Document:

exv10w1

 

	 	 	 	 	 

Exhibit 10.1

EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT is made by and between CorVel Corporation, a Delaware Company
(the “Company”), and Dan Starck (“Executive”) to be effective as of May 26, 2006.

     1. Duties and Responsibilities.

     A. Executive shall serve as the Company’s President/Chief Operating Officer or such other
title or position as may be designated from time to time by the Company’s Chief Executive Officer.
Executive shall report to and perform the duties and responsibilities assigned to him by the
Company’s Chief Executive Officer, or such other person as may be designated by the Company’s Chief
Executive Officer .

     B. Executive agrees to devote his full time and attention to the Company, to use his best
efforts to advance the business and welfare of the Company, to render his services under this
Agreement fully, faithfully, diligently, competently and to the best of his ability, and not to
engage in any other employment activities .

     C. Executive shall be based at the Company’s office located at 2010 Main Street, Suite
600 Irvine, CA 92614 but Executive shall be required to travel to other geographic locations in
connection with the performance of his executive duties.

     2. Period of Employment. Executive’s employment with the Company shall be governed by
the provisions of this Agreement for the period commencing May 26, 2006 and continuing until this
Agreement terminates pursuant to written notification by either the Company or Executive, which
notification may occur at any time for any reason. The period during which the Executive provides
services to the Company pursuant to this Agreement shall be referenced in this Agreement as the
“Employment Period.”

     3. Cash Compensation.

     A. Executive’s initial base salary shall be $330,000 per year payable in accordance with the
Company’s standard payroll schedule. Executive’s compensation shall be subject to periodic review
by the Company, and may be increased or decreased in the Company’s discretion based on
economic/business needs. If the Company decreases Executive’s base salary to an amount less than
$297,000 per year without the Executive’s agreement, within 60 days following such a decrease,
Executive may terminate his employment and treat the termination as an involuntary termination
without cause for the purposes of receiving severance benefits under Section 7B below. If the
Executive remains employed longer than 60 days after such a compensation decrease, Executive waives
any right to terminate his employment and receive the severance benefit contemplated for Section
7B.

     B. For each calendar year during the Employment Period, Executive shall be eligible for
an incentive bonus at the Company’s sole discretion. For partial calendar year 2006 the incentive
bonus will include two components: (i) a guaranteed payment of $75,000, provided

 

 

Executive
completes six (6) months of employment before the end of calendar year 2006, and (ii) an additional
payment of up to $75,000 to be based upon completing a set of objectives to beapproved by the Board
of Directors. Thereafter, for each full calendar year of employment, Executive shall be eligible
for an incentive bonus of up to 70% of his annual base salary for meeting expectations (up to 100%
for exceeding expectations). The bonus amount will be based on the following factors: (1) the
financial performance of the Company as determined and measured by the Company’s Board of Directors
and Chief Executive Officer; and (2) Executive’s achievement of management targets and goals as set
by the Company. The bonus amount is intended to reward contribution to the Company’s performance
over an entire calendar year, and consequently will be paid only if Executive is employed and in
good standing at the time of bonus payments which generally occurs within 15 days after
the close of the Company’s fiscal year. Bonus determinations will be made at the Company’s sole
discretion.

     C. The Company shall deduct and withhold from the compensation payable to Executive hereunder
any and all applicable Federal, State and local income and employment withholding taxes and any
other amounts required to be deducted or withheld by the Company under applicable statutes,
regulations, ordinances or orders governing or requiring the withholding or deduction of amounts
otherwise payable as compensation or wages to employees.

     4. Equity Compensation. Pursuant and subject to the terms and conditions of the
Company’s stock option plan, stock option agreements, and addendums to stock option agreements
(collectively, the “Option Documents”), the Company’s Chief Executive Officer will recommend to the
Company’s Board of Directors that Executive be granted options to purchase a total of 100,000
shares of the Company’s common stock, 50,000 of which option shares will vest over time in
accordance with the terms and conditions of the Option Documents and 50,000 of which option shares
will vest based on performance criteria approved by the Board of Directors and the Compensation
Committee and in accordance with the terms and conditions of the Options Documents. All vesting
will cease upon termination of Executive’s service to the Company. Any such options will be made
pursuant and subject to the terms and conditions of the Option Documents. The Company’s Board of
Directors has sole discretion concerning stock option grants and the terms and conditions of such
grants, and may elect not to adopt the recommendation of the Chief Executive Officer. The option
price on any option grant will be established as of the date the Company’s Board of Directors
grants such options pursuant to the Company’s stock option plan.

