SEC Filing | Community Health Systems, Inc.

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Form 8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

December 2, 2016

Date of Report (date of earliest event reported)

COMMUNITY HEALTH SYSTEMS, INC.

(Exact name of Registrant as specified in charter)

Delaware

001-15925

13-3893191

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(I.R.S. Employer

Identification No.)

4000 Meridian Boulevard

Franklin, Tennessee 37067

(Address of principal executive offices)

Registrant’s telephone number, including area code: (615) 465-7000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (l7 CFR 240.13e-4(c))

Section 8 — Other Events

Item 8.01. Other Events.

On November 22, 2016, United States District Court Judge Kevin H. Sharp (M.D. Tenn.) entered an order preliminarily approving a stipulation and settlement and dismissal with prejudice of the action styled In re Community Health Systems, Inc. Shareholder Derivative Litigation (Master Docket No. 3:11-cv-00489). The filing of this Form 8-K with the attached Notice of Proposed Derivative Settlement and Stipulation of Settlement provide notice of the proposed settlement and the terms and conditions thereof, as well as deadlines for stockholder objections and a final hearing on the settlement.

Section 9 – Financial Statements and Exhibits

Item 9.01. Financial Statements and Exhibits.


Exhibit No.		Description

99.1		Notice of Proposed Derivative Settlement and Stipulation of Settlement, dated December 2, 2016

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


Date: December 2, 2016	COMMUNITY HEALTH SYSTEMS, INC. (Registrant)

	By:	/s/ Wayne T. Smith
		Wayne T. Smith
		Chairman of the Board and Chief Executive Officer (principal executive officer)

	By:	/s/ W. Larry Cash
		W. Larry Cash
		President of Financial Services and Chief Financial Officer and Director (principal financial officer)

EXHIBIT INDEX


Exhibit No.		Description

99.1		Notice of Proposed Derivative Settlement and Stipulation of Settlement, dated December 2, 2016

EX-99.1

Exhibit 99.1

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF TENNESSEE

NASHVILLE DIVISION

In re COMMUNITY HEALTH SYSTEMS,

INC. SHAREHOLDER DERIVATIVE

LITIGATION

This Document Relates To:

ALL ACTIONS.

)

Master Docket No. 3:11-cv-00489

(Consolidated with No. 3:11-cv-00598 and

No. 3:11-cv-00952)

Judge Kevin H. Sharp

Magistrate Judge Joe B. Brown

NOTICE OF PROPOSED DERIVATIVE SETTLEMENT

TO:

ALL RECORD HOLDERS AND BENEFICIAL OWNERS OF THE COMMON STOCK OF COMMUNITY HEALTH SYSTEMS, INC. (“CHSI” OR THE “COMPANY”) AS OF NOVEMBER 18, 2016 (THE “RECORD DATE”)

PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. THIS NOTICE RELATES TO A PROPOSED SETTLEMENT AND DISMISSAL OF THE ABOVE-CAPTIONED DERIVATIVE ACTION (THE “ACTION”) AND CONTAINS IMPORTANT INFORMATION REGARDING YOUR RIGHTS. YOUR RIGHTS MAY BE AFFECTED BY THESE LEGAL PROCEEDINGS. IF THE COURT APPROVES THE SETTLEMENT, YOU WILL BE FOREVER BARRED FROM CONTESTING THE APPROVAL OF THE PROPOSED SETTLEMENT AND FROM PURSUING THE RELEASED CLAIMS.

IF YOU HOLD CHSI COMMON STOCK FOR THE BENEFIT OF ANOTHER, PLEASE PROMPTLY TRANSMIT THIS DOCUMENT TO SUCH BENEFICIAL OWNER.

Notice is hereby provided to you of the proposed settlement (the “Settlement”) of this stockholder derivative litigation. This Notice is provided by Order of the United States District Court for the Middle District of Tennessee (the “Court”). It is not an expression of any opinion by the Court with respect to the truth of the allegations in the litigation or merits of the claims or defenses asserted by or against any party. It is solely to notify you of the terms of the proposed Settlement, and your rights related thereto. Capitalized terms not otherwise defined shall have the definitions set forth in a written Stipulation of Settlement, dated November 18, 2016 (“Stipulation”). A link to the Form 8-K filed with the Securities and Exchange Commission containing the text of the Stipulation may be found on CHSI’s website at the Investor Relations page at www.chs.net/investor-relations.

I.	WHY THE COMPANY HAS ISSUED THIS NOTICE

Your rights may be affected by the Settlement of the action styled In re Community Health Systems, Inc. Shareholder Derivative Litigation, Master Dkt. No. 3:11-cv-00489 (M.D. Tenn.) (the “Action”). Plaintiffs Roofers Local No. 149 Pension Fund (the “Roofers”) and Plumbers and Pipefitters Local Union No. 630 Pension-Annuity Trust Fund (the “Plumbers”) (on behalf of themselves and derivatively on behalf of CHSI); Wayne T. Smith, W. Larry Cash, John A. Clerico, John A. Fry, William Norris Jennings, Julia B. North, and H. Mitchell Watson, Jr. (together, “Settling Defendants”); and Nominal Party CHSI (together, the “Settling Parties”) have agreed upon terms to settle the above-referenced litigation and have signed the Stipulation setting forth those settlement terms.

On January 17, 2017, at 10:30 a.m., the Court will hold a hearing (the “Settlement Hearing”) in the Action. The purpose of the Settlement Hearing is to determine: (i) whether the terms of the Settlement are fair, reasonable and adequate, including the separately negotiated amount for Plaintiffs’ Counsel’s attorneys’ fees and expenses, and should be finally approved; (ii) whether a final judgment should be entered and the Action dismissed with prejudice pursuant to the Stipulation; and (iii) such other matters as may be necessary or proper under the circumstances.

II.

THE CHSI DERIVATIVE LITIGATION

Overview of the Action and Procedural History

The Action alleges that the Settling Defendants breached their fiduciary duties by causing CHSI to engage in improper inpatient-admission practices to maximize reimbursement payments from Medicare and other payor sources. The Action further asserts that CHSI was damaged as a result of these alleged breaches. The Settling Defendants have denied and continue to deny the claims alleged by Plaintiffs in the Action.

Commencement and Consolidation of the Action

On May 24 and June 21, 2011, respectively, plaintiffs Plumbers and Roofers filed shareholder derivative actions asserting claims on behalf of CHSI for alleged violations of law, including allegations that CHSI’s directors and certain of its officers breached their fiduciary duties owed to the Company. On September 28, 2011, the Court consolidated the derivative actions and appointed Robbins Geller Rudman & Dowd LLP and Robbins Arroyo LLP as Lead Counsel for Plaintiffs. On November 29, 2011, the Court further consolidated a derivative action captioned Sweat v. Smith, et al., No. 3:11-cv-00952, with the Plumbers’ and Roofers’ actions.

inpatient admissions policy to enable CHSI to artificially inflate reimbursement payments from Medicare, Medicaid and other payer sources, resulting in damages to the Company. Amended Consolidated Complaint, 2-7, 45-85.

Defendants’ Motion to Dismiss and Motion for Reconsideration

On May 14, 2012, Defendants filed a Motion to Dismiss the Amended Consolidated Complaint (“Motion to Dismiss”) (Dkt. No. 53). In the Motion to Dismiss, Defendants argued, among other things, that the Amended Consolidated Complaint failed to adequately plead futility of demand. Defendants also argued that the facts pleaded in the Amended Consolidated Complaint failed to state any actionable claim for relief. On July 13, 2012, Plaintiffs filed an Opposition to the Motion to Dismiss (“Opposition”) (Dkt. No. 58).

