exv10w20






Exhibit 10.20




	 	 	 
	 

	 	CorVel Corporation
	Notice of Grant of Stock Options

	 	ID: 33-0282651
	and Option Agreement

	 	2010 Main Street Suite 600
	 

	 	Irvine, California 92614






Scott R. McCloud


You have been granted an option to acquire CorVel Corporation (the
“Corporation”) common stock (the “Common Stock”) as follows:




	 	 	 	 	 
	Non-Qualified Stock Option Grant No.
	 	 	003735	 
	Date of Grant
	 	 	2/4/2008	 
	Stock Option Plan
	 	 	1988	 
	Option Price Per Share
	 	$	25.10	 
	Total Number of Shares Granted
	 	 	1,000.00	 
	Total Price of Shares Granted
	 	$	25,100.00	 
	Expiration Date
	 	 	2/4/2013	 







Provided you continue to be a Service Provider (as defined in the Stock Option
Agreement attached hereto as Exhibit A) throughout the specified period, the
Option will become exercisable in accordance with Schedule A.




Optionee (and Optionee’s spouse) hereby agree(s) that the option is granted
pursuant to and in accordance with the express terms and conditions of the Stock
Option Agreement and the Corporation’s Restated Omnibus Incentive Plan.



	 	 	 	 	 
	/s/ Daniel J. Starck
 


	 	2/11/2008 
 
	 
	CorVel Corporation

	 	Date	 	 
	 
	 	 	 	 
	/s/ Scott R. McCloud
 


	 	6/09/2008 
 
	 
	Scott R. McCloud

	 	Date	 	 
	 
	 	 	 	 
	 

Spouse

	 	 

Date
	 






			
	 
	 	Date:     2/6/2008    
	 	 	 
	 
	 	Time:     3:14:22PM








 









 





CONFIDENTIAL TREATMENT REQUESTED




Schedule A 

February 2008 Performance Option



Grant: 1,000 shares



Definitions:



“Revenue” shall mean all revenues recognized in the Company’s external financial statements during
each of the respective calendar years from the combination of: i) the Company’s Enterprise Comp
customers for the purchase of claims management and related claims services, including case
management and bill review, and ii) the Company’s MedCheck Select out-of-network bill review and
professional review services. The Targets and the Alternative Targets shall be adjusted upward
for any proforma expected annual revenue (as determined and approved by the Compensation Committee
of Board of Directors based upon the acquired entity’s most recent quarter financial statements)
acquired through acquisition of another entity at any time after January 1, 2008. The Targets and
Alternative Targets shall be adjusted on a pro rata basis by the amount of such annualized
revenue of the acquired entity upon the Closing of the acquisition. .



“Calendar 2009 Achieve Target” shall mean the Company recognizes Revenue of at least $[**,***,***]*
during calendar year 2009.



“Calendar 2009 Achieve Alternate Target” shall mean the Company recognizes Revenue of at least
$[**,***,***]* during calendar year 2009.



“Calendar 2010 Achieve Target” shall mean the Company
recognizes Revenue of at least $[***,***,***]* during calendar year 2010.



“Calendar 2010 Achieve Alternate Target” shall mean the Company recognizes Revenue of at least
$[***,***,***]* during calendar year 2010.



“Calendar 2011 Achieve Target” shall mean the Company
recognizes Revenue of at least $[***,***,***]* during calendar year 2011.



“Calendar 2011 Achieve Alternate Target” shall mean the Company recognizes Revenue of at least
$[***,***,***]* during calendar year 2011.


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 Exchange Commission.





