at that time the participant will recognize ordinary income in an amount equal to the fair market value of the shares on the date of purchase minus the amount of the participant’s payroll deductions used to purchase the shares. The participant will be considered to have disposed of a share if the participant sells, exchanges, makes a gift or transfers (except by death) legal title to the share.

(3) If the participant disposes of shares more than two years after the first day of an offering period with respect to which he or she purchased the shares and more than one year after the purchase date, then at the time the participant disposes of the shares he or she will recognize ordinary income in an amount equal to the lesser of (i) the fair market value of the shares on the first day of the offering period minus the amount of the participant’s payroll deductions used to purchase the shares, and (ii) the fair market value of the shares on the date of disposition minus the amount of the participant’s payroll deductions used to purchase the shares.

(4) In addition, the participant will recognize a long-term or short-term capital gain or loss, as the case may be, in an amount equal to the difference between the amount realized upon any sale of CVS/Caremark common stock and the participant’s basis in the common stock i.e., the purchase price plus the amount, if any, taxed to the participant as ordinary income, as described in (2) and (3) above).

(5) If the statutory holding periods described in (2) and (3) above are satisfied, the Company will not receive any deduction for federal income tax purposes with respect to any discount in the sale price of CVS/Caremark common stock applicable to such participant. If such statutory holding periods are not satisfied, the Company generally should be entitled to a tax deduction in an amount equal to the amount taxed to the participant as ordinary income.

(6) Dividends, if any, on shares purchased pursuant to the 2007 ESPP will be taxable as dividend income in the year paid.

The foregoing provides only a general description of the application of Federal income tax laws to the 2007 ESPP. The summary does not address the effects of other Federal taxes or taxes imposed under state, local, or foreign tax laws. Because of the complexities of the tax laws, participants are encouraged to consult a tax advisor as to their individual circumstances.

The Board of Directors recommends a vote FOR approval of the 2007 ESPP.

58

Table of Contents