On June 13, 2013, the Court, the Honorable John T. Nixon presiding, conducted a hearing on the Motion to Dismiss. Thereafter, on September 27, 2013, the Court issued an Order denying in part and granting in part the Motion to Dismiss (“September 27, 2013 Order”) (Dkt. No. 87). More particularly, the Court ruled that Plaintiffs had adequately pleaded demand futility under Delaware law on their fiduciary duty claim, but not on their gross mismanagement, corporate waste, or unjust enrichment claims.

On October 14, 2013, Defendants filed a Motion for Reconsideration of Order Granting in Part and Denying in Part Motion to Dismiss (“Motion for Reconsideration”) (Dkt. No. 89), which Plaintiffs opposed on October 30, 2013 (Dkt. No. 95). The Court denied the Motion for Reconsideration on December 22, 2014 (Dkt. No. 140). In particular, the Court held that “Defendants have not presented sufficient grounds to reconsider its [the Court’s] decision to deny Defendants’ Motion to Dismiss with respect to Plaintiffs’ breach of fiduciary duties claim.” Order (Dkt. No. 140) at 8.

Discovery

On November 10, 2014, the Court, the Honorable Joe B. Brown, United States Magistrate Judge, presiding, conducted an Initial Case Management Conference. Following the Conference, the Court issued an Order establishing a pre-trial schedule. Dkt. No. 136. Thereafter, the parties began to engage in a vigorous discovery process.

As discovery progressed, the parties served written discovery on each other, as well as issued subpoenas to third parties, and have briefed at least seven discovery-related issues for the Court. As of today, Plaintiffs have collected and reviewed approximately 2.7 million pages of documents and have deposed 39 witnesses, including most of the Settling Defendants, CHSI’s top executives and numerous hospital-level representatives. Similarly, Defendants obtained over 10,000 pages of documents from Plaintiffs and have deposed representatives from both Roofers and Plumbers. Finally, with an expert discovery period fast approaching, the Settling Parties engaged numerous expert witnesses who had begun to compile and review materials in anticipation of drafting their respective reports.¹

Settlement Negotiations

On or about November 10, 2014, the Court also directed the parties to explore private resolution of the Action through mediation. The parties agreed to participate in a mediation before the Honorable Layn R. Phillips, United States District Judge (Ret.). The Court directed pre-mediation discovery, which included CHSI’s production of all documents that the Company and its affiliates had provided to the Department of Justice in connection with related Government subpoenas. The parties then participated in an in-person mediation session before Judge Phillips on April 17, 2015. This April 2015 mediation was unsuccessful.

On October 5, 2016, Plaintiffs stipulated to the dismissal of defendant T. Mark Buford, and on October 12, Judge Sharp entered an order consistent with that stipulation. On October 25, 2016, Plaintiffs filed an unopposed motion to amend the complaint. Unlike the then-operative complaint, the proposed Second Amended Verified Consolidated Derivative Complaint did not name James S. Ely III as a defendant, and did not assert claims of gross mismanagement, corporate waste, or unjust enrichment. Magistrate Judge Brown granted the motion for leave to amend the same day, and Plaintiffs subsequently filed the Second Amended Verified Consolidated Derivative Complaint.

reach an agreement to settle the Action at that session, the Settling Parties continued negotiations with the assistance of Judge Phillips in parallel with ongoing discovery. These efforts culminated with the Settling Parties agreeing to settle this Action for a $60 million payment from the Settling Defendants’ insurance carriers and the Company agreeing to adopt meaningful corporate governance reforms relating to the issues raised by this Action, subject to the negotiation of the terms of the Stipulation of Settlement and approval by the Court. The Settling Parties further agreed that $40 million of that settlement payment should be payable to the Company, and $20 million should be payable to counsel for the Plaintiffs as attorneys’ fees and expenses, subject to Court approval.

Approval of the Settlement by the CHSI Board

On November 2, 2016, the CHSI Board, exercising its business judgment, unanimously approved the Settlement and its terms as being in the best interest of CHSI and its stockholders.

III.

TERMS OF THE PROPOSED DERIVATIVE SETTLEMENT

The principal terms, conditions and other matters that are part of the Settlement, which is subject to approval by the Court, are summarized below. This summary should be read in conjunction with, and is qualified in its entirety by reference to, the text of the Stipulation, which has been filed with the Court and is available at a link on CHSI’s website at the Investor Relations page at www.chs.net/investor-relations.

In connection with the Settlement of the Action, Settling Defendants’ insurance carriers shall pay $60,000,000 (the “Settlement Payment”) to the Company. In addition, the CHSI Board shall adopt and maintain for at least four (4) years the corporate governance measures specified herein within thirty (30) days after judicial approval of the proposed Settlement by the Court. CHSI acknowledges and agrees that the Settlement Payment and corporate governance policies set forth herein confer substantial benefits upon CHSI and its stockholders. CHSI also acknowledges that the commencement, prosecution, and settlement of the Action were material and substantial factors in

the Company’s ability to receive the Settlement Payment and in the Company’s decision to adopt, implement, and maintain the corporate governance reforms set forth below:

CHSI BOARD OF DIRECTORS (“BOARD”)

1. Shareholder Nominated Directors. CHSI’s Governance and Nominating Committee shall work with plaintiffs’ corporate governance expert to secure the names of six mutually acceptable candidates for election to the Board who have no prior connection to the Company, its directors, or to its senior officers. The candidates shall be additional independent directors and will have expertise and experience with accounting issues and compliance. The Board shall then select two of these candidates to recommend for election at the next shareholders meeting.

(a) The procedure for identifying and nominating directors shall be:

(i) The designee of the Governance and Nominating Committee together with plaintiffs’ corporate governance expert, shall establish an objective set of criteria to be utilized in conducting the canvassing efforts detailed below;

(ii) Each individual or entity holding more than at least 1% of CHSI’s common stock for a period of no less than one year, other than individuals who are current employees of CHSI, shall be jointly contacted by a representative of both CHSI and plaintiffs’ corporate governance expert for the purpose of requesting that such shareholder(s) provide the name(s) of prospective candidates for the Board;

(iii) An appropriate review, including background information and interviews of prospective candidates, shall be conducted with respect to all candidates who express their consent to being considered and to serving as a director. No less than six candidates deemed qualified by the designated representative of CHSI and plaintiffs’ corporate governance expert shall be sent to the Governance and Nominating Committee for review;

(iv) The Governance and Nominating Committee shall identify two candidates from those submitted for review, based on the business judgment of the committee’s members and input from plaintiffs’ corporate governance expert;

(v) In the event that fewer than two candidates are nominated, the process detailed in §I.1.(a) above shall be repeated sequentially and two additional candidates shall be sent to the Governance and Nominating Committee for review and the Governance and Nominating Committee shall select from the candidates until both positions are filled;

(vi) Once the candidates are identified by the Governance and Nominating Committee, the Board shall, subject to its fiduciary duties, nominate the candidates for election to the Board or, if no shareholders’ meeting is scheduled in the next ninety (90) days, the Board shall elect the candidates to fill any Board vacancies until such meeting is held and the candidates can be voted upon by shareholders;

(vii) If, during the four years that this Agreement is in force, either of the two shareholder-nominated directors is no longer able to serve on the Board, or the Board in exercise of its business judgment can no longer nominate such director(s), the process described in §I.1.(a)(i)-(vi) above shall be repeated for the selection of a replacement director.