 









 





CONFIDENTIAL TREATMENT REQUESTED




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	 	Calendar	 	Calendar	 	 
	Calendar 2009	 	Calendar 2010	 	Calendar 2011	 	2009	 	2010	 	2011	 	Total
	 	 	   	 	 	 
	Achieve Target
	 	Fail to Achieve Any Target	 	Fail to Achieve Any Target	 	 	300	 	 	 	0	 	 	 	0	 	 	 	300	 
	Achieve Target
	 	Fail to Achieve Any Target	 	Achieve  Alternate Target	 	 	300	 	 	 	0	 	 	 	250	 	 	 	550	 
	Achieve Target
	 	Fail to Achieve Any Target	 	Achieve  Target	 	 	300	 	 	 	0	 	 	 	500	 	 	 	800	 
	Achieve Target
	 	Achieve  Alternate Target	 	Fail to Achieve Any Target	 	 	300	 	 	 	150	 	 	 	0	 	 	 	450	 
	Achieve Target
	 	Achieve  Alternate Target	 	Achieve  Alternate Target	 	 	300	 	 	 	150	 	 	 	200	 	 	 	650	 
	Achieve Target
	 	Achieve  Alternate Target	 	Achieve  Target	 	 	300	 	 	 	150	 	 	 	400	 	 	 	850	 
	Achieve Target
	 	Achieve Target	 	Fail to Achieve Any Target	 	 	300	 	 	 	300	 	 	 	0	 	 	 	600	 
	Achieve Target
	 	Achieve Target	 	Achieve  Alternate Target	 	 	300	 	 	 	300	 	 	 	200	 	 	 	800	 
	Achieve Target
	 	Alternate Target	 	Achieve Target	 	 	300	 	 	 	300	 	 	 	400	 	 	 	1,000	 
	Achieve Alternate Target	 	Fail to Achieve Any Target	 	Fail to Achieve Any Target	 	 	150	 	 	 	0	 	 	 	0	 	 	 	150	 
	Achieve Alternate Target
	 	Fail to Achieve Any Target	 	Achieve  Alternate Target	 	 	150	 	 	 	0	 	 	 	250	 	 	 	400	 
	Achieve Alternate Target
	 	Fail to Achieve Any Target	 	Achieve Target	 	 	150	 	 	 	0	 	 	 	500	 	 	 	650	 
	Achieve Alternate Target
	 	Achieve  Alternate Target	 	Fail to Achieve Any Target	 	 	150	 	 	 	150	 	 	 	0	 	 	 	300	 
	Achieve Alternate Target
	 	Achieve  Alternate Target	 	Achieve  Alternate Target	 	 	150	 	 	 	150	 	 	 	200	 	 	 	500	 
	Achieve Alternate Target
	 	Achieve  Alternate Target	 	Achieve Target	 	 	150	 	 	 	150	 	 	 	400	 	 	 	700	 
	Achieve Alternate Target
	 	Achieve Target	 	Fail to Achieve Any Target	 	 	150	 	 	 	300	 	 	 	0	 	 	 	450	 
	Achieve Alternate Target
	 	Achieve Target	 	Achieve  Alternate Target	 	 	150	 	 	 	300	 	 	 	200	 	 	 	650	 
	Achieve Alternate Target
	 	Achieve Target	 	Achieve  Target	 	 	150	 	 	 	300	 	 	 	400	 	 	 	850	 
	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	 	 	 	250	 	 	 	250	 
	Fail to Achieve Any Target
	 	Fail to Achieve Any Target	 	Achieve Target	 	 	0	 	 	 	0	 	 	 	500	 	 	 	500	 
	Fail to Achieve Any Target
	 	Achieve  Alternate Target	 	Fail to Achieve Any Target	 	 	0	 	 	 	200	 	 	 	0	 	 	 	200	 
	Fail to Achieve Any Target
	 	Achieve  Alternate Target	 	Achieve  Alternate Target	 	 	0	 	 	 	200	 	 	 	200	 	 	 	400	 
	Fail to Achieve Any Target
	 	Achieve  Alternate Target	 	Achieve Target	 	 	0	 	 	 	200	 	 	 	400	 	 	 	600	 
	Fail to Achieve Any Target
	 	Achieve Target	 	Fail to Achieve Any Target	 	 	0	 	 	 	400	 	 	 	0	 	 	 	400	 
	Fail to Achieve Any Target
	 	Achieve Target	 	Achieve  Alternate Target	 	 	0	 	 	 	400	 	 	 	200	 	 	 	600	 
	Fail to Achieve Any Target
	 	Achieve Target	 	Achieve Target	 	 	0	 	 	 	400	 	 	 	400	 	 	 	800	 





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 Revenue 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.





