Document:

exv10w2

Exhibit 10.2

	 	 	 
	 
	 
	 	 
	Notice of Grant of Stock Options 

	 	CorVel Corporation
	and Option Agreement

	 	ID: 33-0282651
	 

	 	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.
	 	 	004206	 
	Date of Grant
	 	 	11/2/2009	 
	Stock Option Plan
	 	 	1988	 
	Option Price Per Share
	 	$	28.92	 
	Total Number of Shares Granted
	 	 	6,000.00	 
	Total Price of Shares Granted
	 	$	173,520.00	 
	Expiration Date
	 	 	11/2/2014	 

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

	 	 
	 	November 4, 2009
	 	 
	 

	 	 	 	 	 	 
	CorVel Corporation

	 	 	 	Date	 	 
	 
	 	 	 	 	 	 
	/s/ Scott R. McCloud

	 	 	 	November 6, 2009	 	 
	 
 
	 	 	 	 	 	 
	Scott R. McCloud

	 	 	 	Date	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Spouse

	 	 	 	Date	 	 

Date: 11/4/2009

Time: 4:10:17PM

 

CONFIDENTIAL TREATMENT REQUESTED

Schedule A

Performance Option

Grant: 6,000            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 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.

“Calendar 2011 Achieve Target” shall mean the Company achieves EPS of at least $*.** per share
during calendar year 2011.

“Calendar 2011 Achieve Alternate Target” shall mean the Company achieves EPS of at least $*.** per
share during calendar year 2011.

“Calendar 2012 Achieve Target” shall mean the Company achieves EPS of at least $*.** per share
during calendar year 2012.

“Calendar 2012 Achieve Alternate Target” shall mean the Company achieves EPS of at least $*.** per
share during calendar year 2012.

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.

 

 

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

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Number of Option Shares That Will	 	 
	Performance	 	Vest	 	 
	2010	 	2011	 	2012	 	2010	 	2011	 	2012	 	Total	 	 
	Achieve Target
	 	Achieve Target	 	Achieve Target	 	1,800	 	1,800	 	2,400	 	6,000	 	100%
	Achieve Target
	 	Achieve Target	 	Achieve Alternate Target	 	1,800	 	1,800	 	1,200	 	4,800	 	80%
	Achieve Target
	 	Achieve Target	 	Fail to Achieve Any Target	 	1,800	 	1,800	 	0	 	3,600	 	60%
	Achieve Target
	 	Achieve Alternate Target	 	Achieve Target	 	1,800	 	900	 	2,400	 	5,100	 	85%
	Achieve Target
	 	Achieve Alternate Target	 	Achieve Alternate Target	 	1,800	 	900	 	1,200	 	3,900	 	65%
	Achieve Target
	 	Achieve Alternate Target	 	Fail to Achieve Any Target	 	1,800	 	900	 	0	 	2,700	 	45%
	Achieve Target
	 	Fail to Achieve Any Target	 	Achieve Target	 	1,800	 	0	 	3,000	 	4,800	 	80%
	Achieve Target
	 	Fail to Achieve Any Target	 	Achieve Alternate Target	 	1,800	 	0	 	1,500	 	3,300	 	55%
	Achieve Target
	 	Fail to Achieve Any Target	 	Fail to Achieve Any Target	 	1,800	 	0	 	0	 	1,800	 	30%
	Achieve Alternate Target
	 	Achieve Target	 	Achieve Target	 	900	 	1,800	 	2,400	 	5,100	 	85%
	Achieve Alternate Target
	 	Achieve Target	 	Achieve Alternate Target	 	900	 	1,800	 	1,200	 	3,900	 	65%
	Achieve Alternate Target
	 	Achieve Target	 	Fail to Achieve Any Target	 	900	 	1,800	 	0	 	2,700	 	45%
	Achieve Alternate Target
	 	Achieve Alternate Target	 	Achieve Target	 	900	 	900	 	2,400	 	4,200	 	70%
	Achieve Alternate Target
	 	Achieve Alternate Target	 	Achieve Alternate Target	 	900	 	900	 	1,200	 	3,000	 	50%
	Achieve Alternate Target
	 	Achieve Alternate Target	 	Fail to Achieve Any Target	 	900	 	900	 	0	 	1,800	 	30%
	Achieve Alternate Target
	 	Fail to Achieve Any Target	 	Achieve Target	 	900	 	0	 	3,000	 	3,900	 	65%
	Achieve Alternate Target
	 	Fail to Achieve Any Target	 	Achieve Alternate Target	 	900	 	0	 	1,500	 	2,400	 	40%
	Achieve Alternate Target
	 	Fail to Achieve Any Target	 	Fail to Achieve Any Target	 	900	 	0	 	0	 	900	 	15%
	Fail to Achieve Any Target
	 	Achieve Target	 	Achieve Target	 	0	 	2,400	 	2,400	 	4,800	 	80%
	Fail to Achieve Any Target
	 	Achieve Target	 	Achieve Alternate Target	 	0	 	2,400	 	1,200	 	3,600	 	60%
	Fail to Achieve Any Target
	 	Achieve Target	 	Fail to Achieve Any Target	 	0	 	2,400	 	0	 	2,400	 	40%
	Fail to Achieve Any Target
	 	Achieve Alternate Target	 	Achieve Target	 	0	 	1,200	 	2,400	 	3,600	 	60%
	Fail to Achieve Any Target
	 	Achieve Alternate Target	 	Achieve Alternate Target	 	0	 	1,200	 	1,200	 	2,400	 	40%
	Fail to Achieve Any Target
	 	Achieve Alternate Target	 	Fail to Achieve Any Target	 	0	 	1,200	 	0	 	1,200	 	20%
	Fail to Achieve Any Target
	 	Fail to Achieve Any Target	 	Achieve Target	 	0	 	0	 	3,000	 	3,000	 	50%
	Fail to Achieve Any Target
	 	Fail to Achieve Any Target	 	Achieve Alternate Target	 	0	 	0	 	1,500	 	1,500	 	25%
	Fail to Achieve Any Target
	 	Fail to Achieve Any Target	 	Fail to Achieve Any Target	 	0	 	0	 	0	 	0	 	0%