2. Lead Independent Director. The Board shall designate one of the independent directors as the “Lead Director.”

3. In addition to the duties of all Board members, the “Lead Director” shall be responsible for the following functions:

(a) Seeking input from all directors as to the preparation of the agendas for CHSI Board and committee meetings.

(b) Advising the Board as to the quality, quantity and timeliness of the flow of information from CHSI’s management that is necessary for the directors to effectively and responsibly perform their duties.

(c) Assisting CHSI’s officers along with the Board of Directors’ Audit and Compliance Committee in assuring compliance with and implementation of all applicable state and federal healthcare laws, including but not limited to, Medicare and Medicaid laws, rules and regulations, and for revisions to CHSI’s policies, procedures and practices for compliance with and implementation of same.

(d) Developing the agenda for, and moderate executive sessions of, the Board and act as principal liaison between the Board and management on sensitive issues.

(e) Evaluating, along with the members of the Compensation Committee, the CEO’s performance and meeting with the CEO to discuss such evaluation.

4. Director Compensation. The Board shall amend the Compensation Committee’s Charter to require that the Compensation Committee be comprised solely of independent directors.

5. The Board shall adopt a policy providing for the following types and restrictions on director’s compensation:

(a) At least one-half of directors’ annual fees shall be paid in stock, provided that this amount may be reduced by any restricted stock awards granted to a director. In addition, directors shall be required to maintain ownership of stock in the company equal to five (5) times the value of the individual’s annual base salary if a company executive or five (5) times the value of the director’s annual fees if a non-executive director.

(b) Aside from meeting-related expenses such as airfare, hotel accommodations and modest travel/accident insurance, directors shall receive no other perquisites. Health, life and other forms of insurance, financial planning, automotive allowances and similar perquisites shall not be provided as benefits to directors.

(c) Non-employee directors shall not be eligible to receive any change-in-control payments or severance arrangements of any kind.

II.

ESTABLISHMENT OF A HEALTHCARE LAW COMPLIANCE COORDINATOR

1. Subject to the approval of the Inspector General’s Office of HHS, the Board shall hire or appoint a Healthcare Law Compliance Coordinator (“Compliance Coordinator”), who will work with the Company’s CCO to coordinate and oversee implementation of the Company’s compliance programs, with particular emphasis on Medicare and Medicaid compliance programs.

2. The Compliance Coordinator shall hold a juris doctor and/or Masters (or higher degree) in Health Administration and have substantial knowledge of, and experience with, the type of compliance issues historically and/or routinely experienced by CHSI, with a particular emphasis on Medicare and Medicaid compliance.

3. The Compliance Coordinator shall meet with CHSI’s CCO at least bi-monthly regarding the Company’s policies, procedures, and practices designed to ensure Medicare and Medicaid compliance, and shall work with the CCO to create quarterly reports regarding compliance matters.

4. The Compliance Coordinator shall report directly to the CEO and shall meet with both the Audit and Compliance Committee of the Board of Directors and the General Counsel at least quarterly to review and act upon the quarterly reports prepared by the Compliance Coordinator and the CCO. The Compliance Coordinator shall also report to the Audit and Compliance Committee as requested, including when requested to provide assistance in connection with any investigation or review of a potential violation of law or in connection with any review of CHSI’s Medicare and Medicaid billing policies or procedures.

5. The Board, with input from the Compliance Coordinator and the CCO, shall review the existing Code of Conduct and Medicare and Medicaid Compliance Program on an annual basis and approve amendments, if needed. The Program, Compliance Code and Code of Conduct, as well as all other CHSI’s ethics or legal policies, and any amendments or upgrades to the Code of Conduct and Medicare and Medicaid Compliance Program shall be immediately distributed to all CHSI directors, officers and relevant employees, agents or independent contractors, as appropriate. In addition, the Code of Conduct shall be posted on the Company’s website and intranet.

6. The Compliance Coordinator or his designee shall conduct bi-annual reviews of the Medicare and Medicaid Compliance Program and shall conduct at least annually unannounced visits to 10% of the Company’s then existing hospitals/facilities as of the beginning of each calendar year (on a rotating basis) to ensure compliance. The Compliance Coordinator shall conduct at least six unannounced visits to Company hospitals annually. The Compliance Coordinator shall prepare written reports regarding the bi-annual reviews and any results or conclusions reached concerning the compliance status. These bi-annual reports shall be provided to the Board and maintained by the Company’s General Counsel within the legal department for a period of at least ten (10) years.

7. CHSI’s Corporate Compliance Directors shall be the liaison between each hospital or facility from which CHSI conducts operations and the CCO. The Company’s Corporate Compliance Directors shall provide monthly written reports to the CCO concerning the compliance status of hospitals within their respective divisions, and communicate orally with the CCO at least bimonthly.

8. In addition to the bi-annual reports, the Compliance Coordinator shall provide a written report to the Audit and Compliance Committee of the Board, the CEO, General Counsel at least quarterly (before the issuance of the Company’s SEC Form 10-Q filings) concerning the functioning of the Medicare and Medicaid Compliance Program and the Code of Conduct (and any potential or actual violations thereof). These reports shall be maintained as exhibits to the Audit and Compliance Committee Board minutes, and such minutes shall be maintained by the Company’s General Counsel within the legal department for a period of at least ten (10) years.

9. In addition to the presentation of the bi-annual reports, the Compliance Coordinator shall have the right to attend and speak at each meeting of the Board (or any committee thereof) regarding the functioning of the Medicare and Medicaid Compliance Program.

10. The Compliance Coordinator shall be responsible for oversight of CHSI’s Disclosure Program (including the Hotline and Log) and shall be responsible for providing documentation concerning the Disclosure Hotline (and log) to the Audit and Compliance Committee.

III.

CONFIDENTIAL DISCLOSURE PROGRAM

1. The Compliance Coordinator shall review and oversee the confidential disclosure mechanisms in CHSI’s current policy to ensure that:

(a) The policy makes clear that the confidential disclosure provisions are designed to report any potential or actual suspected violation of the federal and/or state healthcare laws, including but not limited to, the Medicare and/or Medicaid laws, rules and regulations, and not simply to report violations of internal CHSI policies.

(b) In addition to the other existing mechanisms for reporting a complaint, the reporting person (i.e., the “disclosing person”) shall be directed to report the matter to an independent party (the “Third Party”) retained by the Company to receive such complaints by mail or e-mail. Such complaints may be anonymous, but the Board shall encourage the disclosing persons to reveal their identity to permit a more efficient and timely resolution of the matter. The Board shall also have the power, at its discretion, to reward employees who come forward within the Company and promptly bring meritorious complaints and concerns to the Company’s attention.

(c) All complaints received by the Third Party shall be forwarded in writing (translated into English where necessary) to the CCO who shall promptly investigate each complaint.

(d) The log of Disclosure complaints as well as the results of all investigations of complaints shall be memorialized in writing and maintained by the Compliance Coordinator for a period of not less than ten (10) years. The Company shall require its external auditor to review the log and investigation results in connection with each annual audit.

