Exhibit 10.38

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LONG-TERM INCENTIVE PLAN

 

1. Purpose

The purpose of the CVS Caremark Long-Term Incentive Plan (the “Plan”) is to
encourage selected executives to focus on the long-term financial progress of
CVS Caremark (the “Company”) with the ultimate objective of enhancing
shareholder value, while simultaneously promoting executive retention and
maintaining competitive levels of compensation.

 

2. Administration

The Plan shall be administered by the Management Planning and Development
Committee (the “Committee”) of the Board of Directors (the “Board”) of the
Company under the provisions of the 2007 Incentive Plan (the “2007 IP”), where
applicable. The Committee shall have full and final authority, in each case
subject to and consistent with the provisions of the Plan, to determine Eligible
Persons, grant Awards, determine the amount, terms and conditions and all other
matters relating to Awards. In addition, the Committee shall have full and final
authority, in each case subject to and consistent with the provision of the Plan
to construe and interpret rules and regulations for the administration of the
Plan, correct defects, supply omissions or reconcile inconsistencies therein,
and to make all other decisions and determinations as the Committee may deem
necessary or advisable for the administration of the Plan.

Capitalized terms not otherwise defined herein shall have the meaning assigned
to such term(s) in the 2007 IP.

 

3. Eligibility

Executives employed by CVS Caremark who are selected by the Committee shall be
eligible to receive an award under this Plan (an “Eligible Person”).

 

4. Awards

(a)    At the beginning of any performance period, and no later than March 31 of
the first year of the performance period, the Committee shall determine the
Eligible Persons to whom Awards shall be granted, and the terms and conditions
relating to the Awards, including, but not limited to, the target amount of each
Eligible Person’s Award, the range of each Eligible Person’s Award that may be
earned based on the Company’s performance, the performance period relating to
such Awards, the performance criteria that will be used to determine if and to
what extent such Awards may be earned by Eligible Persons participating in the
Plan and any other provisions as the Committee deems appropriate.

(b)    A “performance period” shall be defined by the Committee at the time the
performance cycle for the Award is established but shall generally begin on a
January 1st of a calendar year and end on a December 31st of a succeeding
calendar year which is at least, but not required to be, thirty-six months later
(the “Performance Period”).

(c)    An Award is considered “earned” when such Award has been approved by the
Committee (an “Earned Award”). Generally, an Award cannot be “earned” until the
completion of the applicable Performance Period for which such Award is granted.

(d)    Settlement of Earned Awards. At the end of a Performance Period, the
Committee shall determine, in its sole discretion, the portion of the Earned
Award that shall be distributed to each Eligible Person in cash and in shares of
CVS Caremark common stock (the “Shares”).

 

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Any Shares to be issued in connection with an Earned Award shall be issued
pursuant to the CVS Caremark Corporation 1997 Incentive Compensation Plan (the
“1997 ICP”).

Subject to an Eligible Person’s prior election to defer any or all of the Earned
Award pursuant to Section 5, the cash portion of Earned Award will be paid to
the Eligible Person as soon as practicable after the Earned Award is approved by
the Committee. The stock portion of the Earned Award will be settled through the
issuance to each Eligible Person of a certificate for Shares. The number of
Shares will have an aggregate Fair Market Value (the closing price of CVS
Caremark stock on the date the Award is approved by the Committee) equal to the
stock portion of the Earned Award.

 

5. Deferral Elections

In accordance with the rules promulgated by the Committee, an Eligible Person
may elect to defer any or all of such Earned Award.

 

6. Termination of Employment

In the event an Eligible Person ceases to be employed by the Company, or any
subsidiary of the Company, prior to the completion of a Performance Period, if
the Eligible Person is or will be a covered officer in the Company’s proxy
statement for the year in which the Earned Award is being reported and the
circumstances under which the Eligible Person’s termination occurs are not
specifically outlined below, the payment of such Earned Award will be determined
and administered, at the sole discretion of the Committee, in accordance with
Section 162(m) of the Internal Revenue Code in order to preserve the Company’s
ability to deduct performance-based compensation.

(a)    In the event an Eligible Person ceases to be employed by the Company, or
any subsidiary of the Company, prior to the completion of a Performance Period,
due to an Eligible Person’s voluntary termination of employment, or the
termination of an Eligible Person by the Company for Cause (as defined below),
any Award granted but not yet earned for a Performance Period shall be
forfeited.

(i)    “Cause” is defined as (x) an Eligible Person’s willful material breach of
either of Section(s) 11, 12 or 13 of the CVS Caremark Corporation Employment
Agreement (with respect to confidentiality, cooperation with regard to
litigation and non-disparagement; non-competition; and non-solicitation) if such
Eligible Person is party to an Employment Agreement with the Company; or
Section 1(b) of the CVS Caremark Corporation Change in Control Agreement if such
Eligible Person is party to a Change in Control Agreement with the Company;
(y) Eligible Person’s conviction of a felony involving moral turpitude; or
(z) Eligible Person engages in conduct that constitutes willful gross misconduct
in carrying out his duties under his Term Sheet agreement, or comparable
agreement, resulting, in either case, in material harm to the financial
condition or reputation of the Company.