     5. Expense Reimbursement. In addition to the compensation specified in Paragraph
3, Executive shall be entitled, in accordance with the reimbursement policies in effect from time
to time, to receive reimbursement from the Company for reasonable business expenses incurred by
Executive in the performance of Executive’s duties hereunder, provided Executive furnishes the
Company with vouchers, receipts and other details of such expenses in the form required by the
Company, sufficient to substantiate a deduction for such business expenses under all applicable
rules and regulations of federal and state taxing authorities.

     6. Fringe Benefits.

     A. Executive shall, throughout the Employment Period, be eligible to participate in all
group term life insurance plans, group health plans, accidental death and

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dismemberment plans, and
short-term disability programs and other executive perquisites which are made available to the
Company’s executives and for which Executive qualifies. Please refer to the Company’s Employee
Handbook and Summary Plan Descriptions for further information concerning these benefits.

     B. Executive shall earn vacation time during the Employment Period at the rate of three (3)
weeks per year. Vacation shall accrue and be taken pursuant to the Company’s vacation benefit
policy set forth in the Company’s Employee Handbook.

     7. Employment at Will.

     Executive’s employment with the Company is at will, which means that it is not for a specific
term and may be terminated by either the Company or Executive at any time, for any reason, without
advance notice. Similarly, the Company may change the terms and conditions of Executive’s
employment at any time, for any reason, without advance notice.

     A. Should the Company terminate Executive’s employment for cause or as a result of Executive’s
death or Disability, as defined in the following paragraphs, the Company
shall have no obligation to Executive other than for accrued but unpaid salary and vacation as
of the date of termination.

     B. Should the Company terminate Executive’s employment other than for cause, because of his
death, or as a result of a Disability, the Company shall have no further obligation to Executive,
except as follows: In the event that Executive signs a general release of all known and unknown
claims against the Company, the Company shall continue to pay Executive’s base salary following
termination of Executive’s employment as follows: (i) for a minimum of twenty-six (26) weeks and
(ii) an additional one week for each quarter of service completed by Executive during the
Employment Term, provided, however, that total severance benefits payable hereunder shall not to
exceed one year and in any event shall cease at such time as Executive is gainfully employed
elsewhere. If Executive fails to generally release all known and unknown claims, the Company shall
have no further obligation to Executive other than for accrued but unpaid compensation and vacation
earned through the termination date.

     C. For purposes of this Agreement, “cause” shall mean a reasonable belief that Executive has
engaged in any one of the following: (i) financial dishonesty, including, without limitation,
misappropriation of funds or property, or any attempt by Executive to secure any personal profit
related to the business or business opportunities of the Company without the informed, written
approval of the Company’s Board of Directors; (ii) refusal to comply with reasonable directives of
the Company’s Chief Executive Officer or Board of Directors; (iii) misconduct in the performance
of Executive’s duties; (iv) failure to perform, or neglect in the performance of, duties assigned
to Executive; (v) misconduct which has a materially adverse effect upon the Company’s business or
reputation; (vi) the conviction of, or plea of nolo contendre to, any felony or a misdemeanor
involving dishonesty or fraud; (vii) the material breach of any provision of this agreement; or
(viii) violation of Company policies including, without limitation, the Company’s policies on equal
employment opportunity and prohibition of unlawful harassment.

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     D. Disability shall mean a physical or mental impairment that precludes Executive from
performing the essential functions of his job even with reasonable accommodation for a period of
ninety (90) days in any one hundred and twenty (120) day period.

     8. Restrictive Covenants. During the Employment Period:

     (i) Executive shall devote Executive’s full time and energy solely and exclusively
to the performance of Executive’s duties described herein, except during periods of
illness or vacation periods.

     (ii) Executive shall not directly or indirectly provide services to or through
any person, firm or other entity except the Company, unless otherwise authorized by
the Board in writing.

     (iii) Executive shall not render any services of any kind or character for
Executive’s own account or for any other person, firm or entity without first
obtaining the Company’s written consent.

Executive, however, shall have the right to perform such incidental services as are necessary
in connection with (a) Executive’s private passive investments, but only if Executive is not
obligated or required to (and shall not in fact) devote any managerial efforts which interfere with
the services required to be performed by Executive under this Agreement, or (b) Executive’s
charitable or community activities, or participation in trade or professional organizations, but
only if such incidental services do not interfere with the performance of Executive’s services to
the company.