(e) Where the disclosing person has identified him/her/itself in a complaint, the Compliance Coordinator shall notify the disclosing person when the investigation or evaluation of the complaint is complete and the results thereof. If the disclosing person does not believe his/her/its report was properly explained or resolved, he/she/it may contact the full Board and CHSI’s external auditor concerning the complaint.

(f) All contact information and reporting directions shall be conspicuously and widely posted by CHSI on its website and elsewhere, as to be available not only to CHSI employees but also to patients, vendors and other third parties.

IV.

CLAWBACK IN THE EVENT OF RESTATEMENT

1. CHSI shall modify its claw-back policy to require the Company to “claw-back” any compensation paid to CEO or CFO for any accounting restatement due to the material noncompliance of CHSI with any financial reporting requirement under the federal and/or state securities laws. For any such accounting restatement, CHSI shall recoup all incentive-based compensation (calculated as the excess amount paid on the basis of the restated results) paid to such officer(s) during the two-year period preceding the date the Company is required to prepare the restatement.

2. The modified “ClawBack” policy shall also require the Company to “claw-back” compensation as described herein regardless of any lesser “claw-back” obligations enacted by the United States Securities & Exchange Commission pursuant to Section 954 of the Dodd-Frank Act.

3. The claw-back provision set forth above shall be incorporated into all future employment agreements with any CEO or CFO, and all current employment agreements with the current CEO and CFO shall be amended to incorporate these provisions. Additionally, until the Company begins entering into written employment agreements with its executive officers, the claw-back provisions set forth above shall be incorporated into separate written agreements between the Company and its applicable executive officers (including requiring executives to voluntarily repay compensation when necessary under these provisions). The Board shall not hire and/or shall terminate any executives who do not agree to such amendments.

INSIDER TRADING CONTROLS

1. The Board shall appoint a management level committee consisting of CHSI’s CFO and General Counsel, which committee shall be responsible for ensuring compliance with CHSI’s stock trading. The committee will be designated the “Trading Compliance Committee,” and shall be responsible for developing (with Board involvement), present to the Board for approval, and monitoring and updating (with Board involvement and approval) a comprehensive program designed to ensure compliance with CHSI’s insider stock trading policy (“Trading Compliance Policy”).

2. The Board shall be responsible for direct oversight of the Trading Compliance Program and the members of the Board will have direct access to the Trading Compliance Committee, including the opportunity to meet with the Trading Compliance Committee outside the presence of any other members of management. At least once a year, the non-executive members of the Board shall receive a report from the Trading Compliance Committee.

3. CHSI shall not buy back stock from any Section 16 officer or any director in the open market or otherwise, except in connection with the payment of taxes relating to the vesting of restricted stock.

4. Any director or elected officer who acquires CHSI shares via option exercise, shall retain 100% of the net shares acquired, after taking into account the sale of shares to pay taxes and the option exercise price, for at least 12 months or such earlier time as the individual ceases to be a director or officer of CHSI or until such time as the individual satisfies the stock ownership metrics set forth in §I.5(a) above (or in the case of an officer, the stock ownership metrics set forth in CHSI’s Governance Guidelines posted on its website).

VI.

POLITICAL EXPENDITURE DISCLOSURE POLICY

The Board shall adopt the following Political Contribution Policy (“Policy”).

1. Statement of Policy

(a) CHSI acknowledges that existing and proposed laws, legislation, regulations and policy initiatives, including but not limited to those regarding the federal and state healthcare laws, may have a significant impact on CHSI and its operations. As such, CHSI may engage in transparent and responsible participation in the political process at the U.S. federal and/or state level.

(b) CHSI’s political contributions shall be subject to the approval of senior management and oversight by the Governance and Nominating Committee of the Board of Directors.

(c) No CHSI resources, including but not limited to, the use of Company premises, use of Company equipment, or monetary payments, may be contributed to any political candidate, political committee political party, ballot measure committee, or to other organization for use in making Political Expenditures without specific approval and disclosure if applicable as set forth under this Policy.

(d) For the purpose of this Policy, the term “Political Expenditures” shall mean all monetary and non-monetary payments that CHSI intended to be used, or had reason to believe would be used, to participate in or influence public opinion with respect to any political campaign on behalf of or in opposition to any candidate for public office or any voter referenda ballot measures, including but not limited to all funds meeting the above description that were provided to any candidate, candidate committee, political organization, political party, business association, advocacy organization, educational group, media organization, political action committee, or any other comparable entity, whether or not it qualifies as a 501(c)(4) organization.

2. Promotion of Company Interests

(a) All Political Expenditures made with CHSI funds or resources shall be used solely to promote the interests of the Company, and shall be made without regard for the personal political preferences of CHSI’s directors, officers, employees, independent contractors and/or agents.

3. Approvals

(a) No Political Expenditures shall be made using CHSI funds or resources to, or in support of, any political candidate, political campaign, political party, political committee, or public official in any country, or to any other organization for use in making Political Expenditures, unless the contribution is lawful and expressly authorized in writing by the Company’s CEO, CFO, and General Counsel, to ensure consistency with CHSI’s business objectives and public policy priorities.

(b) Any employee who believes that a payment using CHSI funds that the employee has requested may be used in making Political Expenditures must contact the General Counsel to determine whether the payment requires the approvals specified in the preceding paragraph.

4. Oversight

(a) The Governance and Nominating Committee of the CHSI Board of Directors shall be responsible for overseeing CHSI’s political activity and contributions, including Political Expenditures to trade associations or other organizations, to ensure consistency with the Company’s business objectives and public policy priorities.

(b) The Governance and Nominating Committee shall no less than annually receive and review a report on CHSI’s political contributions and expenditures.

5. Federal Political Contributions

(a) CHSI shall not make any corporate contributions to federal candidates, federal campaign committees, national political party committees, and all other federal political committees.

(b) CHSI shall not make contributions to “federal independent expenditure-only committees” as that term is defined by the Federal Election Commission.

6. State Political Contributions

(a) Where permitted by law, and with the required internal approvals set forth above in Section VI.3, CHSI may participate in the political process at the state level by contributing to political candidates, political parties, political committees and ballot initiatives.

(b) Information concerning any such political contributions will be posted to CHSI’s website pursuant to §VI.7 herein, and shall be updated at least quarterly. If CHSI chooses to make a contribution to a political committee that is a state or local independent expenditure-only committee, and the contribution would be publicly disclosed as required by law on state election agency websites, then the same information will also be posted to and maintained on CHSI’s website pursuant to §VI.7 herein.

7. Internet and Website Disclosure

(a) To ensure that CHSI’s political activities are transparent to all CHSI stakeholders, the Company shall disclose political activities as follows:

(i) CHSI shall post to its website within 30 days of any applicable state reporting and disclosure obligation or within 90 days of any applicable reporting requirement greater than quarterly, any monetary and nonmonetary corporate contributions to political candidates, political parties, organizations intending to influence the outcome of ballot measures, and other political organizations established under Section 527 of the Internal Revenue Code, including recipient names and amounts given.

(ii) CHSI shall post to its website and update within 30 days all contributions made by CHSI’s federal political action committee, and by any state or local political action committees established by CHS, including recipient names and amounts given.

IV.