(b)    In the event an Eligible Person ceases to be employed by the Company, or
any subsidiary of the Company, prior to the completion of a Performance Period,
by reason of death, any Award not yet earned in accordance with Section 4 shall
be pro rated pursuant to Paragraph 6 (f) below.

(c)    In the event an Eligible Person ceases to be actively employed by the
Company, or any subsidiary of the Company, prior to the completion of a
Performance Period due to an Eligible Person becoming totally and permanently
disabled (as defined in the Company’s Long-Term Disability Plan, or, if not
defined in such plan, as defined by the Social Security Administration) while
actively employed by Company or a subsidiary of the Company, and Award granted
but not yet earned for a Performance Period shall be pro rated pursuant to
Paragraph 6 (f) below.

(d)    In the event an Eligible Person ceases to be employed by the Company, or
any subsidiary of the Company, due to a Termination by the Company without Cause
(as defined above in Paragraph 6 (a) (i)) or a “Constructive Termination without
Cause” (defined below), any Award

 

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granted but not yet earned for a Performance Period shall be pro rated pursuant
to Paragraph 6 (f) below.

(i)    “Constructive Termination without Cause” shall mean a termination of the
Eligible Person’s employment at his or her initiative as provided under the
definition in the most recent Employment Agreement, as amended, Change in
Control Agreement, or Term Sheet Agreement, or other comparable agreement,
between the Company and the Eligible Person. If there is no such Agreement
between the Company and the Eligible Person, then Constructive Termination
without Cause shall have the same meaning for the Eligible Person as is defined
for a similarly-situated Eligible Person in his or her Employment or Change in
Control Agreement.

(e)    In the event an Eligible Person ceases to be employed by the Company, or
any subsidiary of the Company, due to an Eligible Person’s Normal Retirement or
Approved Early Retirement, prior to the completion of a Performance Period, and
Award granted but not yet earned for a Performance Period shall be pro rated
pursuant to Paragraph 6 (f) below.

(i)    “Normal Retirement” and “Approved Early Retirement” each shall have the
meaning ascribed to it in an Eligible Person’s Employment Agreement, as amended,
or if such Eligible Person is not party to an Employment Agreement with the
Company, “Normal Retirement” shall mean (A) an Eligible Person’s voluntary
termination of employment with the Company at or after attaining age sixty (60);
and “Approved Early Retirement” shall mean (B) an Eligible Person’s voluntary
termination of employment with the Company at or after attaining age fifty-five
(55), but prior to attaining age (60), if such termination is approved in
advance by the Committee.

(f)    Pro Rating.

(i)    If an Eligible Person ceases to be employed by the Company, or any
subsidiary of the Company, in accordance with Paragraph 6 (b), (c), (d), or
(e) above and the Award approved by the Committee is to be pro rated the Earned
Award to be paid to the Eligible Person will be calculated based on the Eligible
Person’s target award in the case of Paragraph 6(b) and (c) and in the case of
Paragraph 6(d) and (e) based on the Company’s actual performance during the
applicable Performance Period and in each case then multiplied by the following
fraction: (A) the numerator shall be the number of whole months elapsed since
the beginning of the Performance Period and (B) the denominator shall be the
total number of months in the Performance Period. For purposes of this
calculation, the number of months in the numerator in sub-section (A) shall
include any partial month in which an Eligible Person has worked.

(ii)    Any payment to an Eligible Person under Paragraph 6(b) and (c) shall be
made at the time of such death or disability, as the case may be, and any
payment made under Paragraph 6(d) and (e) will be made after actual performance
has been certified by the Committee and at the same time as payment is made to
other Eligible Persons.

 

7. Tax Withholding

The Company will withhold from an Eligible Person’s Earned Award, subject to an
Eligible Person’s election to defer all or a portion of the Earned Award, all
required federal, state and local payroll taxes, including Medicare taxes. If an
Eligible Person’s Social Security wages have not reached the Social Security
maximum taxable wage base at the time the Earned Award is paid or Shares are
delivered, Social Security taxes will also be withheld from the Award.

If an Eligible Person elects to defer an Earned Award, the Company may require
the Eligible Person to remit to the Company in advance of the actual deferral of
such Earned Award, the required FICA withholding taxes, including Social
Security and Medicare taxes, in order to ensure compliance with the
Sarbanes-Oxley Act of 2002.