     9. Non-Competition during the Employment Period. Executive acknowledges and
agrees that given the extent and nature of the confidential and proprietary information he will
obtain during the course of his employment with the Company, it would be inevitable that such
confidential information would be disclosed or utilized by the Executive should he obtain
employment from, or otherwise become associated with, an entity or person that is engaged in a
business or enterprise that directly competes with the Company. Consequently, during any period
for which Executive is receiving payments from the Company, either as wages or as a severance
benefit, Executive shall not, without prior written consent of the Company’s Board of Directors,
directly or indirectly own, manage, operate, join, control or participate in the ownership,
management, operation or control of, or be employed by or connected in any manner with, any
enterprise which is engaged in any business competitive with or similar to that of the Company;
provided, however, that such restriction shall not apply to any passive investment representing an
interest of less than 2% of an outstanding class of publicly-traded securities of any company or
other enterprise which is not, at the time of such investment, engaged in a business competitive
with the Company’s business.

     10. Non-Solicitation. During the Employment Period, and for one year following
termination of Executive’s employment, Executive shall not encourage or solicit any of the
Company’s employees to leave the Company’s employ for any reason or interfere in any other manner
with employment relationships at the time existing between the Company and its employees. In
addition, Executive shall not solicit, directly or indirectly, business from any

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client of the
Company, induce any of the Company’s clients to terminate their existing business relationship with
the Company, or interfere in any other manner with any existing business relationship between the
Company and any client or other third party.

     Executive acknowledges that monetary damages may not be sufficient to compensate the
Company for any economic loss which may be incurred by reason of his breach of the foregoing
restrictive covenants. Accordingly, in the event of any such breach, the Company shall, in
addition to the termination of this Agreement and any remedies available to the Company at law, be
entitled to obtain equitable relief in the form of an injunction precluding Executive from
continuing such breach.

     11. Proprietary Information. As a condition precedent to Executive’s employment with
the Company, Executive will execute the Company’s standard Confidential Information and Assignment
of Inventions Agreement. Executive’s obligations pursuant to the Confidential Information and
Assignment of Inventions Agreement will survive termination of Executive’s employment with the
Company.

     12. Golden Parachute Payments.

     A. Gross-Up Payment. In the event Employee becomes entitled to any payments under this
Agreement, the Company shall cause an accounting firm of its choice (the “Accountants”) promptly to
review, at the Company’s sole expense, the applicability of Sections 280G and 4999 of the Internal
Revenue Code of 1986, as amended (the “Code”) to those payments.

     (i) If the Accountants shall determine that any payment or distribution of any type by
the Company to the Employee or for the Employee’s benefit, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or otherwise (the
“Total Payments”), would be subject to the excise tax imposed by Section 4999 of the Code or
any interest or penalties with respect to such excise tax (the excise tax, together with any
interest and penalties, are collectively referred to as the “Excise Tax”), then the Employee
shall be entitled to receive an additional cash payment (a “Gross-Up Payment”) equal to an
amount such that after payment by the Employee of all taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the
Gross-Up Payment, the Employee would retain an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Total Payments. Notwithstanding anything to contrary contained
in this Agreement, the total amount of the Gross-Up Payment shall not exceed $500,000.

     (ii) For purposes of determining the amount of any tax pursuant to this Section, the
Employee’s tax rate shall be deemed to be the highest statutory marginal state and federal
tax rate (on a combined basis and including the Employee’s share of F.I.C.A. and Medicare
taxes) then in effect.

     (iii) Employee and the Company shall in good faith cooperate with the Accountants in
making the determination of whether a Gross-Up Payment is required, including, but not
limited to, providing the Accountants with information or

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documentation as reasonably
requested by the Accountants. A determination by the Accountants regarding whether a
Gross-Up Payment is required and the amount of such Gross-Up Payment shall be conclusive and
binding upon the Employee and the Company for all purposes.

     B. Payment Date. A Gross-Up Payment required to be made by Section 12A of this
Agreement shall be paid to Employee within thirty (30) days of a final determination by the
Accountants that the Gross-Up Payment is required.

     (i) If the Accountants have not yet made the determination required by Section 12A
prior to the time the Employee is required to file a tax return reflecting the Total
Payments, the Employee will be entitled to receive a Gross-Up Payment calculated on the
basis of the Total Payments reported by the Employee in such tax return within thirty (30)
days of the filing of such tax return.