PLAINTIFFS’ COUNSEL’S SEPARATELY NEGOTIATED ATTORNEYS’ FEES AND EXPENSES

After negotiating the principal terms of the Settlement, counsel for Plaintiffs and the Company, with the assistance of the mediator, the Honorable Layn R. Phillips (Ret.), negotiated the attorneys’ fees and expenses that CHSI would pay to Plaintiffs’ Counsel, subject to Court approval. As a result of these negotiations, and in light of the substantial benefits conferred, CHSI agreed that Plaintiffs’ Counsel shall receive attorneys’ fees, costs, and expenses of 33.33% of the Settlement Payment (“Fee and Expense Amount”). The Fee and Expense Amount includes fees and expenses incurred by Plaintiffs’ Counsel in connection with the prosecution and settlement of the Action. To date, Plaintiffs’ Counsel have not received any payments for their efforts on behalf of CHSI stockholders. The Fee and Expense Amount will compensate Plaintiffs’ Counsel for the substantial benefits achieved in the litigation.

V.	REASONS FOR THE SETTLEMENT

The Settling Parties have determined that it is desirable and beneficial that the Action, and all of their disputes related thereto, be fully and finally settled in the manner and upon the terms and conditions set forth in the Stipulation and Plaintiffs’ Counsel believe that the Settlement is in the best interests of the Settling Parties, CHSI and its stockholders.

Why Did the Settling Defendants Agree to Settle?

The Settling Defendants have denied and continue to deny the claims and contentions alleged by the Plaintiffs in the Action. The Settling Defendants expressly have denied and continue to deny all allegations of wrongdoing or liability against them arising out of any of the conduct, statements, acts or omissions alleged, or that could have been alleged in the Action, and contend that many of the factual allegations in the Action are untrue and materially inaccurate. The Settling Defendants have denied and continue to deny that they breached their fiduciary duties or any other duty owed to CHSI or its stockholders, or that Plaintiffs, CHSI or its stockholders have suffered any damages or were harmed by the conduct alleged in the Action or otherwise. The Settling Defendants have further asserted and continue to assert that at all relevant times, they acted in good faith and in a manner they reasonably believed to be in the best interests of CHSI and its stockholders. Pursuant to the terms set forth therein, the Stipulation shall in no event be construed as or deemed to be evidence of an admission or concession by any of the Settling Defendants with respect to any claim of fault, liability, wrongdoing or damage whatsoever.

Nonetheless, the Settling Defendants and CHSI also have taken into account the expense, uncertainty and risks inherent in any litigation, especially in complex cases like the Action. Therefore, the Settling Defendants and CHSI have determined that it is desirable and beneficial that the Action, and all of the Settling Parties’ disputes relating thereto, be fully and finally settled in the manner and upon the terms and conditions set forth in the Stipulation.

Why Did Plaintiffs Agree to Settle?

Plaintiffs and their counsel believe that the claims asserted in the Action have merit. However, Plaintiffs and their counsel recognize and acknowledge the expense and length of continued proceedings necessary to prosecute the Action against the Settling Defendants through trial and appeal. Plaintiffs and their counsel also have taken into account the uncertain outcome and the risk of any litigation, especially in complex actions such as the Action, as well as the difficulties and delays inherent in such litigation. Plaintiffs and their counsel also are mindful of the inherent problems of proof of, and possible defenses to, the violations asserted in the Action. Based on Plaintiffs’ and their counsel’s understanding of the facts, Plaintiffs and their counsel believe the Settlement provides an outstanding recovery based on the alleged conduct of the Settling Defendants. Based on their evaluation, Plaintiffs and their counsel have determined that the Settlement set forth in the Stipulation is in the best interests of CHSI and its stockholders.

VI.

SETTLEMENT HEARING

On January 17, 2017, at 10:30 a.m., the Court will hold the Settlement Hearing at 801 Broadway, Courtroom A826, Nashville, TN 37203. At the Settlement Hearing, the Court will consider whether the terms of the Settlement are fair, reasonable and adequate and thus should be finally approved, whether the separately negotiated Fee and Expense Amount should be approved and whether the Action should be dismissed with prejudice pursuant to the Stipulation.

Pending determination of whether the Settlement should be approved, no CHSI stockholder, either directly, representatively, derivatively or in any other capacity, shall commence or prosecute against any of the Released Persons, any action or proceeding in any court, administrative agency or other tribunal asserting any of the Released Claims.

VII.

RIGHT TO ATTEND SETTLEMENT HEARING

Any CHSI stockholder may, but is not required to, appear in person at the Settlement Hearing. If you want to be heard at the Settlement Hearing, then you must first comply with the procedures for objecting, which are set forth below. The Court has the right to change the hearing date or time without further notice. Thus, if you are planning to attend the Settlement Hearing, you should confirm the date and time before going to the Court. CHSI stockholders who have no objection to the Settlement do not need to appear at the Settlement Hearing or take any other action.

VIII.

RIGHT TO OBJECT TO THE PROPOSED DERIVATIVE SETTLEMENT AND PROCEDURES FOR DOING SO

Any CHSI stockholder may appear and show cause, if he, she or it has any reason why the Settlement of the Action should not be approved as fair, reasonable and adequate, or why a judgment should not be entered thereon, or why the separately negotiated Fee and Expense Amount should not be approved. You must object in writing, and you may request to be heard at the Settlement Hearing. If you choose to object, then you must follow these procedures.

You Must Make Detailed Objections in Writing

Any objections must be presented in writing and must contain the following information:

1. Your name, legal address, and telephone number;

2. The case name and number (In re Community Health Systems, Inc. Shareholder Derivative Litigation, Master Dkt. No. 3:11-cv-00489);

3. Proof of being a CHSI stockholder as of the Record Date;

4. The date(s) you acquired your CHSI shares;

5. A statement of each objection being made;

6. Notice of whether you intend to appear at the Settlement Hearing (you are not required to appear); and

7. Copies of any papers you intend to submit to the Court, along with the names of any witness(es) you intend to call to testify at the Settlement Hearing and the subject(s) of their testimony.

The Court may not consider any objection that does not substantially comply with these requirements.

You Must Timely Deliver Written Objections to the Court

All written objections and supporting papers must be submitted to the Court either by mailing them to:

Clerk of the Court

United States District Court

Middle District of Tennessee

801 Broadway, Room 800

Nashville, TN 37203

OR by filing them in person at any location of the United States District Court for the Middle District of Tennessee.

YOUR WRITTEN OBJECTIONS MUST BE POSTMARKED OR ON FILE WITH THE CLERK OF THE COURT NO LATER THAN JANUARY 3, 2017.

Unless the Court orders otherwise, your objection will not be considered unless it is timely filed with the Court.

Any Person or entity who fails to object or otherwise request to be heard in the manner prescribed above will be deemed to have waived the right to object to any aspect of the Settlement as incorporated in the Stipulation or otherwise request to be heard (including the right to appeal) and will be forever barred from raising such objection or request to be heard in this or any other action or proceeding, and, unless otherwise ordered by the Court, shall be bound by the Judgment to be entered and the releases to be given.

IX.

HOW TO OBTAIN ADDITIONAL INFORMATION

This Notice summarizes the Stipulation. It is not a complete statement of the events of the Action or the Settlement contained in the Stipulation.

You may inspect the Stipulation and other papers in the Action at the United States District Clerk’s office at any time during regular business hours of each business day. The Clerk’s office is located at the United States District Court for the Middle District of Tennessee, 801 Broadway, Room 800, Nashville, TN 37203. However, you must appear in person to inspect these documents. The Clerk’s office will not mail copies to you. You may also view and download the Stipulation at www.chs.net/investor-relations.

