EXHIBIT 10.3
Performance Discretionary Option Grant Program
CorVel Corporation
Stock Option Agreement
     A. The Board has adopted the Plan for the purpose of retaining the services
of selected Employees, non-employee members of the Board (or the board of
directors of any Parent or Subsidiary) and independent consultants who provide
services to the Company (or any Parent or Subsidiary).
     B. Optionee is to render valuable services to the Company (or a Parent or
Subsidiary), and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Company’s grant of an
option to Optionee.
     C. All capitalized terms in this Agreement shall have the meaning assigned
to them in the attached Appendix.
          Now, therefore, it is hereby agreed as follows:
          1. Grant of Option. Subject to and upon the terms and conditions set
forth in this Agreement, Optionee is hereby granted, as of the Grant Date, an
option to purchase the Option Shares. The Option Shares shall be purchasable
from time to time during the option term at the Exercise Price.
          2. Option Term. This option shall expire at the close of business on
the Expiration Date, unless sooner terminated in accordance with this Agreement.
          3. Limited Transferability.
               (a) Except as set forth in Paragraph 3(b), this option shall be
neither assignable nor transferable by Optionee other than by will or the laws
of inheritance following Optionee’s death and may be exercised, during
Optionee’s lifetime, only by Optionee. Notwithstanding the foregoing, Optionee
may designate one or more persons as the beneficiary or beneficiaries of this
option, and this option shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon
Optionee’s death while holding this option. Such beneficiary or beneficiaries
shall take the transferred option subject to all the terms and conditions of
this Agreement, including (without limitation) the limited time period during
which this option may, pursuant to Paragraph 5, be exercised following
Optionee’s death.
               (b) If this option is designated a Non-Statutory Option in the
Grant Notice, then this option may be assigned in whole or in part during
Optionee’s lifetime only to one or more members of Optionee’s immediate family
or to a trust established exclusively for one or more such family members or to
Optionee’s former spouse, to the extent such assignment is in connection with
Optionee’s estate plan or pursuant to a domestic relations order. This

 

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assigned portion may only be exercised by the person or persons who acquire a
proprietary interest in the option pursuant to the assignment. The terms
applicable to the assigned portion shall be the same as those in effect for this
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Company may deem appropriate.
          4. Exercisability. This option shall become exercisable in one or more
installments and in accordance with the conditions as specified on Schedule A
attached hereto. As the option becomes exercisable for such installments, those
installments shall accumulate, and the option shall remain exercisable for the
accumulated installments until the Expiration Date or sooner termination of the
option term.
          5. Effect of Cessation of Service.
               (a) Should Optionee cease to be a Service Provider for any reason
(other than death, Permanent Disability or Misconduct) while this option is
outstanding, then this option shall remain exercisable until the earlier of
(i) the expiration of the three month period commencing with the date of such
cessation of Service Provider status or (ii) the Expiration Date.
               (b) Should Optionee cease to be a Service Provider by reason of
Permanent Disability or death while this option is outstanding, then the option
shall remain exercisable until the earlier of (i) the expiration of the twelve
month period commencing with the date of such cessation of Service Provider
status or (ii) the Expiration Date.
               (c) Should Optionee cease to be a Service Provider due to
termination for Misconduct, then this option shall terminate immediately.
               (d) During the limited period of post-service exercisability,
this option may not be exercised in the aggregate for more than the number of
Option Shares for which the option is exercisable at the time Optionee ceased to
be a Service Provider. This option shall, immediately when Optionee ceases to be
a Service Provider for any reason, terminate with respect to any Option Shares
for which this option is not otherwise at that time exercisable. Upon the
expiration of the limited post-service exercise period or (if earlier) upon the
Expiration Date, this option shall terminate entirely.
          6. Effect of Corporate Transaction.
               (a) This option, to the extent outstanding at the time of a
Corporate Transaction but not otherwise fully exercisable, shall automatically
accelerate so that this option shall, immediately prior to the effective date of
such Corporate Transaction, become exercisable for all of the Option Shares at
the time subject to this option. However, this option shall not become
exercisable on such an accelerated basis, if and to the extent: (i) this option
is, in connection with the Corporate Transaction, to be assumed by the successor
corporation (or parent thereof) or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation (or parent
thereof) or (ii) this option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing at the time of

