Stock-based compensation awards have been granted under the Community Health Systems, Inc. Amended and Restated 2009 Stock Option and Award Plan, which was most recently amended and restated as of March 22, 2023 and most recently approved by the Company’s stockholders at the annual meeting of stockholders held on May 9, 2023 (the “2009 Plan”).

The 2009 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code (“IRC”) and for the grant of stock options which do not so qualify, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance-based shares or units and other share awards. Persons eligible to receive grants under the 2009 Plan include the Company’s directors, officers, employees and consultants. To date, all options granted under the 2009 Plan have been “nonqualified” stock options for tax purposes. Generally, these options vest in one-third increments on each of the first three anniversaries of the option grant date and expire on the tenth anniversary of the option grant date. The exercise price of all options granted under the 2009 Plan is equal to the fair value of the Company’s common stock on the option grant date. As of September 30, 2023, 9,029,110 shares of unissued common stock were reserved for future grants under the 2009 Plan.

The following table reflects the impact of total compensation expense related to stock-based equity plans on the reported operating results for the respective periods (in millions):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
Effect on (loss) income before income taxes	$	(6	)	$	(6	)	$	(16	)	$	(14	)
Effect on net (loss) income	$	(5	)	$	(5	)	$	(13	)	$	(11	)

At September 30, 2023, $34 million of unrecognized stock-based compensation expense related to outstanding unvested stock options, restricted stock and restricted stock units (the terms of which are summarized below) was expected to be recognized over a weighted-average period of 22 months. Of that amount, $6 million relates to outstanding unvested stock options expected to be recognized over a weighted-average period of 22 months and $28 million relates to outstanding unvested restricted stock and restricted stock units expected to be recognized over a weighted-average period of 22 months. There were no modifications to awards during the nine months ended September 30, 2023 and 2022.

The fair value of stock options was estimated using the Black Scholes option pricing model with the following assumptions and weighted-average fair values during the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2023	2022	2023	2022
Expected volatility	N/A	N/A	87.3%	84.3% - 87.5%
Expected dividends	N/A	N/A	—	—
Expected term	N/A	N/A	6 years	3 - 6 years
Risk-free interest rate	N/A	N/A	4.2%	1.5% - 1.6%

In determining the expected term, the Company examined concentrations of option holdings and historical patterns of option exercises and forfeitures, as well as forward-looking factors, in an effort to determine if there were any discernible employee populations. From this analysis, in determining the expected term for the nine months ended September 30, 2023, the Company identified one population, consisting of persons receiving grants of stock options. Additionally, in determining the expected term for the nine months ended September 30, 2022, two populations were identified, one consisting of certain senior executives who have since retired, and the other consisting of substantially all other recipients.

The expected volatility rate was estimated based on historical volatility. In determining expected volatility, the Company also reviewed the market-based implied volatility of actively traded options of its common stock and determined that historical volatility utilized to estimate the expected volatility rate did not differ significantly from the implied volatility.

The expected term computation is based on historical exercise and cancellation patterns and forward-looking factors, where present, for each population identified. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. The pre-vesting forfeiture rate is based on historical rates and forward-looking factors for each population identified. The Company adjusts the estimated forfeiture rate to its actual experience.

Options outstanding and exercisable under the 2009 Plan as of September 30, 2023, and changes during each of the three-month periods following December 31, 2022, was as follows (in millions, except share and per share data):


						Weighted-	Aggregate
				Weighted-		Average	Intrinsic
				Average		Remaining	Value as of
				Exercise		Contractual	September 30,
	Shares			Price		Term	2023
Outstanding at December 31, 2022		2,831,751		$	7.32
Granted		814,000			6.15
Exercised		(8,334	)		4.97
Forfeited and cancelled		—			—
Outstanding at March 31, 2023		3,637,417			7.06
Granted		—			—
Exercised		(6,667	)		4.93
Forfeited and cancelled		—			—
Outstanding at June 30, 2023		3,630,750			7.07
Granted		—			—
Exercised		—			—
Forfeited and cancelled		—			—
Outstanding at September 30, 2023		3,630,750		$	7.07	7.6 years	$	—
Exercisable at September 30, 2023		2,071,994		$	6.46	6.7 years	$	—

No stock options were granted during the three months ended September 30, 2023 and 2022. The weighted-average grant date fair value of stock options granted during the nine months ended September 30, 2023 and 2022 was $4.61 and $7.25, respectively. The aggregate intrinsic value (calculated as the number of in-the-money stock options multiplied by the difference between the Company’s closing stock price on the last trading day of the reporting period ($2.90) and the exercise price of the respective stock options) in the table above represents the amount that would have been received by the option holders had all option holders exercised their options on September 30, 2023. This amount changes based on the market value of the Company’s common stock. The aggregate intrinsic value of options exercised was less than $1 million during both of the nine-month periods ended September 30, 2023 and 2022. No options were exercised during the three months ended September 30, 2023 and 2022. The aggregate intrinsic value of options vested and expected to vest approximates that of the outstanding options.