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.

 

 

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, spinoff, 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.

3

 

               (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.

4

 

               (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

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.

6

 

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.

A-2

 

     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.

A-4

 

     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.

A-5exv10w3

Exhibit 10.3

	 	 	 
	 
	 
	 	 
	 

	 	CorVel Corporation
	Notice of Grant of Stock Options

	 	ID: 33-0282651
	and Option Agreement

	 	2010 Main Street Suite 600 
	 

	 	Irvine, California 92614
	 
	 	 
	 

Donald C. McFarlane

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.
	 	 	004205	 
	Date of Grant
	 	 	11/2/2009	 
	Stock Option Plan
	 	 	1988	 
	Option Price Per Share
	 	$	28.92	 
	Total Number of Shares Granted
	 	 	8,000.00	 
	Total Price of Shares Granted
	 	$	231,360.00	 
	Expiration Date
	 	 	11/2/2014	 

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

	 	 
	 	November 4, 2 009
	 	 
	 

	 	 	 	 	 	 
	CorVel Corporation

	 	 	 	Date	 	 
	 
	 	 	 	 	 	 
	/s/ Donald C. McFarlane

	 	 	 	November 6, 2 009	 	 
	 

	 	 	 	 	 	 
	Donald C. McFarlane

	 	 	 	Date	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Spouse

	 	 	 	Date	 	 

Date: 11/4/2009

Time: 4:10:17PM

 

CONFIDENTIAL TREATMENT REQUESTED

Schedule A

Performance Option

Grant: 8,000 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 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.

“Calendar 2011 Achieve Target” shall mean the Company achieves EPS of at least $*.** per share
during calendar year 2011.

“Calendar 2011 Achieve Alternate Target” shall mean the Company achieves EPS of at least $*.** per
share during calendar year 2011.

“Calendar 2012 Achieve Target” shall mean the Company achieves EPS of at least $*.** per share
during calendar year 2012.

“Calendar 2012 Achieve Alternate Target” shall mean the Company achieves EPS of at least $*.** per
share during calendar year 2012.

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.

 

 