     (ii) Controversies with Tax Authorities. The Company and the Employee shall promptly
deliver to each other copies of any written communications and summaries of any oral
communications with any taxing authority regarding the applicability of Sections 280G or
4999 of the Code to any portion of the Total Payments. In the event of any controversy with
the Internal Revenue Service or other tax authority with regard to the applicability of
Sections 280G or 4999 of the Code to any portion of the Total Payments, the Company shall
have the right, exercisable in its sole discretion, to control the resolution of such
controversy at its own expense. Employee and the Company shall in good faith cooperate in
the resolution of such controversy.

     (iii) If the Internal Revenue Service or any tax authority makes a final determination
that a greater Excise Tax should be imposed upon the Total Payments than is determined by
the Accountants or reflected in the Employee’s tax return pursuant to this Section, the
Employee shall be entitled to receive from the Company the full Gross-Up Payment calculated
on the basis of the amount of Excise Tax determined to be payable by such tax authority.
That amount shall be paid to the Employee within thirty (30) days of the date of such final
determination by the relevant tax authority; provided, however, that in no event shall the
total amount of Gross-Up Payments exceed $500,000.

     13. Successors and Assigns. This Agreement is personal in its nature and the
Executive shall not assign or transfer his rights under this Agreement. The provisions of this
Agreement shall inure to the benefit of, and shall be binding on, each successor of the Company
whether by merger, consolidation, transfer of all or substantially all assets, or otherwise, and
the heirs and legal representatives of Executive.

     14. Notices. Any notices, demands or other communications required or desired to
be given by any party shall be in writing and shall be validly given to another party if served
either personally or if deposited in the United States mail, certified or registered, postage
prepaid, return receipt requested. If such notice, demand or other communication shall be served
personally, service shall be conclusively

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deemed made at the time of such personal service. If
such notice, demand or other communication is given by mail, such notice shall be conclusively
deemed given 48 hours after the deposit thereof in the United States mail addressed to the party to
whom such notice, demand or other communication is to be given as hereinafter set forth:

     To the Company:

     CorVel Corporation

     2010 Main Street, Suite 600

     Irvine, CA 92614

     Att: Director, Legal Services

     To Executive:

     Dan Starck

     19 Pegasus Drive

     Cota de Caza, CA 92679

Any party may change its address for the purpose of receiving notices, demands and other
communications by providing written notice to the other party in the manner described in this
paragraph.

     15. Governing Documents. This Agreement, along with the documents expressly
referenced in this Agreement, constitute the entire agreement and understanding of the Company and
Executive with respect to the terms and conditions of Executive’s employment with the Company and
the payment of severance benefits, and supersedes all prior and contemporaneous written or verbal
agreements and understandings between Executive and the Company relating to such subject matter.
This Agreement may only be amended by written instrument signed by Executive and an authorized
officer of the Company. Any and all prior agreements, understandings or representations relating
to the Executive’s employment with the Company are terminated and cancelled in their entirety and
are of no further force or effect.

     16. Governing Law. The provisions of this letter agreement will be construed and
interpreted under the laws of the State of California. If any provision of this Agreement as
applied to any party or to any circumstance should be adjudged by a court of competent jurisdiction
to be void or unenforceable for any reason, the invalidity of that provision shall in no way affect
(to the maximum extent permissible by law) the application of such provision under circumstances
different from those adjudicated by the court, the application of any other provision of this
Agreement, or the enforceability or invalidity of this Agreement as a whole. Should any provision
of this Agreement become or be deemed invalid, illegal or unenforceable in any jurisdiction by
reason of the scope, extent or duration of its coverage, then such provision shall be deemed
amended to the extent necessary to conform to applicable law so as to be valid and enforceable or,
if such provision cannot be so amended without materially altering the intention of the parties,
then such provision will be stricken and the remainder of this Agreement shall continue in full
force and effect.

     17. Remedies. All rights and remedies provided pursuant to this Agreement or by law
shall be cumulative, and no such right or remedy shall be exclusive of any other. A

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party may
pursue any one or more rights or remedies hereunder, or may seek damages or specific performance in
the event of another party’s breach hereunder, or may pursue any other remedy by law or equity,
whether or not stated in this Agreement.

     18. No Waiver. The waiver by either party of a breach of any provision of this
Agreement shall not operate as, or be construed as, a waiver of any later breach of that provision.

     19. Counterparts. This Agreement may be executed in more than one counterpart, each
of which shall be deemed an original, but all of which together shall constitute but one and the
same instrument.