The Company has also awarded restricted stock under the 2009 Plan to employees of certain subsidiaries. With respect to time-based vesting restricted stock that has been awarded under the 2009 Plan, the restrictions on these shares have generally lapsed in one-third increments on each of the first three anniversaries of the award date. In addition, certain of the restricted stock awards granted to the Company’s senior executives have contained performance objectives required to be met in addition to any time-based vesting requirements. If the applicable performance objectives are not attained, these awards will be forfeited in their entirety. For performance-based awards, the performance objectives are measured cumulatively over a three-year period. If the applicable target performance objective is met at the end of the three-year period, then the restricted stock award subject to such performance objective will vest in full on the third anniversary of the award date. Additionally, for these performance-based awards, based on the level of achievement for the applicable performance objective within the parameters specified in the award agreement, the number of shares to be issued in connection with the vesting of the award may be adjusted to decrease or increase the number of shares specified in the original award. Notwithstanding the above-mentioned performance objectives and vesting requirements, the restrictions with respect to restricted stock granted under the 2009 Plan may lapse earlier in the event of death, disability, change in control of the Company or, other than for performance-based awards, termination of employment by the Company for any reason other than for cause of the holder of the restricted stock. On March 1, 2023, restricted stock awards subject to performance objectives granted on March 1, 2020 vested at 100% of the shares originally granted based on the Company’s cumulative performance compared to objectives for the 2020 through 2022 performance period. Restricted stock awards subject to performance objectives that have not yet been satisfied are not

considered outstanding for purposes of determining diluted earnings per share unless the performance objectives have been satisfied on the basis of results through the end of each respective reporting period.

Restricted stock outstanding under the 2009 Plan as of September 30, 2023, and changes during each of the three-month periods following December 31, 2022, was as follows:


				Weighted-
				Average Grant
	Shares			Date Fair Value
Unvested at December 31, 2022		5,541,065		$	8.53
Granted		2,651,000			6.14
Vested		(2,076,569	)		6.77
Forfeited		(10,001	)		9.31
Unvested at March 31, 2023		6,105,495			8.09
Granted		59,000			3.34
Vested		(56,668	)		8.79
Forfeited		(12,001	)		9.32
Unvested at June 30, 2023		6,095,826			8.03
Granted		—			—
Vested		(4,001	)		9.72
Forfeited		(20,668	)		7.23
Unvested at September 30, 2023		6,071,157			8.03

RSUs have been granted to the Company’s non-management directors under the 2009 Plan. Each of the Company’s then serving non-management directors received grants under the 2009 Plan of 29,268 RSUs and 17,682 RSUs with a grant date of March 1, 2023 and 2022, respectively. Both the March 2023 and 2022 grants had a grant date fair value of approximately $180,000. In addition to the grants set forth above, on March 1, 2023, the non-employee Chairman of the Board of Directors was awarded an additional RSU grant of 43,089 RSUs with a grant date fair value of approximately $265,000 as additional compensation for serving as chairman of the Board of Directors. Vesting of these RSUs occurs in one-third increments on each of the first three anniversaries of the award date or upon the director’s earlier cessation of service on the board, other than for cause. Each non-management director may elect, prior to the beginning of the calendar year in which the award is granted, to defer the receipt of shares of the Company’s common stock issuable upon vesting until either his or her (i) separation from service with the Company or (ii) attainment of an age specified in advance by the non-management director. A total of four directors elected to defer the receipt of RSUs granted on March 1, 2023 to a future date and a total of three directors elected to defer the receipt of RSUs granted on March 1, 2022 to a future date.

RSUs outstanding under the 2009 Plan as of September 30, 2023, and changes during each of the three-month periods following December 31, 2022, was as follows:


				Weighted-
				Average Grant
	Shares			Date Fair Value
Unvested at December 31, 2022		512,360		$	7.54
Granted		365,037			6.15
Vested		(95,577	)		7.92
Forfeited		—			—
Unvested at March 31, 2023		781,820			6.84
Granted		—			—
Vested		(5,894	)		5.00
Forfeited		—			—
Unvested at June 30, 2023		775,926			6.86
Granted		—			—
Vested		—			—
Forfeited		—			—
Unvested at September 30, 2023		775,926			6.86