If you have any questions about matters in this Notice you may contact by telephone at 1-800-449-4900 or in writing Rick Nelson, c/o Shareholder Relations, Robbins Geller Rudman & Dowd LLP, 655 West Broadway, Suite 1900, San Diego, CA 92101.

PLEASE DO NOT CALL, WRITE, OR OTHERWISE DIRECT QUESTIONS TO EITHER THE COURT OR THE CLERK’S OFFICE.

DATED: December 2, 2016

BY ORDER OF THE COURT

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF TENNESSEE

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF TENNESSEE

NASHVILLE DIVISION

In re COMMUNITY HEALTH SYSTEMS,

INC. SHAREHOLDER DERIVATIVE

LITIGATION

This Document Relates To:

ALL ACTIONS.

)

Master Docket No. 3:11-cv-00489

(Consolidated with No. 3:11-cv-00598 and

No. 3:11-cv-00952)

Judge Kevin H. Sharp

Magistrate Judge Joe B. Brown

STIPULATION OF SETTLEMENT

This Stipulation of Settlement, dated November 18, 2016 (“Stipulation” or “Settlement”), is made and entered into by and among the following parties, and by and through their respective counsel: (i) Plaintiffs Roofers Local No. 149 Pension Fund (the “Roofers”) and Plumbers and Pipefitters Local Union No. 630 Pension-Annuity Trust Fund (the “Plumbers”), in the action captioned In re Community Health Systems, Inc. Shareholder Derivative Litigation, Master Docket No. 3:11-cv-00489 (the “Action”) (on behalf of themselves and derivatively on behalf of Community Health Systems, Inc. (“CHSI” or the “Company”)); (ii) Defendants Wayne T. Smith, W. Larry Cash, John A. Clerico, John A. Fry, William Norris Jennings, Julia B. North, and H. Mitchell Watson, Jr. (together, “Settling Defendants”); and (iii) Nominal Party CHSI (together, the “Settling Parties”). The Stipulation is intended by the Settling Parties to fully, finally and forever resolve, discharge and settle the Released Claims (as defined below) upon Court approval and subject to the terms and conditions hereof.

I.	BRIEF OVERVIEW OF THE ACTION

Commencement and Consolidation of the Action

On March 15, 2012, Plaintiffs filed a Verified Amended Consolidated Shareholder Derivative Complaint for Breach of Fiduciary Duty, Corporate Waste and Unjust Enrichment (“Amended Consolidated Complaint”) (Dkt. No. 50). The Amended Consolidated Complaint alleged that Defendants breached their fiduciary duties by causing CHSI to adopt an unlawful inpatient admissions policy to enable CHSI to artificially inflate reimbursement payments from Medicare, Medicaid and other payer sources, resulting in damages to the Company. Id., 2-7, 45-85.

Defendants’ Motion to Dismiss and Motion for Reconsideration

On May 14, 2012, Defendants filed a Motion to Dismiss the Amended Consolidated Complaint (“Motion to Dismiss”) (Dkt. No. 53). In the Motion to Dismiss, Defendants argued, among other things, that the Amended Consolidated Complaint failed to adequately plead futility of demand. Defendants also argued that the facts pleaded in the Amended Consolidated Complaint failed to state any actionable claim for relief. Id. On July 13, 2012, Plaintiffs filed an Opposition to the Motion to Dismiss (“Opposition”) (Dkt. No. 58).

Discovery

numerous hospital-level representatives. Similarly, Defendants obtained over 10,000 pages of documents from Plaintiffs and have deposed representatives from both Roofers and Plumbers. Finally, with an expert discovery period fast approaching, the Settling Parties engaged numerous expert witnesses who had begun to compile and review materials in anticipation of drafting their respective reports.²

Settlement Negotiations

While the parties pushed forward with the litigation and discovery, the Settling Parties continued to talk about resolution with the help of Judge Phillips. After months of discovery and, nearing the discovery cut-off set by the Court, the Settling Parties engaged in a second in-person mediation session with Judge Phillips on September 9, 2016. While the Settling Parties did not reach an agreement to settle the Action at that session, the Settling Parties continued negotiations with the assistance of Judge Phillips in parallel with ongoing discovery. These efforts culminated with the Settling Parties agreeing to settle this Action for a $60 million payment from the Settling Defendants’ insurance carriers and the Company agreeing to adopt meaningful corporate governance reforms relating to the issues raised by this Action, subject to the negotiation of the terms of this Stipulation of Settlement and approval by the Court. The Settling Parties further agreed that $40 million of that settlement payment should be payable to the Company, and $20 million should be payable to counsel for the Plaintiffs as attorneys’ fees and expenses, subject to Court approval.

Approval of the Settlement by the CHSI Board

On November 2, 2016, the CHSI Board, exercising its business judgment, unanimously approved the Settlement and its terms as being in the best interest of CHSI and its stockholders.

II.

CLAIMS OF PLAINTIFFS AND BENEFITS OF SETTLEMENT

Plaintiffs and Plaintiffs’ Counsel believe that the claims asserted in the Action have merit. However, Plaintiffs and Plaintiffs’ Counsel recognize and acknowledge the expense and length of continued proceedings necessary to prosecute the Action against the Settling Defendants through trial and potential appeals. Plaintiffs and Plaintiffs’ Counsel also have taken into account the uncertain outcome and the risk of any litigation, especially in a complex action such as this one, as well as the difficulties and delays inherent in such litigation. Plaintiffs and Plaintiffs’ Counsel also are mindful of the inherent problems of proof of, and possible defenses to, the claims asserted in the Action. Based on their evaluation, Plaintiffs and Plaintiffs’ Counsel have determined that the Settlement set forth in this Stipulation is in the best interests of CHSI and its stockholders.

III.

THE SETTLING DEFENDANTS’ DENIALS OF WRONGDOING AND LIABILITY

The Settling Defendants have denied and continue to deny each and every one of the claims and contentions alleged by the Plaintiffs in the Action. The Settling Defendants expressly have denied and continue to deny all allegations of wrongdoing or liability against them or any of them arising out of, based upon or related to any of the conduct, statements, acts or omissions alleged, or that could have been alleged, in the Action. Without limiting the foregoing, the Settling Defendants have denied and continue to deny, among other things, that they breached their fiduciary duties or any other duty owed to CHSI or its stockholders, or that Plaintiffs, CHSI, or its stockholders suffered any damage or were harmed as a result of any conduct alleged in the Action or otherwise. The Settling Defendants have further asserted and continue to assert that at all relevant times, they acted in good faith and in a manner they reasonably believed to be in the best interests of CHSI and its stockholders.

Nonetheless, the Settling Defendants also have taken into account the expense, uncertainty and risks inherent in any litigation, especially in a complex case like the Action. Therefore, the Settling Defendants have determined that it is desirable and beneficial that the Action, and all of the Settling Parties’ disputes related thereto, be fully and finally settled in the manner and upon the terms and conditions set forth in this Stipulation. Pursuant to the terms set forth below, this Stipulation (including all of the Exhibits hereto) shall in no event be construed as or deemed to be evidence of an admission or concession by the Settling Defendants with respect to any claim of fault, liability, wrongdoing, or damage whatsoever.

IV.