	 	 	 	 	 
	 	CorVel Corporation

 	 
	 	/s/ V. Gordon Clemons
 	 
	 	By: V. Gordon Clemons 	 
	 	Title:  	Chief Executive Officer 	 
	 

	 	 	 	 	 
	 	Executive

 	 
	 	/s/ Dan Starck
 	 
	 	Dan Starck 	 
	 	 	 
	 

8exv10w2

 

EXHIBIT 10.2

 

	 	 	 
	Notice of Grant of Stock Options

and Option Agreement

	 	CorVel Corporation

ID: 33-0282651

2010 Main Street Suite 600

Irvine, California 92614

 

Daniel J. Starck

19 Pegasus Drive

Coto de Caza, CA United States 92679

ID:

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.
	 	 	003149	 
	Date of Grant
	 	 	5/26/2006	 
	Stock Option Plan
	 	 	1988	 
	Option Price Per Share
	 	$	23.64	 
	Total Number of Shares Granted
	 	 	50,000.00	 
	Total Price of Shares Granted
	 	$	1,182,000.00	 

 

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 with respect to (i) 25% of the Optioned Shares
one year from the Grant Date, and (ii) the balance of the Optioned Shares in a
series of equal monthly installments for each complete month of service over
the 3 year period thereafter. 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 1988 Executive Stock Option Plan.

 

 

	 	 	 
	/s/ Gordon Clemons

	 	May 26, 2006
	 

	 	 
	CorVel Corporation

	 	Date
	 
	 	 
	 

	 	 
	 

	 	 
	Daniel J. Starck

	 	Date
	 
	 	 
	 

	 	 
	 

	 	 
	Spouse
	 	Date
	 
	 	 

Date: 5/26/2006

 

 

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 independent consultants who provide services to the Company (or any Parent or
Subsidiary).

     B. Optionee is to render valuable services to the Company (or a Parent or Subsidiary), and
this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in
connection with the Company’s grant of an option to Optionee.

     C. All capitalized terms in this Agreement shall have the meaning assigned to them in the
attached Appendix.

          Now, therefore, it is hereby agreed as follows:

          1. Grant of Option. Subject to and upon the terms and conditions set forth in this
Agreement, Optionee is hereby granted, as of the Grant Date, an option to purchase the Option
Shares. The Option Shares shall be purchasable from time to time during the option term at the
Exercise Price.

          2. Option Term. This option shall expire at the close of business on the Expiration
Date, unless sooner terminated in accordance with this Agreement.

          3. Limited Transferability.

               (a) Except as set forth in Paragraph 3(b), this option shall be neither assignable nor
transferable by Optionee other than by will or the laws of inheritance following Optionee’s death
and may be exercised, during Optionee’s lifetime, only by Optionee. Notwithstanding the foregoing,
Optionee may designate one or more persons as the beneficiary or beneficiaries of this option, and
this option shall, in accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon Optionee’s death while holding this option. Such beneficiary or
beneficiaries shall take the transferred option subject to all the terms and conditions of this
Agreement, including (without limitation) the limited time period during which this option may,
pursuant to Paragraph 5, be exercised following Optionee’s death.

               (b) If this option is designated a Non-Statutory Option in the Grant Notice, then this option
may be assigned in whole or in part during Optionee’s lifetime only to one or more members of
Optionee’s immediate family or to a trust established exclusively for one or more such family
members or to Optionee’s former spouse, to the extent such assignment is in connection with
Optionee’s estate plan or pursuant to a domestic relations order. This

 

 

assigned portion may only be exercised by the person or persons who acquire a proprietary
interest in the option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for this option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Company may deem appropriate.

          4. Exercisability. This option shall become exercisable in one or more installments
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 or other change affecting the outstanding Common Stock as a class
without the Company’s receipt of consideration, appropriate adjustments shall be made to (a) the
total number and/or class of securities subject to this option and (b) the Exercise Price in order
to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.

          8. Stockholder Rights. The holder of this option shall not have any stockholder
rights with respect to the Option Shares until such person shall have exercised the option in
accordance with the provisions of Paragraph 9, paid the Exercise Price and become a holder of
record of the purchased shares.

          9. Manner of Exercising Option.

               (a) In order to exercise this option with respect to all or any part of the Option Shares for
which this option is at the time exercisable, Optionee (or any other person or persons exercising
the option) must take the following actions:

               (i) Execute and deliver to the Company (A) a Notice of Exercise, in
substantially the form attached hereto as Exhibit I, that specifies the number of
Option Shares for which the option is being exercised and (B) any additional
documents which the Committee may, in its discretion, deem advisable.