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the Corporate Transaction on any Option Shares for which this option is not
otherwise at that time exercisable (the excess of the Fair Market Value of those
Option Shares over the aggregate Exercise Price payable for such shares) and
provides for subsequent payout in accordance with the same exercise schedule for
those Option Shares set forth in the Grant Notice.
               (b) Upon the consummation of the Corporate Transaction, this
option shall terminate, except to the extent assumed by the successor
corporation (or parent thereof) in connection with the Corporate Transaction.
               (c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee as a result of the consummation of such
Corporate Transaction had the option been exercised immediately prior to such
Corporate Transaction, and appropriate adjustments shall also be made to the
Exercise Price, provided the aggregate Exercise Price shall remain the same.
               (d) This Agreement shall not in any way affect the right of the
Company to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
          7. Adjustment in Option Shares. Should any change be made to the
Common Stock by reason of any stock split, reverse stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Company’s receipt
of consideration, appropriate adjustments shall be made to (a) the total number
and/or class of securities subject to this option and (b) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
          8. Stockholder Rights. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option in accordance with the provisions of Paragraph 9, paid
the Exercise Price and become a holder of record of the purchased shares.
          9. Manner of Exercising Option.
               (a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
          (i) Execute and deliver to the Company (A) a Notice of Exercise, in
substantially the form attached hereto as Exhibit I, that specifies the number
of Option Shares for which the option is being exercised and (B) any additional
documents which the Committee may, in its discretion, deem advisable.

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          (ii) Pay the aggregate Exercise Price for the purchased shares in one
or more of the following forms:
          (A) cash or check payable to the Company’s order;
          (B) shares of Common Stock held by Optionee for the requisite period
necessary to avoid a charge to the Company’s reported earnings and valued at
Fair Market Value on the Exercise Date; or
          (C) through a special sale and remittance procedure pursuant to which
Optionee is to provide irrevocable written instructions (1) to a
Company-designated brokerage firm to effect the immediate sale of the purchased
shares and remit to the Company, out of the sale proceeds available on the
settlement date, an amount sufficient to cover the aggregate Exercise Price
payable for the purchased shares plus all applicable Federal and state income
and employment taxes required to be withheld by the Company by reason of such
purchase and (2) to the Company to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale
transaction.
          (iii) Furnish to the Company appropriate documentation that the person
or persons exercising the option (if other than Optionee) have the right to
exercise this option.
          (iv) Make appropriate arrangements with the Company (or Parent or
Subsidiary employing or retaining Optionee) for the satisfaction of all Federal,
state and local income and employment tax withholding requirements applicable to
the option exercise.
               (b) If payment of the exercise price is made by means of the
surrender of shares of Common Stock which are subject to certain restrictions,
the number of shares of Common Stock issued upon the exercise of the option
equal to the number of shares of restricted stock surrendered shall be subject
to the same restrictions as the restricted stock that was surrendered.
               (c) Except to the extent the sale and remittance procedure
specified in Paragraph 9(a)(ii)(C) is utilized in connection with the option
exercise, payment of the option price for the purchased shares must accompany
the Notice of Exercise.
               (d) Assuming Optionee does not sell the purchased shares of
Common Stock on the Exercise Date, as soon as practical after the Exercise Date,
the Company shall either (i) issue to or on behalf of Optionee (or any other
person or persons exercising this option) a certificate for the purchased Option
Shares, with the appropriate legends affixed thereto, or (ii) instruct the
Company’s transfer agent to make a book-entry reflecting the purchase on its
stockholder ledger.