Except as may be elected by an Eligible Person, at the Settlement Date for any
Shares, the number of Shares to be delivered by the Company to an Eligible
Person shall be reduced by the

 

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smallest number of Shares having a Fair Market Value at least equal to the
dollar amount of federal, state or local tax withholding required to be withheld
by the Company with respect to such Shares on the Settlement Date. In lieu of
having the number of Shares delivered reduced, an Eligible Person may elect to
pay the Company by personal check or by such other means satisfactory to the
Company for any amounts required to be withheld by the Company in connection
with the settlement of the Shares.

 

8. Change in Control of the Company

Upon the occurrence of a change in control of the Company, as defined in
Section 10(c) of the 1997 ICP (a “Change in Control”), the performance criteria
for any outstanding Performance Period shall be deemed to have been fully
satisfied and all outstanding Awards under the Plan shall be come immediately
nonforfeitable. Each Eligible Person shall receive the Target Award for each
outstanding Performance Period to be paid as soon as administratively possible,
subject all applicable Plan provisions and federal regulations governing payment
of such Award(s), including but not limited to the Eligible Person’s deferral
elections, and Sections 162(m), 4999 and 409A of the Internal Revenue Code
(“Code”).

 

9. Recoupment of Awards Due to Financial Fraud or Misconduct

The provisions of this Section 9 shall apply to each Award made with respect to
any performance period beginning after December 31, 2008. If the Board
determines that financial fraud or misconduct has occurred in a manner that
subjects an Eligible Person to recoupment of any Earned Award under the
Company’s recoupment policy, as in effect from time to time, the Eligible Person
shall immediately repay to the Company (a) the entire cash portion of the Earned
Award that is subject to recoupment, or a portion thereof as determined by the
Board (the “Cash Recoupment Amount”), and (b) the value, or a portion thereof as
determined by the Board, of any pre-tax economic benefit that the Eligible
Person derived from any Shares issued in connection with an Earned Award that is
subject to recoupment (the “Share Recoupment Value”).

The Share Recoupment Value to be repaid by the Eligible Person shall be the
amount necessary to disgorge the value enjoyed or realized by Participant from
the Shares, as determined by the Board, or a portion of such value as may be
determined by the Board in its sole discretion. In making its determination of
Share Recoupment Value under this paragraph, the Board may, by way of example
only, (i) with respect to any Shares which have been transferred to the Eligible
Person and which are beneficially owned by the Eligible Person as of a date the
repayment obligation arises, require the Eligible Person to repay to the Company
the fair market value of such Shares, and/or (ii) with respect to any Shares
which were transferred to the Eligible Person and as to which beneficial
ownership has been transferred by the Eligible Person as of the date a repayment
obligation arises, require the Eligible Person to repay to the Company the fair
market value of such Shares as of the date such Shares were transferred by the
Eligible Person. In each case the Share Recoupment Value to be repaid by the
Eligible Person shall also include any dividends (including any economic benefit
thereof) or distributions received by the Eligible Person with respect to any
Shares and, in calculating the Share Recoupment Value, adjustments may be made
for stock splits or other capital changes or corporate transactions, as
determined by the Board.

If an Eligible Person has deferred payment of any portion of the Cash Recoupment
Amount, the amount of the Eligible Person’s deferred compensation accrual shall
be reduced by the amount subject to repayment, plus all Company matching amounts
and earnings on such amount. If an Eligible Person has deferred receipt of any
portion of the Shares that are subject to repayment hereunder, the amount of the
Eligible Person’s deferred stock compensation accrual shall be reduced by the
amount subject to repayment, plus all Company matching amounts and earnings on
such amount.

If the Eligible Person fails to repay the required Cash Recoupment Amount and/or
the Share Recoupment Value immediately upon request by the Board, the Company
may seek

 

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reimbursement of such amounts from the Eligible Person by reducing salary or any
other payments that may be due to the Eligible Person, to the extent legally
permissible, and/or through initiating a legal action to recover such amount,
which recovery shall include any reasonable attorneys fees incurred by the
Company in bringing such action.

 

10. Miscellaneous

(a)    Not a Contract of Employment. The adoption and maintenance of the Plan
shall not be deemed to be a contract of between the Company and an Eligible
Person and shall not be consideration for the employment of an Eligible Person.
Nothing contained herein shall be deemed to give an Eligible Person the right to
be retained in the employ of the Company or to restrict the right of the Company
to discharge an Eligible Person at any time nor shall the Plan be deemed to give
the Company the right to require an Eligible Person to remain in the employ of
the Company or to restrict an Eligible Person’s right to terminate their
employment at any time.