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               (ii) Pay the aggregate Exercise Price for the purchased shares in one or more
of the following forms:

                    (A) cash or check payable to the Company’s order;

                    (B) shares of Common Stock held by Optionee for the requisite period
necessary to avoid a charge to the Company’s reported earnings and valued at
Fair Market Value on the Exercise Date; or

                    (C) through a special sale and remittance procedure pursuant to which
Optionee is to provide irrevocable written instructions (1) to a
Company-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Company, out of the sale proceeds
available on the settlement date, an amount sufficient to cover the
aggregate Exercise Price payable for the purchased shares plus all
applicable Federal and state income and employment taxes required to be
withheld by the Company by reason of such purchase and (2) to the Company to
deliver the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale transaction.

               (iii) Furnish to the Company appropriate documentation that the person or
persons exercising the option (if other than Optionee) have the right to exercise
this option.

               (iv) Make appropriate arrangements with the Company (or Parent or Subsidiary
employing or retaining Optionee) for the satisfaction of all Federal, state and
local income and employment tax withholding requirements applicable to the option
exercise.

               (b) If payment of the exercise price is made by means of the surrender of shares of Common
Stock which are subject to certain restrictions, the number of shares of Common Stock issued upon
the exercise of the option equal to the number of shares of restricted stock surrendered shall be
subject to the same restrictions as the restricted stock that was surrendered.

               (c) Except to the extent the sale and remittance procedure specified in Paragraph 9(a)(ii)(C)
is utilized in connection with the option exercise, payment of the option price for the purchased
shares must accompany the Notice of Exercise.

               (d) Assuming Optionee does not sell the purchased shares of Common Stock on the Exercise Date,
as soon as practical after the Exercise Date, the Company shall either (i) issue to or on behalf of
Optionee (or any other person or persons exercising this option) a certificate for the purchased
Option Shares, with the appropriate legends affixed thereto, or (ii) instruct the Company’s
transfer agent to make a book-entry reflecting the purchase on its stockholder ledger.

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 California without resort to its conflict-of-laws
rules.

          16. No Employment/Service Contract. Nothing in this Agreement or in the Plan shall
confer upon Optionee any right to continue to be a Service Provider of the Company (or any Parent
or Subsidiary) for any period of specific duration or otherwise interfere with or restrict in any
way the rights of the Company (or such Parent or Subsidiary) or Optionee, which rights are hereby
expressly reserved by each, to terminate Optionee’s Service Provider status at any time and for any
reason whatsoever, with or without cause.

          17. Additional Terms Applicable to an Incentive Option. In the event this option is
designated an Incentive Option in the Grant Notice, the following terms and conditions shall also
apply to the grant:

               (a) This option shall cease to qualify for favorable tax treatment as an Incentive Option if
(and to the extent) this option is exercised for one or more Option Shares: (i) more than three
months after the date Optionee ceases to be an Employee for any reason other than death or
Permanent Disability or (ii) more than twelve months after the date Optionee ceases to be an
Employee by reason of Permanent Disability.

               (b) An Incentive Option held by an Optionee who ceases to be a Employee for reasons other than
death or Permanent Disability will lose its status as an Incentive Option on the ninety-first day
after the date Optionee ceases to be an Employee, and thereafter the option, if it is exercisable
at all, will be treated as a Non-Statutory Option. An Optionee who, pursuant to the Company’s
leave of absence policy, is on a leave of absence that exceeds ninety days will be deemed to have
ceased to be an Employee on the ninety-first day of the leave of absence, unless Optionee’s rights
to reemployment are guaranteed by statute or contract. If an Optionee switches from Employee to
independent contractor status, Optionee’s status as a Service Provider is not affected; however,
this change will result in an option losing its status as an Incentive Option on the ninety-first
day after the switch, and thereafter the option, if it is exercisable at all, will be treated as a
Non-Statutory Option.

               (c) No installment under this option shall qualify for favorable tax treatment as an Incentive
Option if (and to the extent) the aggregate Fair Market Value (determined at the Grant Date) of the
Common Stock for which such installment first becomes exercisable hereunder would, when added to
the aggregate value (determined as of the respective date or dates of grant) of the Common Stock
for which this option or any other Incentive Options granted to Optionee prior to the Grant Date
(whether under the Plan or any other option plan of the Company or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed $100,000 in the aggregate. Should such
$100,000 limitation be exceeded in any calendar year, this option shall nevertheless become
exercisable for the excess shares in such calendar year as a Non-Statutory Option.