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               (e) In no event may this option be exercised for any fractional
shares.
          10. Tax Withholding. The Committee may, in its discretion and upon
such terms and conditions as it may deem appropriate (including the applicable
safe-harbor provisions of Securities and Exchange Commission Rule 16b-3 or any
successor rule or regulation) provide Optionee (if Optionee is an Employee) with
the election to surrender previously acquired shares of Common Stock or have
shares withheld in satisfaction of the tax withholding obligations. To the
extent necessary to avoid adverse accounting treatment, the number of shares
that may be withheld for this purpose shall not exceed the minimum number needed
to satisfy the applicable income and employment tax withholding rules. If Common
Stock is used to satisfy the Company’s tax withholding obligations, the shares
of Common Stock shall have been held by Optionee for the requisite period
necessary to avoid a charge to the Company’s reported earnings and shall be
valued at their Fair Market Value when the tax withholding is required to be
made.
          11. Compliance with Laws and Regulations.
               (a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Company and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any Stock Exchange (or the Nasdaq Stock Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
               (b) The inability of the Company to obtain approval from any
regulatory body having authority deemed by the Company to be necessary to the
lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Company of any liability with respect to the non-issuance or sale of
the Common Stock as to which such approval shall not have been obtained. The
Company, however, shall use reasonable efforts to obtain all such approvals.
          12. Successors and Assigns. Except to the extent otherwise provided in
this Agreement, the provisions of this Agreement shall inure to the benefit of,
and be binding upon, the Company and its successors and assigns and Optionee,
Optionee’s assigns, the legal representatives, heirs and legatees of Optionee’s
estate and any beneficiaries of this option designated by Optionee.
          13. Notices. Any notice required to be given or delivered to the
Company under the terms of this Agreement shall be in writing and addressed to
the Company at its principal corporate offices. Any notice required to be given
or delivered to Optionee shall be in writing and addressed to Optionee at the
address indicated below Optionee’s signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or three days after
deposit in the U.S. mail, postage prepaid and properly addressed to the party to
be notified.
          14. Construction. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. In the event of a conflict between the terms
and conditions of the Plan and the terms and conditions of this Agreement, the
terms and conditions of this Agreement shall prevail. All

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decisions of the Committee with respect to any question or issue arising under
the Plan or this Agreement shall be conclusive and binding on all persons having
an interest in this option.
          15. Governing Law. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to its conflict-of-laws rules.
          16. No Employment/Service Contract. Nothing in this Agreement or in
the Plan shall confer upon Optionee any right to continue to be a Service
Provider of the Company (or any Parent or Subsidiary) for any period of specific
duration or otherwise interfere with or restrict in any way the rights of the
Company (or such Parent or Subsidiary) or Optionee, which rights are hereby
expressly reserved by each, to terminate Optionee’s Service Provider status at
any time and for any reason whatsoever, with or without cause.

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EXHIBIT I
Notice of Exercise
     I hereby notify CorVel Corporation (the “Company”) that I elect to purchase
___shares of the Company’s common stock (the “Purchased Shares”) at the option
exercise price of $  per share (the “Exercise Price”) pursuant to that certain
option (the “Option”) granted to me under the CorVel Corporation Restated 1988
Executive Stock Option Plan on , ___.
     Concurrently with the delivery of this Exercise Notice to the Company, I
shall hereby pay to the Company the aggregate Exercise Price for the Purchased
Shares in accordance with the provisions of my agreement with the Company (or
other documents) evidencing the Option and shall deliver whatever additional
documents may be required by such agreement as a condition for exercise.
Alternatively, I may utilize the special broker-dealer sale and remittance
procedure specified in my agreement to effect payment of the aggregate Exercise
Price.
___, ___
Date

               
 
  Optionee    
 
       
 
  Address:    
 
       
 
       
 
             
 
       
Print name in exact manner it is to
appear on the stock certificate:
             
 
       
Address to which certificate is to
be sent, if different from address
above:
             
 
       
 
             
 
       
Social Security Number:
             

 

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APPENDIX
          The following definitions shall be in effect under this Agreement:
     A. Agreement shall mean this Stock Option Agreement.
     B. Board shall mean the Board of Directors of the Company.
     C. Common Stock shall mean shares of the Company’s common stock, $.0001 par
value.
     D. Code shall mean the Internal Revenue Code of 1986, as amended.
     E. Committee shall mean a committee consisting of two or more members of
the Board appointed by the Board to administer the Plan.
     F. Company shall mean CorVel Corporation, a Delaware corporation, or any
corporate successor which shall assume the Plan.
     G. Corporate Transaction shall mean any of the following transactions for
which the approval of the Company’s stockholders is obtained:
     (i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
state of the Company’s incorporation,
     (ii) the sale, transfer or other disposition of all or substantially all of
the assets of the Company to any entity other than a parent or subsidiary of the
Company, or
     (iii) any reverse merger in which the Company is the surviving entity but
in which fifty percent (50%) or more of the Company’s outstanding voting stock
is transferred to holders different from those who held such fifty percent (50%)
or greater interest immediately prior to such merger.
     H. Employee shall mean an individual for whom the Company or one or more of
its Parent or Subsidiaries reports his or her earnings on a Form W-2.
     I. Exercise Date shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9.
     J. Exercise Price shall mean the exercise price per Option Share as
specified in the Grant Notice.