(b)    Non-Assignability of Benefits. No Eligible Person, Beneficiary or
distributees of benefits under the Plan shall have any power or right to
transfer, assign, anticipate, hypothecate or otherwise encumber any part or all
of the amounts payable hereunder, which are expressly declared to be
unassignable and nontransferable. Any such attempted assignment or transfer
shall be void. No amount payable hereunder shall, prior to actual payment
hereof, be subject to seizure by any creditor or any such Eligible Person,
Beneficiary or other distributees for the payment of any debt judgment or other
obligation, by a proceeding at law or in equity, nor transferable by operation
of law in the event of the bankruptcy, insolvency or death of such Eligible
Person, Beneficiary or other distributes hereunder.

(c)    Amendment and Termination. The Board may amend, alter, suspend,
discontinue or terminate the Plan or the Committee’s authority to grant Awards
under the Plan without the consent of Eligible Persons, except that without the
consent of an affected Eligible Person, no such Board action may materially and
adversely affect the rights of such Eligible Person under any previously granted
and outstanding Awards. The Committee may waive any conditions or rights under,
or amend, alter, suspend, discontinue or terminate any Award(s) previously
granted, except as otherwise provided in the Plan, provided that, without the
consent of an affected Eligible Person, no such Committee action may materially
and adversely affect the rights of such Eligible Person under such Award(s).

(d)    Compliance with Legal and Other Requirements. Notwithstanding any Plan
provision to the contrary, the Committee may at any time impose such
restrictions on the Plan and participation therein as the Committee may deem
advisable from time to time in order to comply with or preserve compliance with
any applicable laws, including any applicable federal and state securities laws
and exemptions from registrations thereunder.

Further, to the extent it would not violate an applicable provision of
Section 409A of the Code the Company may, to the extent deemed necessary or
advisable by the Committee, postpone the issuance or delivery of CVS Caremark
stock or payment of other benefits under any Earned Award until completion of
such registration or qualification of such stock or other required action under
any federal or state law, rule or regulation, listing or other required action
with respect to any stock exchange or automated quotation system upon which such
stock are listed or quoted, or compliance with any other obligation of the
Company, as the Committee may consider appropriate, and may require any Eligible
Person to make such representations, furnish such information and comply with or
be subject to such other conditions as it may consider appropriate in connection
with the issuance or delivery of stock or payment of other benefits in
compliance with applicable laws, rules, and regulations, listing requirements,
or other obligations. The foregoing notwithstanding, in connection with a Change
in Control, the Company shall take or cause to be taken no action, and shall
undertake or permit to arise no legal or contractual obligation, that results or
would result in any postponement of the issuance or delivery of stock or payment
of benefits under any award or the imposition of any other conditions on such
issuance, delivery or payment, to the extent that such postponement or other
condition would

 

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represent a greater burden on an Eligible Person than existed on the 90th day
preceding the Change in Control.

(e)    Section 409A. The company intends that this Plan not violate any
applicable provision of, or result in any additional tax or penalty under,
Section 409A of the Internal Revenue Code of 1986 (the “Code”), as amended, and
that to the extent any provisions of the LTIP do not comply with Code
Section 409A the Company will make such changes in order to comply with Code
Section 409A. In all events, the provisions of CVS Caremark Corporation’s
Universal Definitions Document are hereby incorporated by this reference and to
the extent required to avoid a violation of the applicable rules under all
Section 409A by reason of Section 409A(a)(2)(B)(i) of the Code, payment of any
amounts subject to Section 409A of the Code shall be delayed until the relevant
date of payment that will result in compliance with the rules of
Section 409A(a)(2)(B)(i) of the Code.

(f)    Adjustments. In the event that any dividend or other distribution
(whether in the form of cash, stock, or other property), re-capitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, liquidation, dissolution or other
similar corporate transaction or event affects the stock such that an adjustment
is appropriate under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust the number and kind of Shares of stock subject to or
deliverable in respect of outstanding Awards.

(g)    Limitation on Rights Conferred by Awards Granted under Plan. Neither the
Plan nor any action taken under the Plan shall be construed as conferring on an
Eligible Person any of the rights of a shareholder of CVS Caremark until the
Eligible Person is duly issued or transferred Shares in accordance with the
terms of an Earned Award.

(h)    Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
constitute an “unfunded” plan for incentive and deferred compensation. With
respect to any payments not yet made to an Eligible Person or obligation to
deliver stock pursuant to an Award, nothing contained in any Award shall give
any such Eligible Person any rights that are greater than those of a general
creditor of CVS Caremark, provided that the Committee may authorize the creation
of trusts and deposit therein cash, stock, other awards or other property, or
make other arrangements to meet CVS Caremark’s obligations under the Plan. Such
trusts or other arrangements shall be consistent with the “unfunded” status of
the Plan unless the Committee otherwise determines with the consent of each
affected Eligible Person.

 

11. Governing Law

The validity, construction and effect of the Plan, and any rules and regulations
under the Plan shall be determined in accordance with the Rhode Island law,
without giving effect to principles of conflicts of laws, and applicable federal
law.

 

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