TERMS OF STIPULATION AND AGREEMENT OF SETTLEMENT

NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among the Plaintiffs (for themselves and derivatively on behalf of CHSI), the Settling Defendants, and CHSI, that in exchange for the consideration set forth below, the Action and Released Claims shall be fully, finally and forever compromised, settled, discharged, relinquished and released, and the Action shall be dismissed with prejudice as to the Settling Defendants, upon and subject to the following terms and conditions:

Definitions

As used in this Stipulation the following terms have the meanings specified below:

1.1 “Action” means, collectively, the consolidated shareholder derivative action pending in the Middle District of Tennessee under the caption In re Community Health Systems, Inc. Shareholder Derivative Litigation, Master Docket No. 3:11-cv-00489, pending before the Honorable Kevin H. Sharp.

1.2 “CHSI” means Community Health Systems, Inc., including, but not limited to, its predecessors, successors, subsidiaries, affiliates, divisions, and assigns.

1.3 “Company Portion” means the balance of the Settlement Payment and any other sum in the Settlement Escrow after accounting for and deducting the Fee and Expense Amount.

1.4 “Court” means the United States District Court for the Middle District of Tennessee.

1.5 “Effective Date” means the first date by which all of the events and conditions specified in 6.1 of this Stipulation have been met and have occurred.

1.6 “Fee and Expense Amount” means $20,000,000, subject to Court approval.

1.7 “Final” means the time when the Judgment has not been reversed, vacated, or modified in any way and is no longer subject to appellate review, either because of disposition on appeal and conclusion of the appellate process or because of passage, without action, of time for seeking appellate review. More specifically, it is that situation when: (1) either no appeal has been filed and the time has passed for any notice of appeal to be timely filed in the Action; or (2) an appeal has been filed and the court(s) of appeal has/have either affirmed the Judgment or dismissed that appeal and the time for any reconsideration or further appellate review has passed and the appellate court mandate(s) has/have issued; or (3) a higher court has granted further appellate review and that court has either affirmed the underlying Judgment or affirmed the court of appeal’s decision affirming the Judgment or dismissing the appeal.

1.8 “Final Approval Order” means the Order Approving Derivative Settlement and Order of Dismissal with Prejudice, substantially in the form attached as Exhibit B hereto.

1.9 “Judgment” means the judgment to be rendered by the Court in the Action upon its final approval of the Settlement, substantially in the form attached as Exhibit C hereto.

1.10 “Person” means an individual, corporation, limited liability company, professional corporation, limited liability partnership, partnership, limited partnership, association, joint venture, joint stock company, estate, legal representative, trust, unincorporated association, government or any political subdivision or agency thereof, and any business or legal entity, and each of their spouses, heirs, predecessors, successors, representatives, or assignees.

1.11 “Plaintiffs” means collectively the Roofers and the Plumbers.

1.12 “Plaintiffs’ Counsel” means any counsel that has appeared of record or rendered legal services to any of the Plaintiffs in connection with the Action.

1.13 “Related Parties” means (i) as to CHSI, CHSI’s past or present directors, officers, managers, employees, partners, agents, attorneys, accountants, auditors, banks, insurers, co-insurers, re-insurers, consultants, experts, successors, subsidiaries, divisions, joint ventures, assigns, general or limited partners or partnerships, limited liability companies, any entity in which CHSI has a controlling interest, and all officers, directors and employees of CHSI’s current and former

subsidiaries, and (ii) as to the Settling Defendants, (1) each spouse, immediate family member, heir, executor, estate, administrator, agent, attorney, accountant, auditor, bank, insurer, co-insurer, re-insurer, advisor, consultant, expert, or affiliate of any of them, (2) any trust in respect of which any Settling Defendant, or any spouse or family member thereof serves as a settlor, beneficiary or trustee, and (3) any entity in which a Settling Defendant, or any spouse or immediate family member thereof, holds a controlling interest or for which a Settling Defendant has served as an employee, director, officer, managing director, advisor, general partner, limited partner, or member and any collective investment vehicle which is advised or managed by any of them. For the sake of clarity, and without limitation, James S. Ely III and T. Mark Buford, each previously a defendant in this Action, are among the Related Parties.

1.14 “Released Claims” means all claims, demands, rights, liabilities and claims for relief of every nature and description whatsoever, known or unknown (as set forth below), that have been, and could have been, asserted in the Action by Plaintiffs, CHSI, or any CHSI stockholder derivatively on behalf of CHSI against the Settling Defendants, based on the Settling Defendants’ acts and/or omissions in connection with, arising out of, or relating to, the facts, transactions, events, matters, occurrences, acts, disclosures, statements, omissions or failures to act related to CHSI’s inpatient admission policies and procedures that Plaintiffs allege violated certain federal laws through and including the date of execution of this Stipulation.

1.15 “Released Persons” means the Settling Defendants, CHSI and their respective Related Parties.

1.16 “Settlement” means the terms and conditions contained in this agreement.

1.17 “Settling Defendants” means Wayne T. Smith, W. Larry Cash, John A. Clerico, John A. Fry, William Norris Jennings, Julia B. North, and H. Mitchell Watson, Jr.

1.18 “Settling Parties” means, collectively, each of the Plaintiffs, the Settling Defendants and CHSI.

1.19 “Stipulation” means this agreement.

1.20 “Unknown Claims” means any Released Claims which Plaintiffs, CHSI or a CHSI stockholder does not know or suspect to exist in his, her or its favor at the time of the release of the

Released Persons, including claims which, if known by him, her or it, might have affected his, her or its settlement with, and release of the Released Persons, or might have affected his, her or its decision not to object to this Settlement. With respect to any and all Released Claims, the Settling Parties stipulate and agree that, upon the Effective Date, Plaintiffs, CHSI, and its stockholders shall be deemed to have, and by operation of the Judgment shall have, expressly waived, the provisions, rights and benefits of California Civil Code §1542, which provides:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

Further, with respect to any and all claims released pursuant to 4.1-4.3 below, the Settling Parties stipulate and agree that, upon the Effective Date, each of the Released Persons also shall expressly waive, and by operation of the Judgment shall have expressly waived any and all provisions, rights and benefits conferred by any law of any jurisdiction or any state or territory of the United States, or principle of common law, which is similar, comparable or equivalent to California Civil Code §1542. Plaintiffs, CHSI and each CHSI stockholder may hereafter discover facts in addition or different from those which he, she or it now knows or believes to be true with respect to the subject matter of the Released Claims, known or unknown, suspected or unsuspected, contingent or non-contingent, whether or not concealed or hidden, which now exist, or heretofore have existed upon any theory of law or equity now existing or coming into existence in the future, including, but not limited to, conduct which is negligent, intentional, with or without malice, or a breach of any duty, law or rule, without regard to the subsequent discovery or existence of such different or additional facts. The Settling Parties acknowledge, and the CHSI stockholders shall be deemed by operation of the Judgment to have acknowledged, that the foregoing waiver was separately bargained for and is a key element of the Settlement of which this release is a part.

Consideration

2.1 In connection with the Settlement of the Action, the Insurers shall pay $60,000,000 in the aggregate (the “Settlement Payment”) in the manner described in 2.3. In addition, in connection with the settlement of the Action, the CHSI Board shall adopt the corporate governance measures

specified herein within thirty (30) days after the Final Approval Order for the proposed Settlement is entered by the Court, and maintain such measures for at least four (4) years except in the event that public shareholders no longer hold 10% or more of the CHSI’s outstanding stock.