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     K. Expiration Date shall mean the date on which the option expires as
specified in the Grant Notice.
     L. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
     (i) If the Common Stock is at the time listed on the Nasdaq National Market
or the Nasdaq SmallCap Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the Nasdaq
National Market or the Nasdaq SmallCap Market and published in The Wall Street
Journal.
     (ii) If the Common Stock is at the time listed on any Stock Exchange, then
the Fair Market Value shall be the closing selling price per share of Common
Stock on the date in question on the Stock Exchange determined by the Committee
to be the primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange and published in
The Wall Street Journal.
     (iii) If the Common Stock is not listed on the Nasdaq National Market,
Nasdaq SmallCap Market or a national securities exchange, the Fair Market Value
shall be the average of the closing bid and ask prices of the Common Stock on
that day as reported by the Nasdaq bulletin board or any comparable system on
that day.
     (iv) If the Common Stock is not traded included in the Nasdaq bulletin
board or any comparable system, the Fair Market Value shall be the average of
the closing bid and ask prices on that day as furnished by any member of the
National Association of Securities Dealers, Inc. selected from time to time by
the Company for that purpose.
     (v) If the date in question is not a trading day, then the Fair Market
Value shall be determined based on prices for the trading day prior to the date
in question.
     M. Grant Date shall mean the date of grant of the option as specified in
the Grant Notice.
     N. Grant Notice shall mean the Notice of Grant of Stock Option accompanying
this Agreement, pursuant to which Optionee has been informed of the basic terms
of the option evidenced hereby.
     O. Misconduct shall mean any of the following:

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     (i) Optionee’s intentional misconduct or continuing gross neglect of duties
which materially and adversely affects the business and operations of the
Company or any Parent or Subsidiary employing Optionee;
     (ii) Optionee’s unauthorized use or disclosure of (or attempt to use or
disclose) confidential information or trade secrets of the Company or any Parent
or Subsidiary; or
     (iii) Optionee’s commission of an act involving embezzlement, theft, fraud,
falsification of records, destruction of property or commission of a crime or
other offense involving money or other property of the Company or any Parent or
Subsidiary employing Optionee.
          The reasons for termination of Optionee as a Service Provider set
forth in this subparagraph are not intended to be an exclusive list of all acts
or omissions which the Company (or any Parent or Subsidiary) may deem to
constitute misconduct or other grounds for terminating Optionee (or any other
individual).
     P. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
     Q. Notice of Exercise shall mean the notice of exercise in the form
attached hereto as Exhibit I.
     R. Option Shares shall mean the number of shares of Common Stock subject to
the option as specified in the Grant Notice.
     S. Optionee shall mean the person to whom the option is granted as
specified in the Grant Notice.
     T. Parent shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, provided each such
corporation in the unbroken chain (other than the Company) owns, at the time of
the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
     U. Permanent Disability shall have the meaning assigned to “permanent and
total disability” as set forth in Code Section 22(e)(3).
     V. Plan shall mean the CorVel Corporation Restated 1988 Executive Stock
Option Plan.
     W. Service Provider shall mean an individual who renders service on a
periodic basis to the Company, its Parent and/or any of its Subsidiaries as an
Employee, a non-Employee member of the board of directors or a consultant or
independent advisor.

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     X. Stock Exchange shall mean the American Stock Exchange or the New York
Stock Exchange.
     Y. Subsidiary shall mean any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, provided such
corporation (other than the last corporation in the unbroken chain) owns, at the
time of determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain. For purposes of all Non-Statutory Option grants under the Plan
and all Corporate Transaction provisions of the Plan, the term “Subsidiary”
shall also include any partnership, joint venture or other business entity of
which the Company owns, directly or indirectly through another entity, more than
a fifty percent (50%) interest in voting power, capital or profits.