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	 	 	 	 
	2010	 	2011	 	2012	 	2010	 	2011	 	2012	 	Total	 	 	 	 
	Achieve Target
	 	Achieve Target	 	Achieve Target	 	 	2,400	 	 	 	2,400	 	 	 	3,200	 	 	 	8,000	 	 	 	100	%
	Achieve Target
	 	Achieve Target	 	Achieve Alternate Target	 	 	2,400	 	 	 	2,400	 	 	 	1,600	 	 	 	6,400	 	 	 	80	%
	Achieve Target
	 	Achieve Target	 	Fail to Achieve Any Target	 	 	2,400	 	 	 	2,400	 	 	 	0	 	 	 	4,800	 	 	 	60	%
	Achieve Target
	 	Achieve Alternate Target	 	Achieve Target	 	 	2,400	 	 	 	1,200	 	 	 	3,200	 	 	 	6,800	 	 	 	85	%
	Achieve Target
	 	Achieve Alternate Target	 	Achieve Alternate Target	 	 	2,400	 	 	 	1,200	 	 	 	1,600	 	 	 	5,200	 	 	 	65	%
	Achieve Target
	 	Achieve Alternate Target	 	Fail to Achieve Any Target	 	 	2,400	 	 	 	1,200	 	 	 	0	 	 	 	3,600	 	 	 	45	%
	Achieve Target
	 	Fail to Achieve Any Target	 	Achieve Target	 	 	2,400	 	 	 	0	 	 	 	4,000	 	 	 	6,400	 	 	 	80	%
	Achieve Target
	 	Fail to Achieve Any Target	 	Achieve Alternate Target	 	 	2,400	 	 	 	0	 	 	 	2,000	 	 	 	4,400	 	 	 	55	%
	Achieve Target
	 	Fail to Achieve Any Target	 	Fail to Achieve Any Target	 	 	2,400	 	 	 	0	 	 	 	0	 	 	 	2,400	 	 	 	30	%
	Achieve Alternate Target
	 	Achieve Target	 	Achieve Target	 	 	1,200	 	 	 	2,400	 	 	 	3,200	 	 	 	6,800	 	 	 	85	%
	Achieve Alternate Target
	 	Achieve Target	 	Achieve Alternate Target	 	 	1,200	 	 	 	2,400	 	 	 	1,600	 	 	 	5,200	 	 	 	65	%
	Achieve Alternate Target
	 	Achieve Target	 	Fail to Achieve Any Target	 	 	1,200	 	 	 	2,400	 	 	 	0	 	 	 	3,600	 	 	 	45	%
	Achieve Alternate Target
	 	Achieve Alternate Target	 	Achieve Target	 	 	1,200	 	 	 	1,200	 	 	 	3,200	 	 	 	5,600	 	 	 	70	%
	Achieve Alternate Target
	 	Achieve Alternate Target	 	Achieve Alternate Target	 	 	1,200	 	 	 	1,200	 	 	 	1,600	 	 	 	4,000	 	 	 	50	%
	Achieve Alternate Target
	 	Achieve Alternate Target	 	Fail to Achieve Any Target	 	 	1,200	 	 	 	1,200	 	 	 	0	 	 	 	2,400	 	 	 	30	%
	Achieve Alternate Target
	 	Fail to Achieve Any Target	 	Achieve Target	 	 	1,200	 	 	 	0	 	 	 	4,000	 	 	 	5,200	 	 	 	65	%
	Achieve Alternate Target
	 	Fail to Achieve Any Target	 	Achieve Alternate Target	 	 	1,200	 	 	 	0	 	 	 	2,000	 	 	 	3,200	 	 	 	40	%
	Achieve Alternate Target
	 	Fail to Achieve Any Target	 	Fail to Achieve Any Target	 	 	1,200	 	 	 	0	 	 	 	0	 	 	 	1,200	 	 	 	15	%
	Fail to Achieve Any Target
	 	Achieve Target	 	Achieve Target	 	 	0	 	 	 	3,200	 	 	 	3,200	 	 	 	6,400	 	 	 	80	%
	Fail to Achieve Any Target
	 	Achieve Target	 	Achieve Alternate Target	 	 	0	 	 	 	3,200	 	 	 	1,600	 	 	 	4,800	 	 	 	60	%
	Fail to Achieve Any Target
	 	Achieve Target	 	Fail to Achieve Any Target	 	 	0	 	 	 	3,200	 	 	 	0	 	 	 	3,200	 	 	 	40	%
	Fail to Achieve Any Target
	 	Achieve Alternate Target	 	Achieve Target	 	 	0	 	 	 	1,600	 	 	 	3,200	 	 	 	4,800	 	 	 	60	%
	Fail to Achieve Any Target
	 	Achieve Alternate Target	 	Achieve Alternate Target	 	 	0	 	 	 	1,600	 	 	 	1,600	 	 	 	3,200	 	 	 	40	%
	Fail to Achieve Any Target
	 	Achieve Alternate Target	 	Fail to Achieve Any Target	 	 	0	 	 	 	1,600	 	 	 	0	 	 	 	1,600	 	 	 	20	%
	Fail to Achieve Any Target
	 	Fail to Achieve Any Target	 	Achieve Target	 	 	0	 	 	 	0	 	 	 	4,000	 	 	 	4,000	 	 	 	50	%
	Fail to Achieve Any Target
	 	Fail to Achieve Any Target	 	Achieve Alternate Target	 	 	0	 	 	 	0	 	 	 	2,000	 	 	 	2,000	 	 	 	25	%
	Fail to Achieve Any Target
	 	Fail to Achieve Any Target	 	Fail to Achieve Any Target	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	%

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.

 

 

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

2

 

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, spinoff, 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.

3

 

               (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.

4

 

               (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

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.

6

 

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.

A-2

 

     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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