CVS Caremark Corporation (CVS)

ITEM 4:  STOCKHOLDER PROPOSAL REGARDING PERFORMANCE AND TIME-BASED RESTRICTED SHARES

On or about November 23, 2004, the Company received the following proposal from the Central Laborers’ Pension, Welfare & Annuity Funds (the “Central Laborers”), P.O. Box 1267, Jacksonville, Illinois, 62651, beneficial owners of approximately 7,700 shares of the Company’s stock. In accordance with SEC rules, we are reprinting the proposal and supporting statement (collectively, the “Central Laborers’ Proposal”) in this proxy statement as they were submitted to us:

“Resolved: That the shareholders of CVS, Inc. [sic] (“Company”) hereby request that the Board of Directors’ Compensation Committee adopt a performance and time-based restricted share grant program for senior executives that includes the following features:

(1) Operational Performance-Vesting Measures – The restricted share program should utilize justifiable operational performance criteria combined with challenging performance benchmarks for each criteria utilized. The performance criteria and associated performance benchmarks selected by the Compensation Committee should be clearly disclosed to shareholders.

(2) Time-Based Vesting – A time-based vesting requirement of at least three years should also be a feature of the restricted shares program, so that operational performance and time-vesting requirements must be met in order for restricted shares to vest.

The Board and Compensation Committee should implement this restricted share program in a manner that does not violate any existing employment agreement or equity compensation plan.

Supporting Statement: The Company’s executive compensation program should include a long-term equity compensation component with clearly defined operational performance criteria and challenging performance benchmarks. We believe that performance and time-vesting restricted shares should be an important component of such a program. In our opinion, performance and time-based restricted shares provide an effective means to tie equity compensation to meaningful operational performance beyond stock price performance.

A well-designed restricted share program can serve to help focus senior executives on achieving strong operational performance as measured over several years in areas determined by the Board to be important to the long-term success of the Company. The use of operational performance measures in a restricted share program can serve to complement the stock price performance measures common in senior executive equity compensation plans. In addition to operational performance requirements, time vesting requirements of at least three years will help reinforce the long-term performance orientation of the plan.

Our proposal recognizes that the Compensation Committee is in the best position to determine the appropriate operational performance criteria and associated performance benchmarks. It is requested that detailed disclosure of the performance criteria be provided in the Compensation Committee Report. Further, clear disclosure should be provided on the performance benchmarks associated with each performance criteria to the extent this information can be provided without revealing proprietary information. This disclosure will enable shareholders to assess whether the long-term equity compensation portion of the executive compensation plan provides challenging performance targets for senior executives to meet.

We believe that a performance and time-based restricted share program with the features described above offers senior executives the opportunity to acquire significant levels of equity compensation commensurate with their contributions to long-term corporate performance. We believe such a system best advances the long-term interests of our Company, its shareholders, employees and other important constituents. We urge shareholders to support this important executive compensation reform.”

Statement of CVS’ Board Recommending a Vote AGAINST the Central Laborers’ Proposal

CVS’ Board of Directors unanimously recommends that you vote against the Central Laborers’ Proposal because it is unnecessary and it is not in the best interests of CVS or its stockholders.

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CVS has already adopted and implemented the Long-Term Performance Share Plan (the “LTP Share Plan”), a share grant program for senior executives that includes the features described in the Central Laborers’ Proposal. The LTP Share Plan is intended to encourage executives to balance short-term goals with long-term profit financial progress, while simultaneously promoting executive retention. Awards under the LTP Share Plan are granted by the Management Planning and Development Committee (the “Committee”), which is comprised entirely of independent directors.

The first feature of the Central Laborers’ Proposal is that the restricted share plan “utilize justifiable performance criteria combined with challenging benchmarks for each criteria utilized.” As described on page 14 of this proxy statement, grants of awards under the LTP Share Plan have been based on CVS’ performance relative to annual return on invested capital (“ROIC”) over a three-year performance cycle, although the Committee may use any of the other performance criteria set forth in the 1997 Incentive Compensation Plan approved by CVS’ stockholders. At the beginning of each cycle, senior executives are given the opportunity to earn a target dollar value, payable in cash and CVS common stock. At the end of each cycle, the actual dollar value awarded may be higher or lower than the target number, depending on CVS’ performance relative to ROIC.

The Central Laborers’ Proposal further states that “clear disclosure should be provided on the performance benchmarks associated with each performance criteria to the extent this information can be provided without revealing proprietary information.” As permitted by SEC rules, CVS does not disclose performance benchmarks, as CVS considers such benchmarks to be confidential commercial or business information, the disclosure of which would adversely affect its competitive position. As such, performance benchmarks would not be required to be disclosed under the Central Laborers’ Proposal.

The second feature of the Central Laborers’ Proposal is that the restricted share plan include “a time-based vesting requirement of at least three years.” The LTP Share Plan consists of three-year performance cycles, with a new cycle commencing each year. Awards under the LTP Share Plan are essentially subject to a vesting period, substantively the same as the three-year restriction suggested by the Central Laborers’ Proposal, given that the performance targets are based on a three-year cycle. Accordingly, a senior executive is restricted from full enjoyment of any awards until the three-year performance cycle has ended.

In any event, it is critical that the Committee have full flexibility in designing the overall compensation program, including equity incentive compensation, for our officers and employees. The Committee reviews the composition of executive officer equity compensation on an ongoing basis and utilizes an independent compensation consulting firm, as necessary, to assist in formulating fair and competitive equity compensation programs that closely align the interests of executive officers with stockholders’ interests and enhance CVS’ high-growth strategy. This includes comparing compensation programs to a core peer group of companies, as well as general industry standards. By seeking to limit the Committee’s flexibility in regard to designing and implementing compensation programs in ways it deems appropriate, the Central Laborers’ Proposal would put us at a competitive disadvantage and would hinder CVS’ ability to attract, retain and motivate the highest caliber executive officers in a competitive environment.

The Board of Directors recommends a vote AGAINST the Central Laborers’ Proposal.

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