A-4

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Schedule A
Performance Option
Grant: 50,000 shares
Definitions:
"EPS” shall mean fully diluted net income per share (as reported in the
Company’s financial statements filed with the Securities and Exchange
Commission).
"Calendar 2008 Achieve Target” shall mean the Company achieves EPS of at least
$*.** per share during calendar year 2008.
"Calendar 2008 Achieve Alternate Target” shall mean the Company achieves EPS of
at least $*.** per share during calendar year 2008.
"Calendar 2009 Achieve Target” shall mean the Company achieves EPS of at least
$*.** per share during calendar year 2009.
"Calendar 2009 Achieve Alternate Target” shall mean the Company achieves EPS of
at least $*.** per share during calendar year 2009.
"Calendar 2010 Achieve Target” shall mean the Company achieves EPS of at least
$*.** per share during calendar year 2010.
"Calendar 2010 Achieve Alternate Target” shall mean the Company achieves EPS of
at least $*.** per share during calendar year 2010.
Unless otherwise defined herein, capitalized terms used herein shall have the
meanings assigned to them in the Stock Option Agreement.
 

*   Confidential treatment requested pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934. In accordance with Rule 24b-2, these confidential portions
have been omitted from this exhibit and filed separately with the Securities and
Exchange Commission.

 

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Vesting Schedule:
Upon the Company achieving the specified targets set forth in the table below,
the Option shall become exercisable during each stated calendar year for the
number of Option Shares set forth opposite such targets described in the table
below.
Performance Vesting

                                          Performance   Number of Option Shares
That Will Vest   Calendar 2008   Calendar 2009   Calendar 2010   Calendar 2008  
  Calendar 2009     Calendar 2010     Total  
Achieve Target
  Fail to Achieve Any Target   Fail to Achieve Any Target     15,000       0    
  0       15,000  
Achieve Target
  Fail to Achieve Any Target   Achieve Alternate Target     15,000       0      
12,500       27,500  
Achieve Target
  Fail to Achieve Any Target   Achieve Target     15,000       0       25,000  
    40,000  
Achieve Target
  Achieve Alternate Target   Fail to Achieve Any Target     15,000       7,500  
    0       22,500  
Achieve Target
  Achieve Alternate Target   Achieve Alternate Target     15,000       7,500    
  10,000       32,500  
Achieve Target
  Achieve Alternate Target   Achieve Target     15,000       7,500       20,000
      42,500  
Achieve Target
  Achieve Target   Fail to Achieve Any Target     15,000       15,000       0  
    30,000  
Achieve Target
  Achieve Target   Achieve Alternate Target     15,000       15,000       10,000
      40,000  
Achieve Target
  Achieve Target   Achieve Target     15,000       15,000       20,000      
50,000  
Achieve Alternate Target
  Fail to Achieve Any Target   Fail to Achieve Any Target     7,500       0    
  0       7,500  
Achieve Alternate Target
  Fail to Achieve Any Target   Achieve Alternate Target     7,500       0      
12,500       20,000  
Achieve Alternate Target
  Fail to Achieve Any Target   Achieve Target     7,500       0       25,000    
  32,500  
Achieve Alternate Target
  Achieve Alternate Target   Fail to Achieve Any Target     7,500       7,500  
    0       15,000  
Achieve Alternate Target
  Achieve Alternate Target   Achieve Alternate Target     7,500       7,500    
  10,000       25,000  
Achieve Alternate Target
  Achieve Alternate Target   Achieve Target     7,500       7,500       20,000  
    35,000  
Achieve Alternate Target
  Achieve Target   Fail to Achieve Any Target     7,500       15,000       0    
  22,500  
Achieve Alternate Target
  Achieve Target   Achieve Alternate Target     7,500       15,000       10,000
      32,500  
Achieve Alternate Target
  Achieve Target   Achieve Target     7,500       15,000       20,000      
42,500  
Fail to Achieve Any Target
  Fail to Achieve Any Target   Fail to Achieve Any Target     0       0       0
      0  
Fail to Achieve Any Target
  Fail to Achieve Any Target   Achieve Alternate Target     0       0      
12,500       12,500  
Fail to Achieve Any Target
  Fail to Achieve Any Target   Achieve Target     0       0       25,000      
25,000  
Fail to Achieve Any Target
  Achieve Alternate Target   Fail to Achieve Any Target     0       10,000      
0       10,000  
Fail to Achieve Any Target
  Achieve Alternate Target   Achieve Alternate Target     0       10,000      
10,000       20,000  
Fail to Achieve Any Target
  Achieve Alternate Target   Achieve Target     0       10,000       20,000    
  30,000  
Fail to Achieve Any Target
  Achieve Target   Fail to Achieve Any Target     0       20,000       0      
20,000  
Fail to Achieve Any Target
  Achieve Target   Achieve Alternate Target     0       20,000       10,000    
  30,000  
Fail to Achieve Any Target
  Achieve Target   Achieve Target     0       20,000       20,000       40,000  