6

 

               (d) Should the exercisability of this option be accelerated upon a Corporate Transaction, then
this option shall qualify for favorable tax treatment as an Incentive Option only to the extent the
aggregate Fair Market Value (determined at the Grant Date) of the Common Stock for which this
option first becomes exercisable in the calendar year in which the Corporate Transaction occurs
does not, when added to the aggregate value (determined as of the respective date or dates of
grant) of the Common Stock or other securities for which this option or one or more other Incentive
Options granted to Optionee prior to the Grant Date (whether under the Plan or any other option
plan of the Company or any Parent or Subsidiary) first become exercisable during the same calendar
year, exceed $100,000 in the aggregate. Should the applicable $100,000 limitation be exceeded in
the calendar year of such Corporate Transaction, the option may nevertheless be exercised for the
excess shares in such calendar year as a Non-Statutory Option.

               (e) Should Optionee hold, in addition to this option, one or more other options to purchase
shares of Common Stock which become exercisable for the first time in the same calendar year as
this option, then the foregoing limitations on the exercisability of such options as Incentive
Options shall be applied on the basis of the order in which such options are granted.

               (f) Optionee must notify the Company if Optionee disposes of shares of Common Stock acquired
upon the exercise of an Incentive Option prior to the expiration of the holding periods required to
qualify for long-term capital gains treatment on the sale proceeds.

7

 

EXHIBIT I

Notice of Exercise

     I hereby notify CorVel Corporation (the “Company”) that I elect to purchase
___shares of the Company’s common stock (the “Purchased Shares”) at the option exercise
price of $  per share (the “Exercise Price”) pursuant to that certain option (the “Option”) granted
to me under the CorVel Corporation Restated 1988 Executive Stock Option Plan on , ___.

     Concurrently with the delivery of this Exercise Notice to the Company, I shall hereby pay to
the Company the aggregate Exercise Price for the Purchased Shares in accordance with the provisions
of my agreement with the Company (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition for exercise.
Alternatively, I may utilize the special broker-dealer sale and remittance procedure specified in
my agreement to effect payment of the aggregate Exercise Price.

___, ___

Date

	 	 	 	 	 
	 	 	 
	 

	 	Optionee	 	 
	 
	 	 	 	 
	 

	 	Address:	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	Print name in exact manner it is to

appear on the stock certificate:
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	Address to which certificate is to

be sent, if different from address

above:
	 	 	 	 
	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	Social Security Number:
	 	 	 	 
	 	 	 

 

 

APPENDIX

          The following definitions shall be in effect under this Agreement:

     A. Agreement shall mean this Stock Option Agreement.

     B. Board shall mean the Board of Directors of the Company.

     C. Common Stock shall mean shares of the Company’s common stock, $.0001 par value.

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

     E. Committee shall mean a committee consisting of two or more members of the Board
appointed by the Board to administer the Plan.

     F. Company shall mean CorVel Corporation, a Delaware corporation, or any corporate
successor which shall assume the Plan.

     G. Corporate Transaction shall mean any of the following transactions for which the
approval of the Company’s stockholders is obtained:

     (i) a merger or acquisition in which the Company is not the surviving entity,
except for a transaction the principal purpose of which is to change the state of
the Company’s incorporation,

     (ii) the sale, transfer or other disposition of all or substantially all of
the assets of the Company to any entity other than a parent or subsidiary of the
Company, or

     (iii) any reverse merger in which the Company is the surviving entity but in
which fifty percent (50%) or more of the Company’s outstanding voting stock is
transferred to holders different from those who held such fifty percent (50%) or
greater interest immediately prior to such merger.

     H. Employee shall mean an individual for whom the Company or one or more of its Parent
or Subsidiaries reports his or her earnings on a Form W-2.

     I. Exercise Date shall mean the date on which the option shall have been exercised in
accordance with Paragraph 9.

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

A-1

 

     K. Expiration Date shall mean the date on which the option expires as specified in the
Grant Notice.

     L. Fair Market Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:

     (i) If the Common Stock is at the time listed on the Nasdaq National Market or
the Nasdaq SmallCap Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is reported
by the National Association of Securities Dealers on the Nasdaq National Market or
the Nasdaq SmallCap Market and published in The Wall Street Journal.