 











 






Section 16 Insiders 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 consultants and advisors 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) During Optionee’s lifetime, this option shall be exercisable only by Optionee and shall
not be assignable or transferable other than by will, by the laws of descent and distribution
following the Optionee’s death, or to any “Family Member” (as such term is defined in the General
Instructions to Form S-8 (or any successor to such Instructions or such Form) under the Securities
Act), provided that Optionee may not receive any consideration for such transfer, the Family Member
may not make any subsequent transfers other than by will or by the laws of descent and distribution
and the Company receives written notice of such transfer. This 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.



               (b) Should Optionee die while holding this option, then this option shall be transferred in
accordance with Optionee’s will or the laws of inheritance. However, 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.




          4.
Exercisability. This option shall become exercisable in one or more installments as
specified in the Grant Notice. 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 the Corporate
Transaction on any Option Shares for which this option is not otherwise at that



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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, reorganization, merger, consolidation, split-up, spin- off, 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 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.



               (e) In no event may this option be exercised for any fractional shares.



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          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




5









 







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 Delaware 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 OF STOCK OPTION




     I hereby notify CorVel Corporation (the “Company”) that I,                                         ,
elect to purchase                      shares of Common Stock of the Corporation (the “Purchased
Shares”) at an option price of $                      per share (the “Option Price”) pursuant to the option
(the “Option”) granted to me on                     .



          My option was granted as a non-qualified stock option. I will need to report taxable
income at the time I exercise this Option and pay the corresponding withholding tax (the
“Withholding Tax”) to the Corporation. The Withholding Tax is computed on the difference
between the Option Price and the Fair Market Value of the stock on the date I exercise the
Option.




          Concurrently with the delivery of the Exercise Notice to the Chief Financial Officer
of the Corporation, I shall hereby pay to the Corporation the Option Price and Withholding
Tax for the Purchased Shares in accordance with the provisions of my agreement with the
Corporation evidencing the Option and shall deliver whatever additional documents may be
required by such agreement as a condition for exercise.




	 	 	 
	 
	 	 
	 

Date

	 	 
 Optionee’s
Signature
	 
	 	 
	If applicable, print name in exact manner it
is to appear on the stock certificate:
	 	 
	 

	 	 
 
	 
	 	 
	Optionee’s Mailing Address:
	 	 
	 

	 	 
 
	 

	 	 
 
	 
	 	 
	Address to which certificate is to be sent, if
different from address above:
	 	 
	 

	 	 
 
	 

	 	 
 
	 
	 	 
	Brokerage Account Information
	 	 
	(Broker Name, Contact Info., Account #)

	 	 
 
	 

	 	 
 
	 

	 	 
 





A-1









 






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, $0.0001 par value.



     D. Code shall mean the Internal Revenue Code of 1986, as amended.



     E. Committee shall mean a committee designated by the Board to administer the Plan,
which initially shall be the compensation committee of the Board. The Committee shall be comprised
of at least two directors but not less than such number of directors as shall be required to permit
awards granted under the Plan to qualify under Rule 16b-3 under the Securities Act and Section
162(m) of the Code, and each member of the Committee shall be a “Non-Employee Director ” within the
meaning of Rule 16b-3 under the Securities Act and an “Outside Director” within the meaning of
Section 162(m) of the Code.



     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.



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     J. Exercise Price shall mean the exercise price per Option Share as specified in the
Grant Notice.



     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 Capital 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 Capital 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
Capital 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:




          (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;



A-3









 








          (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 Omnibus Incentive Plan (Formerly
The Restated 1988 Executive Stock Option Plan).



     W. Securities Act shall mean the Securities Act of 1933, as amended.



     X. 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.



     Y. Stock Exchange shall mean the American Stock Exchange or the New York Stock
Exchange, or any other national stock exchange.



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     Z. 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.




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