Notwithstanding anything to the contrary in this Schedule A or the Stock Option
Agreement to which this Schedule A is attached, the Company shall have the
right, in its sole discretion, with or without the consent of the Optionee, to
amend this Schedule A to adjust any or all of the targets, dates and/or target
EPS amounts as it deems equitable to recognize unusual or non-recurring events,
including, but not limited to the Company’s acquisition of another business
entity or assets, a corporate merger or other consolidation, or the sale or
discontinuation of significant business operations or business units of the
Company; changes in tax laws or accounting procedures; and any other
extraordinary circumstances.

 

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Addendum
to
Stock Option Agreement
for
Termination of Service Provider Status Following
Corporate Transaction
     The following provisions are hereby incorporated into, and made a part of,
that certain Stock Option Agreement (the “Option Agreement”) by and between the
Company and Dan Starck (“Optionee”) evidencing the stock option (the “Option”)
granted to Optionee under the terms of the CorVel Corporation Restated 1988
Executive Stock Option Plan (the “Plan”), and such provisions are effective
immediately. All capitalized terms in this Addendum, to the extent not otherwise
defined herein, shall have the meanings assigned to them in the Option Agreement
and the Plan.
     1. To the extent that, in connection with a Corporate Transaction, the
Option is to be assumed by the successor corporation (or parent thereof), the
Option shall not, pursuant to the Option Agreement, become exercisable on an
accelerated basis upon the occurrence of that Corporate Transaction, and the
Option shall accordingly continue, over Optionee’s period of service as a
Service Provider after the Corporate Transaction, to become exercisable for the
Option Shares in one or more installments in accordance with the provisions of
the Option Agreement. However, immediately upon termination of Optionee’s status
as a Service Provider following such Corporate Transaction, the assumed Option,
to the extent outstanding at the time but not otherwise fully exercisable, shall
automatically accelerate so that the Option shall become immediately exercisable
for all the Option Shares at the time subject to the Option.
     2. To the extent that, in connection with a Corporate Transaction, the
successor corporation (or parent thereof) replaces the Option with a cash
incentive program, Optionee’s right to receive cash payments for the Option
Shares will be paid out in accordance with the same exercise schedule for those
Option Shares set forth in the Grant Notice. However, if Optionee’s status as a
Service Provider is terminated following such Corporate Transaction, then
Optionee’s right to receive the cash payments shall be accelerated in full and
shall no longer be subject to the exercise schedule set forth in the Grant
Notice.
     3. The Option as accelerated pursuant to this Addendum shall remain so
exercisable until the earlier of (i) the Expiration Date or (ii) the expiration
of the one-year period measured from the date of the termination of Optionee’s
status as a Service Provider.
     4. The provisions of Paragraphs 1 and 2 of this Addendum shall govern the
period for which the Option is to remain exercisable following the termination
of Optionee’s status as a Service Provider following a Corporate Transaction,
and shall supersede any provisions to the contrary in the Option Agreement.

 

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     IN WITNESS WHEREOF, CorVel Corporation has caused this Addendum to be
executed by its duly authorized officer as of the Effective Date specified
below.

            CorVel Corporation
      By:   /s/ V. Gordon Clemons         Title: CEO             

Effective Date: 05/26/2006

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