     (ii) If the Common Stock is at the time listed on any Stock Exchange, then the
Fair Market Value shall be the closing selling price per share of Common Stock on
the date in question on the Stock Exchange determined by the Committee to be the
primary market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange and published in The Wall Street
Journal.

     (iii) If the Common Stock is not listed on the Nasdaq National Market, Nasdaq
SmallCap Market or a national securities exchange, the Fair Market Value shall be
the average of the closing bid and ask prices of the Common Stock on that day as
reported by the Nasdaq bulletin board or any comparable system on that day.

     (iv) If the Common Stock is not traded included in the Nasdaq bulletin board
or any comparable system, the Fair Market Value shall be the average of the closing
bid and ask prices on that day as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to time by the Company
for that purpose.

     (v) If the date in question is not a trading day, then the Fair Market Value
shall be determined based on prices for the trading day prior to the date in
question.

     M. Grant Date shall mean the date of grant of the option as specified in the Grant
Notice.

     N. Grant Notice shall mean the Notice of Grant of Stock Option accompanying this
Agreement, pursuant to which Optionee has been informed of the basic terms of the option evidenced
hereby.

     O. Incentive Option shall mean an option intended to satisfy the requirements of Code
Section 422.

A-2

 

     P. 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;

     (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).

     Q. Non-Statutory Option shall mean an option not intended to satisfy the requirements
of Code Section 422.

     R. Notice of Exercise shall mean the notice of exercise in the form attached hereto as
Exhibit I.

     S. Option Shares shall mean the number of shares of Common Stock subject to the option
as specified in the Grant Notice.

     T. Optionee shall mean the person to whom the option is granted as specified in the
Grant Notice.

     U. 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.

     V. Permanent Disability shall have the meaning assigned to “permanent and total
disability” as set forth in Code Section 22(e)(3).

     W. Plan shall mean the CorVel Corporation Restated 1988 Executive Stock Option Plan.

A-3

 

     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.

     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-4

 

Addendum

to

Stock Option Agreement

for

Termination of Service Provider Status Following

Corporate Transaction

     The following provisions are hereby incorporated into, and made a part of, that certain
Stock Option Agreement (the “Option Agreement”) by and between the Company and Dan Starck
(“Optionee”) evidencing the stock option (the “Option”) granted to Optionee under the terms of the
CorVel Corporation Restated 1988 Executive Stock Option Plan (the “Plan”), and such provisions are
effective immediately. All capitalized terms in this Addendum, to the extent not otherwise defined
herein, shall have the meanings assigned to them in the Option Agreement and the Plan.

     1. To the extent that, in connection with a Corporate Transaction, the Option is to be assumed
by the successor corporation (or parent thereof), the Option shall not, pursuant to the Option
Agreement, become exercisable on an accelerated basis upon the occurrence of that Corporate
Transaction, and the Option shall accordingly continue, over Optionee’s period of service as a
Service Provider after the Corporate Transaction, to become exercisable for the Option Shares in
one or more installments in accordance with the provisions of the Option Agreement. However,
immediately upon termination of Optionee’s status as a Service Provider following such Corporate
Transaction, the assumed Option, to the extent outstanding at the time but not otherwise fully
exercisable, shall automatically accelerate so that the Option shall become immediately exercisable
for all the Option Shares at the time subject to the Option.

     2. To the extent that, in connection with a Corporate Transaction, the successor corporation
(or parent thereof) replaces the Option with a cash incentive program, Optionee’s right to receive
cash payments for the Option Shares will be paid out in accordance with the same exercise schedule
for those Option Shares set forth in the Grant Notice. However, if Optionee’s status as a Service
Provider is terminated following such Corporate Transaction, then Optionee’s right to receive the
cash payments shall be accelerated in full and shall no longer be subject to the exercise schedule
set forth in the Grant Notice.

     3. The Option as accelerated pursuant to this Addendum shall remain so exercisable until the
earlier of (i) the Expiration Date or (ii) the expiration of the one-year period measured from the
date of the termination of Optionee’s status as a Service Provider.

     4. The provisions of Paragraphs 1 and 2 of this Addendum shall govern the period for which the
Option is to remain exercisable following the termination of Optionee’s status as a Service
Provider following a Corporate Transaction, and shall supersede any provisions to the contrary in
the Option Agreement.

 

 

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

	 	 	 	 	 
	 	CorVel Corporation 

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

Effective Date: 05/26/2006

2

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