2.2 CHSI acknowledges and agrees that the payment of the Company Portion and implementation of the corporate governance measures set forth in 2.4 below will confer substantial benefits upon CHSI and its stockholders. CHSI also acknowledges that the commencement, prosecution, and settlement of the Action were material and substantial factors in the Company’s ability to receive the Company Portion and in the Board’s decision to adopt, implement, and maintain the corporate governance reforms set forth in 2.4 below.

2.3 The Settlement Payment:

1. Settling Defendants’ insurance carriers (the “Insurers”) shall pay or cause to be paid the Settlement Payment, no later than twenty-one (21) days following the later of (i) entry of an order granting preliminary approval of the Settlement by the Court, and (ii) receipt by the Insurers in writing of all necessary instructions for payment by wire transfer or by check, including necessary W-9 forms (the “Funding Date”), directly into an interest-bearing escrow account (the “Settlement Escrow”) on terms agreed to by the Settling Parties in an escrow agreement governing the Settlement Escrow (the “Escrow Agreement”). Counsel for the Company shall serve as the escrow agent for the Settlement Escrow (in such capacity, the “Escrow Agent”).

2. The Settling Parties acknowledge and agree that:

(i) the amounts deposited in the Settlement Escrow, while on deposit therein, are not, and shall not be deemed to be, property of the estate of any Person (including, but not limited to, any Settling Party or any Insurer) within the meaning of 11 U.S.C. §541 or any similar provision of any other law;

(ii) each of the Settling Parties hereby disclaims, releases, and waives any right it may have to assert that it has any equitable title to any amount in the Settlement Escrow other than each of the Settling Parties’ rights, if any, to receive from the Settlement Escrow the Company Portion or the Fee and Expense Amount, as applicable, as provided for in this Stipulation, the Escrow Agreement, and the Final Approval Order;

(iii) neither the Settling Defendants nor CHSI is funding any portion of the amounts being deposited into the Settlement Escrow;

(iv) the commencement by or against any Settling Party of a case or proceeding under title 11 of the United States Code, any state insolvency or receivership law, or any state law relating to general assignment for the benefit of creditors, composition, marshaling, or other similar arrangements and procedures, shall not operate to stay, terminate, cancel, suspend, excuse, delay, impede, or otherwise interfere with or impair (x) the rights, if any, of the other Settling Parties to receive the Company Portion and the Fee and Expense Amount, as applicable, from the Escrow Account, as applicable, pursuant to this Stipulation, the Escrow Agreement, and the Final Approval Order, or (y) the duties of the Escrow Agent under this Stipulation, the Escrow Agreement, and the Final Approval Order, including, but not limited to, the Escrow Agent’s obligation to release the Company Portion and/or the Fee and Expense Amount consistent with 2.3(d) and 5.1 of this Stipulation;

(v) the Settling Defendants shall not have any interest in any amounts deposited in the Settlement Escrow at any time;

(vi) CHSI shall not have any interest in any amounts deposited in the Settlement Escrow corresponding to the Fee and Expense Amount at any time;

(vii) the Insurers shall have no interest in any amounts deposited in the Settlement Escrow at any time unless, until, and solely to the extent that any funds are due to the Insurers pursuant to 2.3(d) and (e) and 5.2 below; and

(viii) in the event of the entry of a final order of a court of competent jurisdiction determining that the payment of the Settlement Payment or any portion thereof by any Person is a preferential transfer, voidable or avoidable transfer, fraudulent transfer, or similarly recoverable transaction and requiring any portion thereof to be returned, and such amount is not promptly deposited into the Settlement Escrow by the Settling Defendants or others on their behalf, then, at the election of Plaintiffs, Plaintiffs may move the Court to vacate and set aside the Judgment, in which event the Settling Parties, Released Persons, and Related Parties shall be restored to their respective positions that existed immediately prior to October 23, 2016.

3. None of the Settling Parties shall have any right, title, or interest in or to, or possession of, the Settlement Escrow, and therefore shall not have the ability to pledge, convey, hypothecate, or grant as security all or any portion of the funds in the Settlement Escrow, unless and until, and solely to the extent that, any such funds have been released from escrow pursuant to this Stipulation and the applicable escrow agreement and received by a Settling Party. The Escrow Agent shall be in sole possession of the funds therein solely in its capacity as such, and shall not act as custodian of the Settling Parties for purposes of perfecting a security interest therein, and no creditor of any of the Settling Parties shall have any right to have or to hold or otherwise attach or seize all or any portion of either of the Settlement Escrow as collateral for or in satisfaction of any obligation, and shall not be able to obtain a security interest in any of the funds in the Settlement Escrow unless and until, and solely to the extent that, any such funds have been released from escrow pursuant to this Stipulation and the applicable escrow agreement and received by a Settling Party.

4. The Escrow Agent shall pay the Company Portion, as defined above, to the Company or its designee fourteen (14) calendar days after entry of the Final Approval Order, without further action or authorization by or on behalf of Plaintiffs, Plaintiffs’ Counsel, the Company, or any of the Settling Parties other than notifying the Escrow Agent of the entry of such order, notwithstanding the existence of any timely filed objections thereto, or potential for appeal therefrom, or collateral attack on the Settlement or any part thereof. If the Settling Parties fail to obtain entry of the Final Approval Order within 180 calendar days of the Funding Date (the “Approval Deadline”), or if the Final Approval Order is subsequently overturned by an order or judgment that is not subject to further approval, appeal, reconsideration, rehearing, or review, in either circumstance for any reason, the Company shall be obligated to refund or repay (or to cause to be refunded or repaid) the Company Portion and any Fee and Expense Amount that has been disbursed as Plaintiffs’ attorneys’ fees and expenses (the “Refund Amount”), to the Insurers, within fourteen (14) calendar days after the date such order or judgment ceases to be subject to further approval, appeal, reconsideration, rehearing, or review (the “Refund Date”).

5. Notwithstanding 2.3(d) above, if the parties re-file in a court of competent jurisdiction prior to any Refund Date a renewed motion for preliminary or final approval of the Settlement to which the Insurers have provided prior written consent (not to be unreasonably withheld), the Company’s obligation to repay or refund the Refund Amount to Insurers shall be suspended, and the Approval Deadline for final and non-appealable approval of the Settlement shall be reset to 90 calendar days after the date of such filing. If the parties fail to obtain such final approval by the reset Approval Deadline, or if any such approval of the Settlement is subsequently overturned by a final order or judgment that is not subject to further approval, appeal, reconsideration, rehearing, or review, in each case for any reason, the Company shall be obligated to refund or repay (or to cause to be refunded or repaid) the Refund Amount to the Insurers within fourteen (14) calendar days after the date such order or judgment ceases to be subject to further approval, appeal, reconsideration, rehearing, or review.

6. The Settling Defendants represent and warrant, with respect to the Settlement Payment made or to be made by the Insurers on their behalf, at the time of entering into this Stipulation and at the time the Settlement Payment is made, that neither they nor any Person contributing to the Settlement Payment on their behalf are insolvent, nor will the payment of the Settlement Payment by them or on their behalf render them insolvent, within the meaning of and/or for the purposes of title 11 of the United States Code (including, but not limited to, sections 101 and 547 thereof). The foregoing representation is made by each of the Settling Defendants and not by their counsel.

2.4 The Corporate Governance Reforms: