CORVEL CORPORATION | 2016 ANNUAL REPORT AND FORM 10K
Business or a Passion.
A business it is,
but business will
not take our measure,
for passion wills
the endurance
to find our tomorrows.
25Some ask if this is a
G O R D O N C L E M O N S
CORVEL CORPORATION | 2016 ANNUAL REPORT AND FORM 10K
Some ask if this is a
Business or a Passion.
A business it is,
but business will
not take our measure,
for passion wills
the endurance
to find our tomorrows.
G O R D O N C L E M O N S
25
2016 President’s Message
“Some ask if this is a business or a passion. A business it is, but business will not take our
measure, for passion wills the endurance to find our tomorrows.”
We expressed this sentiment some years ago in this very same annual shareholders letter. As
we build our Company it has continued that our organization’s passion for serving our clients’
needs, has sustained us. This last year we completed a quarter century as a public company with momentum as we
embark upon the coming year.
Technology is increasingly disrupting traditional service models, positioning CorVel well for continued information
management investments. Claims intake is a critical stage of claims management where CorVel has proprietary
advantages. Our Immediate Intervention claims model includes 24/7 nurse triage and most recently telehealth -
both of which helped to demonstrate results superior to industry competitors. Telehealth allows us to offer physician
interfaces to injured workers very early in the claim, improving results and employee satisfaction. Once thought to be
a service for remotely located employees, telehealth is quickly demonstrating its ability to shorten service delays in
episodes of care for all injured workers.
Both the Intake phase of a claim and the Return-to-Work (RTW) phase are being impacted by improvements in our
systems. Immediate intervention is critical to enabling healthcare management, and RTW is where the “rubber meets
the road” in our service. We’ve been investing in the interfaces which facilitate our interaction with providers, claimants
and employers and expect this aspect of our service to continue evolving over the coming years.
Our Enterprise Comp line of claims management services continued its growth. Our service model increasingly integrates
the various service components on one platform. The potential for further development is substantial, and we expect
to be able to gradually increase our spending in this area, constantly adding proprietary features to our capabilities.
Development continues to bring the separate constituencies in workers’ compensation more seamlessly together.
Connecting patients to providers to employers and managed care professionals is a complex challenge. During the year
CorVel continued to expand the features for each constituent. Claimants can use mobile apps to communicate through
our portal with both claims and healthcare professionals. There is much left to do; we will continue to introduce new
features.
As we implement technology, our services are gradually becoming more efficient as well as more efficacious. Interfaces
to major carriers are being streamlined to allow for real time web application services. We look forward to having more
real time interactions with our customers.
The Business Process Automation (BPA) groups within CorVel continue to grow. In addition to being important
components in our healthcare management business, these groups are expanding their services outside the insurance
industry. Their document management and data conversion services have been augmented through the use of
automated “pre-processing” reviews of data, which add efficiency to the workflow for customers. BPA services are
increasingly effective as the power of computing continues its compound growth rate.
We are indebted to our business partners and CorVel associates for their support and commitment to the future. We
are fortunate to work with people who share our vision for the continuous improvement of outcomes for patients.
The last year was a productive time for all of us, reinforcing our purpose: to make a difference serving the needs of
healthcare patients.
Gordon Clemons
Chairman and CEO
Revenue (in millions)
Annual Revenue Per Q4 Weighted Shares
Earnings Per Share (in dollars)
25 For over a quarter century
CorVel’s commitment to
serving client needs has
defined our purpose,
and produced superior
shareholder results.
$550
$500
$400
300
200
100
$0
92
94
96
98
00
02
04
06
08
10
12
14
16
94
96
98
00
02
04
06
08
10
12
14
16
94
96
98
00
02
04
06
08
10
12
14
16
$0
92
$0
92
Net Income (in millions)
Return on Equity (%)
Q4 Weighted Shares (in millions)
$35
25
15
5
$0
92
94
96
98
00
02
04
06
08
10
12
14
16
94
96
98
00
02
04
06
08
10
12
14
16
94
96
98
00
02
04
06
08
10
12
14
16
0%
92
$0
92
$30
$25
20
15
10
5
35%
25
15
5
$1.75
1.50
1.25
1.00
0.75
0.50
0.25
45
35
25
15
5
Revenue (in millions)
Annual Revenue Per Q4 Weighted Shares
Earnings Per Share (in dollars)
$30
$25
20
15
10
5
$1.75
1.50
1.25
1.00
0.75
0.50
0.25
$0
92
94
96
98
00
02
04
06
08
10
12
14
16
$0
92
94
96
98
00
02
04
06
08
10
12
14
16
$0
92
94
96
98
00
02
04
06
08
10
12
14
16
Net Income (in millions)
Return on Equity (%)
Q4 Weighted Shares (in millions)
35%
25
15
5
45
35
25
15
5
$550
$500
$400
300
200
100
$35
25
15
5
$0
92
94
96
98
00
02
04
06
08
10
12
14
16
0%
92
94
96
98
00
02
04
06
08
10
12
14
16
$0
92
94
96
98
00
02
04
06
08
10
12
14
16
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2016
OR
For the transition period from
to
Commission File Number 0-19291
CorVel Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
2010 Main Street, Suite 600,
Irvine, California
(Address of principal executive offices)
33-0282651
(I.R.S. Employer
Identification Number)
92614
(Zip Code)
Registrant’s telephone number, including area code:
(949) 851-1473
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Common Stock
Name of each exchange on which registered:
The NASDAQ Global Select Market, LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ‘ No È
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes ‘ No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. È
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ‘
Non-accelerated filer ‘
Accelerated filer
Smaller reporting company ‘
È
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No È
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently
completed second fiscal quarter:
As of September 30, 2015, the aggregate market value of the Registrant’s voting and non-voting common equity held by non-affiliates of the
Registrant was approximately $330,421,000 based on the closing price per share of $32.30 for the Registrant’s common stock as reported on the Nasdaq
Global Select Market on such date multiplied by 10,229,765 shares (total outstanding shares of 19,787,279 less 9,557,514 shares held by affiliates) of the
Registrant’s common stock which were outstanding on such date. For the purposes of the foregoing calculation only, all of the Registrant’s directors,
executive officers and persons known to the Registrant to hold ten percent or greater of the Registrant’s outstanding common stock have been excluded
in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: As of June 3, 2016,
there were 19,574,261 shares of the Registrant’s common stock, par value $0.0001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Information required by Items 10 through 14 of Part III of this Form 10-K, to the extent not set forth herein, is incorporated herein by reference to
portions of the Registrant’s definitive proxy statement for the Registrant’s 2016 Annual Meeting of Stockholders, which will be filed with the Securities
and Exchange Commission not later than 120 days after the end of the fiscal year ended March 31, 2016. Except with respect to the information
specifically incorporated by reference in this Form 10-K, the Registrant’s definitive proxy statement is not deemed to be filed as a part of this Form 10-K.
CORVEL CORPORATION
2016 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
Item 15.
Exhibits, Financial Statement Schedules
Signatures
PART IV
Page
2
12
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32
In this report, the terms “CorVel”, “Company”, “we”, “us”, and “our” refer to CorVel Corporation and its
subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, but not limited
to, the statements about our plans, strategies and prospects under the headings “Business” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report. Words
such as “expects”, “anticipates”, “intends”, “plans”, “predicts”, “believes”, “seeks”, “estimates”, “potential”,
“continue”, “strive”, “ongoing”, “may”, “will”, “would”, “could”, and “should”, and variations of these words or
similar expressions are intended to identify forward-looking statements. These forward-looking statements are
based on management’s current expectations, estimates and projections about our industry, management’s
beliefs, and certain assumptions made by management, and we can give no assurance that we will achieve our
plans, intentions or expectations. Certain important factors could cause actual results to differ materially from the
forward-looking statements we make in this report. Representative examples of these factors include (without
limitation):
• General industry and economic conditions, including a decreasing number of national claims due to
decreasing number of injured workers;
• Cost of capital and capital requirements;
• Competition from other managed care companies;
• The Company’s ability to renew and/or maintain contracts with its customers on favorable terms or at
all;
• The ability to expand certain areas of the Company’s business;
•
Possible litigation and legal liability in the course of operations, and the Company’s ability to settle or
otherwise resolve such litigation;
• The ability of the Company to produce market-competitive software;
•
Increases in operating expenses, including employee wages, benefits and medical inflation;
• Changes in regulations affecting the workers’ compensation, insurance and healthcare industries in
general;
• The ability to attract and retain key personnel;
•
Shifts in customer demands; and
• The availability of financing in the amounts, at the times, and on the terms necessary to support the
Company’s future business.
The section entitled “Risk Factors” set forth in this report discusses these and other important risk factors
that may affect our business, results of operations and financial condition. The factors listed above and the
factors described under the heading “Risk Factors” and similar discussions in our other filings with the Securities
and Exchange Commission are not necessarily all of the important factors that could cause actual results to differ
materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable
factors also could have material adverse effects on our future results. Investors should consider these factors
before deciding to make or maintain an investment in our securities. The forward-looking statements included in
this annual report on Form 10-K are based on information available to us as of the date of this annual report. We
expressly disclaim any intent or obligation to update any forward-looking statements to reflect subsequent events
or circumstances.
1
Item 1. Business.
INTRODUCTION
PART I
CorVel is a national provider of workers’ compensation solutions for employers, third party administrators,
insurance companies, and government agencies seeking to control costs and promote positive outcomes. The
Company applies technology, intelligence, and a human touch to the challenges of risk management so that their
clients can intervene early and often while being connected to the critical intelligence they need to proactively
manage risk. CorVel specializes in applying advanced communication and information technology to improve
healthcare management for workers’ compensation, group health, auto and liability claims management. With a
technology platform at its core, the Company’s connected solution is delivered by a national team of associates
who are committed to helping clients deliver programs that meet their organization’s performance goals.
The Company’s services include claims management, bill review, preferred provider networks, utilization
management, case management, pharmacy services, directed care and Medicare services. CorVel offers its
services as a bundled solution (i.e. claims management), as a standalone service, or as add-on services to existing
customers. Customers of the Company that do not purchase a bundled solution generally use another provider,
use an in-house solution, or choose not to utilize such a service to manage their workers’ compensation costs.
When customers purchase several products from CorVel, the pricing of the products sold is generally the same as
if the product were sold on an individual basis. Bundled products are generally delivered in the same accounting
period.
The Company was incorporated in Delaware in 1987, and its principal executive offices are located at 2010
Main Street, Suite 600, Irvine, California, 92614. The Company’s telephone number is 949-851-1473.
INDUSTRY OVERVIEW
Workers’ compensation is a federally mandated, state-legislated insurance program that requires employers
to fund medical expenses, lost wages and other costs resulting from work-related injuries and illnesses. Workers’
compensation benefits and arrangements vary extensively on a state-by-state basis and are often highly complex.
State statutes and court decisions control many aspects of the compensation process, including claims handling,
impairment or disability evaluation, dispute settlement, benefit amount guidelines and cost-control strategies.
In addition to the compensation process, cost containment and claims management continue to be
significant employer concerns and many look to managed care vendors and third party administrators for cost
savings solutions. The Company believes that cost drivers in workers’ compensation include: implementing
effective return to work and transitional duty programs, coordinating medical care, medical cost management,
recognizing fraud and abuse, and improving communications with injured workers. CorVel provides solutions
using a holistic approach to cost containment and by looking at a complete savings solution. Often one of the
biggest cost drivers is not recognizing a complex claim at the onset of an injury often resulting in claims being
open longer and resulting in a delayed return to work. CorVel uses an integrated claims model that controls
claims costs by advocating medical management at the onset of the injury to decrease administrative costs and to
shorten the length of the disability.
Some states have adopted legislation for managed care organizations (MCO) in an effort to allow employers
to control their worker’s compensation costs. A managed care plan is organized to serve the medical needs of
injured workers in an efficient and cost-effective manner by managing the delivery of medical services through
appropriate health care professionals. CorVel is registered wherever legislation mandates, where it is beneficial
for the Company to obtain a license, or where the MCO is an effective utilized mandate. Since MCO legislation
varies by state, CorVel’s state offerings vary as well. CorVel continually evaluates new legislation to ensure it is
in compliance and can offer services to its customers and prospects.
2
FISCAL 2016 DEVELOPMENTS
Company Stock Repurchase Program
During fiscal 2016, the Company continued to repurchase shares of its common stock under a plan
originally approved by the Company’s Board of Directors in 1996. In November 2015, the Company’s Board of
Directors increased the number of shares of common stock authorized to be repurchased over the life of the plan
by 1,000,000 shares of common stock to 35,000,000 shares of common stock. During fiscal 2016, the Company
spent $31.5 million to repurchase 893,771 shares of its common stock. Since commencing this program in the
fall of 1996, the Company has repurchased 33,886,259 shares of its common stock through March 31, 2016, at a
cost of $392 million. These repurchases were funded primarily from the Company’s operating cash flows.
BUSINESS — SERVICES
The Company offers services in two general categories, network solutions and patient management, to assist
its customers in managing the increasing medical costs of workers’ compensation, group health and auto
insurance, and monitoring the quality of care provided to claimants. CorVel reduces claims costs by advocating
medical management at the onset of an injury to decrease administrative costs and to shorten the length of the
disability. These solutions offer personalized treatment programs that use precise treatment protocols to advocate
timely, quality care for injured workers.
Network Solutions
CorVel offers a complete medical savings solution for all in-network and out-of-network medical bills
including PPO management, specialty networks, medical bill repricing, true line item review, expert fee
negotiations, professional nurse review, automated adjudication and electronic reimbursement. Each feature
focuses on increasing processing efficiencies and maximizing savings opportunities.
Bill Review
Many states have adopted fee schedules, which regulate the maximum allowable fees payable under
workers’ compensation, for procedures performed by a variety of health treatment providers. Developed in 1989,
CorVel’s proprietary bill review and claims management technology automates the review process to provide
customers with a faster turnaround time, more efficient bill review and a higher total savings. CorVel’s artificial
intelligence engine includes over sixty million individual rules, which creates a comprehensive review process
that is more efficient than traditional manual bill review processes.
Payors are able to review and approve bills online as well as access savings reports through an online portal,
CareMC. The process is paperless, through scanning and electronic data interface (“EDI”), while proving to be
cost effective and efficient. CorVel’s solutions are fully customizable and can be tailored to meet unique payor
requirements.
Bill Review Services include:
•
•
•
•
•
•
•
Coding review and re-bundling
Reasonable and customary review
Fee schedule analysis
Out-of-network bill review
Pharmacy review
PPO management
Repricing
3
PPO Management
PPOs are groups of hospitals, physicians and other healthcare providers that offer services at pre-negotiated
rates to employee groups. The Company believes that PPO networks offer the employer an additional means of
managing healthcare costs by reducing the per-unit price of medical services provided to employees. CorVel
began offering a proprietary national PPO network in 1992 and today it is comprised of over 750,000 board-
certified providers. The Company provides the convenience of a PPO Provider look-up mobile application for
use with iPhone, iPad and Android. The application is available to the public and makes it convenient to locate a
provider in the CorVel network. Users can search providers based on quality, range of services and location.
CorVel has a long-term strategy of network development, providing comprehensive networks to our
customers and customization of networks to meet the specific needs of our customers. The Company believes
that the combination of its national PPO strength and presence and the local PPO developers’ commitment and
community involvement enables CorVel to build, support and strengthen its PPO in size, quality, depth of
discount, and commitment to service.
The Company has a team of national, regional and local personnel supporting the CorVel network. This
team of PPO developers are responsible for local recruitment, contract negotiations, credentialing and re-
credentialing of providers, and working with customers to develop customer specific provider networks. Each
bill review operation has provider relations support staff to address provider grievances and other billing issues.
Providers are selected from criteria based on quality, range of services, price and location. Each provider is
thoroughly evaluated and credentialed, then re-credentialed every three years. Through this extensive evaluation
process, we are able to provide significant hospital, physician and ancillary medical savings, while maintaining
high quality care. Provider network services include a national network for all medical coverages, board-certified
physicians, provider credentialing, patient channeling, online PPO look-up, printable directories and driving
directions, and Managed Care Organizations (MCO).
CERiSSM
CERiS, CorVel’s enhanced bill review program, allows claim payors to adjust individual line item charges
on all bills to reasonable and customary levels while removing all error and billing discrepancies with
professional review. The enhanced bill review program scrutinizes each hospital line description and charge as a
separate and distinct claim for reimbursement. CorVel’s proprietary Universal Chargemaster defines each code
and description, enabling its registered nurses to identify errors, duplicate charges, re-bundle exploded charges,
correct quantity discrepancies and remove unused supplies.
Professional Review
CorVel’s services offer a complete audit and validation of facility bill accuracy. This solution also includes
review of in-network facility bills. The Company’s experienced nurse auditors have clinical backgrounds in all
areas of medicine, medical billing and coding to ensure an accurate, consistent and thorough review. If a bill is
identified for professional review, the bill image and its associated medical reports are routed within the system
to an experienced medical nurse for review and auditing.
Provider Reimbursement
One of the interfaces of CorVel’s bill review service is the automated issuance of provider reimbursements.
CorVel’s provider reimbursement service allows the ability to determine dollars spent and bills reviewed and to
assist in setting reserves through charts available online. Through the bill review system, CorVel has the
capability to provide check writing or provider reimbursement services for its customers. The provider payment
check can be added to the bill analysis to produce one combined document.
4
Pharmacy Services
CorVel provides patients with a full-feature pharmacy program that offers formulary management,
discounted prescriptions, drug interaction monitoring, utilization management and eligibility confirmation. Our
pharmacy network of nationally recognized pharmacies provides savings off the retail price of prescriptions
associated with a workers’ compensation claim. The Company’s pharmacy services program includes preferred
access to a national pharmacy network, streamlined processing for pharmacies at point of sale, first fill and next
fill programs, mail order and 90-day retail options, out-of-network management, medication review services and
clinical modeling.
Directed Care Services
CorVel offers a national directed care network that provides access to specialty medical services which may
be required to support an injured worker’s medical treatment plan. CorVel has contracted with medical imaging,
physical therapy, diagnostics and ancillary service networks to offer convenient access, timely appointments and
preferred rates for these services. The Company manages the entire coordination of care from appointment
scheduling through reimbursement, working to achieve timely recovery and increased savings. The Company has
directed care networks for CT and bone scans, diagnostic imaging, physical and occupational therapy,
independent medical evaluations, durable medical equipment and transportation and translation.
Medicare Solutions
The Company offers solutions to help manage the requirements mandated by the Centers for Medicare and
Medicaid Services (CMS). Services include Medicare Set Asides and Agent Reporting Services to help
employers comply with new CMS reporting legislation. As an assigned agent, CorVel can provide services for
Responsible Reporting Entities (RRE) such as insurers and employers. As an experienced information-processing
provider, CorVel is able to electronically submit files to the CMS in compliance with timelines and reporting
requirements.
Clearinghouse Services
CorVel’s proprietary medical review software and claims management technology interfaces with multiple
clearinghouses. The Company’s clearinghouse services provide for medical review, conversion of electronic
forms to appropriate payment formats, seamless submittal of bills for payments and rules engines used to help
ensure jurisdictional compliance.
Patient Management
CorVel offers a unique approach to claims administration and patient management. This integrated service
model controls claims by advocating medical management at the onset of the injury to decrease administrative
costs and to shorten the length of the disability. This automated solution offers a personalized treatment program
for each injured worker, using precise treatment protocols to meet the changing needs of patients on a frequent
basis. The Company offers these services on a stand-alone basis or as an integrated component of its medical cost
containment services.
Claims Management
CorVel has been a third party administrator (“TPA”) offering claims management services since January
2007. The Company serves customers in the self-insured or commercially-insured markets. Incidents and injuries
are reported through a variety of intake methods that include a 24/7 nurse triage call center, website, mobile
applications, toll-free call centers and traditional methods of paper and fax reporting. They are immediately
processed by CorVel’s proprietary rules engine, which provides alerts and recommendations throughout the life
of a claim. This technology instantly assigns an expert claims professional, while simultaneously determining if a
claim requires any immediate attention for triage.
5
Through this service, the Company serves clients in the self-insured or commercially-insured market
through alternative loss funding methods, and provides them with a complete range of services, including claims
administration, case management, and medical bill review. In addition to the field investigation and evaluation of
claims, the Company also may provide initial loss reporting services for claims, loss mitigation services such as
medical bill review and vocational rehabilitation, administration of trust funds established to pay claims and risk
management information services.
Some of the features of claims management services include: automated first notice of loss, three-point
contact within 24 hours, prompt claims investigations, detailed diary notes for each step of the claim, graphical
dashboards and claim history scorecards, and litigation management and expert testimony.
Case Management
CorVel’s case management and utilization review services address all aspects of disability management and
recovery including utilization review (pre-certification, concurrent review and discharge planning), early
intervention, telephonic, field and catastrophic case management as well as vocational rehabilitation.
The medical management components of CorVel’s program focus on medical intervention, management and
appropriateness. In these cases, the Company’s case managers confer with the attending physician, other
providers, the patient and the patient’s family to identify the appropriate rehabilitative treatment and most cost-
effective healthcare alternatives. The program is designed to offer the injured party prompt access to appropriate
medical providers who will provide quality cost-effective medical care. Case managers may coordinate the
services or care required and may arrange for special pricing of the required services.
The Telephonic Case Manager (TCM) continues to impact the direction of the case, focusing on early return
to work, maximum medical improvement (MMI) and appropriate duration of disability. Facilitation of
appropriate treatment, assertive negotiation with medical providers and directing the care of the injured worker
continues to be the Case Manager’s role until the closure criteria is met. Utilization review of provider treatment
remains ongoing until discharge from treatment.
In the event that a claim may require an onsite referral, a Field Case Manager (FCM) will be assigned to the
claim. Cases can be referred to CorVel based on geographic location and injury type to the most appropriate
FCM. Specialized case management services include catastrophic management, life care planning, and
vocational rehabilitation services. All FCMs have iPads that provide access to the Company’s proprietary mobile
applications that provide instant access to detailed case information and the ability to enter case notes. An
additional feature of our iPad applications is the ability to electronically approve and email signed case
management forms and documentation.
24/7 Nurse Triage
Injured workers can call at the time of injury or incident and speak with a registered nurse who specializes
in occupational injuries. An assessment is immediately made to recommend self-care, or referral for further
medical care if needed. CorVel is able to provide quick and accurate care intervention, often preventing a minor
injury from becoming an expensive claim. The 24/7 nurse triage services provide channeling to a preferred
network of providers, allows employer access to online case information, comprehensive incident gathering, and
healthcare advocacy for injured workers.
Utilization Management
Utilization Management programs review proposed care to determine appropriateness, frequency, duration
and setting. These programs utilize experienced registered nurses, proprietary medical treatment protocols and
systems technology to avoid unnecessary treatments and associated costs. Processes in Utilization Management
include: injury review, diagnosis and treatment planning; contacting and negotiating provider treatment
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requirements; certifying appropriateness of treatment parameters, and responding to provider requests for
additional treatment. Utilization management services include: prospective review, retrospective review,
concurrent review, professional nurse review, second opinion, peer review, precertifications and independent
medical evaluation.
Vocational Rehabilitation
CorVel’s Vocational Rehabilitation program is designed for injured workers needing assistance returning to
work or retaining employment. This comprehensive suite of services helps employees who are unable to perform
previous work functions and who face the possibility of joining the open labor market to seek re-employment.
These services are available unbundled, on an integrated basis as dictated by the requirement of each case and
client preference, or by individual statutory requirements. Vocational rehabilitation services include ergonomic
assessments, rehabilitation plans, transferable skills analysis, labor market services, job seeking skills, resumé
development, job analysis and development, job placement, career counseling and expert testimony.
Life Care Planning
Life Care Planning is used to project long-term future needs, services and related costs associated with a
catastrophic injury. CorVel’s Life Care Plans summarize extensive amounts of medical data and compile it into a
comprehensive report for future care requirements, aiding improved outcomes and timely resolution of claims. The
Life Care Plans also provide working guidelines and points of reference for the family of a disabled person. Some of
the features of the Company’s Life Care Planning services include: comprehensive documentation, projecting future
care requirements, customized reporting, certified documentation and costs specific to local areas.
Disability Management
CorVel’s disability management programs offer a continuum of services for short and long-term disability
coverages that advocate an employee’s early return to work. Disability management services include absence
reporting, disability evaluations, national preferred provider organizations, independent medical examinations,
utilization review, medical case management, return to work coordination and integrated reporting.
Liability Claims Management
CorVel also offers liability claims management services that can be sold as a stand-alone service or part of
patient management. The Company’s services include auto liability, general liability, product liability, personal
injury, professional liability and property damage, accidents and weather-related damage. This service includes
claims management, adjusting services, litigation management, claims subrogation, and investigations.
Auto Claims Management
Injury claims are one of the largest components of auto indemnity costs. Effective management of these
claims and their associated costs, combined with an optimal healthcare management program, helps CorVel’s
customers reduce claim costs. The Company’s auto claims services include national preferred provider
organizations, medical bill review, first and third party bill review, first notice of loss, demand packet reviews
and reporting and analytics.
SYSTEMS AND TECHNOLOGY
Infrastructure and Data Center
The Company utilizes a Tier III-rated data center as its primary processing site. Redundancy is provided at
many levels in power, cooling, and computing resources, with the goal of ensuring maximum uptime and system
availability for the Company’s production systems. The Company has fully embraced server virtualization and
consolidation techniques to push the fault-tolerance of systems even further. These technologies bring increased
availability, speed-to-production and scalability.
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Adoption of Imaging Technologies and Paperless Workflow
Utilizing scanning and automated data capture processes allows the Company to process incoming paper
and electronic claims documents, including medical bills, with less manual handling and which has improved the
Company’s workflow processes. This has benefited both the Company, in terms of cost-savings, and the
Company’s customers, in improved savings results. Through the Company’s internet portal, www.caremc.com,
customers can review the bills as soon as they are processed and approve a bill for payment, streamlining the
customer’s own workflows and expediting the payment process.
Redundancy Center
The Company’s national data center is located near Portland, Oregon. The Company has migrated its
redundancy center from Fort Worth, Texas to Las Vegas, Nevada. The redundancy center is the Company’s
backup processing site in the event that the Portland data center suffers catastrophic loss. Currently, the
Company’s data is continually replicated to Las Vegas in near-real time, so that in the event the Portland data
center is offline, the redundancy center can be activated with current information quickly. The Las Vegas data
center also hosts duplicates of the Company’s websites. The Las Vegas systems are maintained and exercised on
a continuous basis as they host demonstration and pilot environments that mirror production, with the goal of
ensuring their ongoing readiness.
CareMCSM
CareMC (www.caremc.com) has become the application platform for all of the Company’s primary service
lines and delivers immediate access to customers. CareMC offers customers direct access to the Company’s
primary services. CareMC allows for electronic communication and reporting between providers, payers,
employers and patients. Features of the website include: report an incident/injury, request for service,
appointment scheduling, online bill review, claims information management, treatment calendar, medical bill
adjudication and automated provider reimbursement.
Through the CareMC Website, users can:
•
Request services online;
• Manage files throughout the life of the claim;
•
•
Receive and relay case notes from case managers; and
Integrate information from multiple claims management sources into one database.
The CareMC website facilitates healthcare transaction processing. Using artificial intelligence techniques,
the website provides situation alerts and event triggers, to facilitate prompt and effective decisions. Users of
CareMC can quickly see where event outliers are occurring within the claims management process. If costs
exceed pre-determined thresholds or activities fall outside expected timelines, decision-makers can be quickly
notified. Large amounts of information are consolidated and summarized to help customers focus on the critical
issues.
Scanning Services
We continue to leverage our scanning technologies which include scanning, optical character recognition
and document management services. We continue to expand our existing office automation service line and all
offices are selling scanning and document management. We have added scanning operations to most of the
Company’s larger offices around the country, designating them “Capture Centers.” Our scanning service also
offers a web interface (www.onlinedocumentcenter.com) providing immediate access to documents and data
called the Online Document Center (ODC). Secure document review, approval, transaction workflow and
archival storage are available at subscription-based pricing.
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Claims Processing
We continue to develop our claims system capabilities which fit well with the Company’s preference for
owning and maintaining our own software assets. Integration projects, some already completed, are underway to
present more of this claims-centric information available through the CareMC web portal. The Company’s goal
is to continue to modernize user interfaces, and to streamline the delivery of this information to our customers,
giving more rapid feedback and putting real-time information in the hands of our customers.
INDUSTRY, CUSTOMERS AND MARKETING
CorVel serves a diverse group of customers that include insurers, third party administrators, self-
administered employers, government agencies, municipalities, state funds, and numerous other industries.
CorVel is able to provide workers’ compensation services to virtually any size employer and in any state or
region of the United States. No single customer of the Company represented more than 10% of revenues in fiscal
2014, 2015 and 2016. Many claims management decisions in workers’ compensation are the responsibility of the
local claims office of national or regional insurers. The Company’s national branch office network enables the
Company to market and offer its services at both a local and national account level. The Company is placing
increasing emphasis on national account marketing. The sales and marketing activities of the Company are
conducted primarily by account executives located in key geographic areas.
COMPETITION AND MARKET CONDITIONS
The healthcare cost containment industry is competitive and is subject to economic pressures for cost savings
and legislative reforms. CorVel’s primary competitors in the workers’ compensation market include third party
administrators, managed care companies, large insurance carriers and numerous independent companies. Many of
the Company’s competitors are significantly larger and have greater financial and marketing resources than the
Company. Moreover, the Company’s customers may establish the in-house capability of performing services offered
by the Company. If the Company is unable to compete effectively, it will be difficult to add and retain customers, and
the Company’s business, financial condition and results of operations will be materially and adversely affected.
The past few years have seen acceleration in the technology world, and advancements seem to be
progressing at a pace that few, if any, have ever witnessed. The proliferation of smart phones and tablet
computers allows the Company’s clients to stay connected at any time, from anywhere. This capability provides
immediate access and begins to present business opportunities that were previously predicated on a less
connected environment. The Company continues to leverage the new wave of technology in order to connect all
of the parties involved in the workers’ compensation process in ways that were unimaginable in the past. As with
general health, the workers compensation line continues to migrate to being a medical management business,
with policymakers, employers, and carriers struggling to manage and control the costs of medical care (Source
“National Council on Compensation Insurance”). The Company will continue to focus the execution of its
strategy to provide industry leading claims management and cost containment solutions to the market.
We are required to be licensed or receive regulatory approval in nearly every state and foreign jurisdiction
in which we do business. In addition, most jurisdictions require individuals who engage in claim adjusting and
certain other insurance service activities to be personally licensed. These licensing laws and regulations vary
from jurisdiction to jurisdiction. In most jurisdictions, licensing laws and regulations generally grant broad
discretion to supervisory authorities to adopt and amend regulations and to supervise regulated activities.
GOVERNMENT REGULATIONS
General
Managed healthcare programs for workers’ compensation are subject to various laws and regulations. Both
the nature and degree of applicable government regulation vary greatly depending upon the specific activities
involved. Generally, parties that actually provide or arrange for the provision of healthcare services, assume
9
financial risk related to the provision of those services or undertake direct responsibility for making payment or
payment decisions for those services. These parties are subject to a number of complex regulatory requirements
that govern many aspects of their conduct and operations.
In contrast, the management and information services provided by the Company to its customers typically
have not been the subject of regulation by the federal government or the states. Since the managed healthcare
field is a rapidly expanding and changing industry and the cost of providing healthcare continues to increase, it is
possible that the applicable state and federal regulatory frameworks will expand to have a greater impact upon
the conduct and operation of the Company’s business.
Under the current workers’ compensation system, employer insurance or self-funded coverage is governed by
individual laws in each of the 50 states and by certain federal laws. The management and information services that
make up the Company’s managed care program serve markets that have developed largely in response to needs of
insurers, employers and large TPAs, and generally have not been mandated by legislation or other government
action. On the other hand, the vocational rehabilitation case management marketplace within the workers’
compensation system has been dependent upon the laws and regulations within those states that require the
availability of specified rehabilitation services for injured workers. Similarly, the Company’s fee schedule auditing
services address market needs created by certain states’ enactment of maximum permissible fee schedules for
workers’ compensation services. Changes in individual state regulation of workers’ compensation may create a
greater or lesser demand for some or all of the Company’s services or require the Company to develop new or
modified services in order to meet the needs of the marketplace and compete effectively in that marketplace.
Medical Cost Containment Legislation
Historically, governmental strategies to contain medical costs in the workers’ compensation field have been
generally limited to legislation on a state-by-state basis. For example, many states have implemented fee
schedules that list maximum reimbursement levels for healthcare procedures. In certain states that have not
authorized the use of a fee schedule, the Company adjusts bills to the usual and customary levels authorized by
the payor. Opportunities for the Company’s services could increase if more states legislate additional cost
containment strategies. Conversely, the Company would be materially and adversely affected if states elect to
reduce the extent of medical cost containment strategies available to insurance carriers and other payors, or adopt
other strategies for cost containment that would not support a demand for the Company’s services.
SHAREHOLDER RIGHTS PLAN
During fiscal 1997, the Company’s Board of Directors approved the adoption of a Shareholder Rights Plan. The
Shareholder Rights Plan provides for a dividend distribution to CorVel stockholders of one preferred stock purchase
right for each outstanding share of CorVel’s common stock under certain circumstances. In April 2002, the Board of
Directors of CorVel approved an amendment to the Shareholder Rights Plan to extend the expiration date of the rights
to February 10, 2012, set the exercise price of each right at $118, and enable Fidelity Management & Research
Company and its affiliates to purchase up to 18% of the shares of common stock of the Company without triggering
the stockholder rights, with the limitations under the Shareholder Rights Plan remaining in effect for all other
stockholders of the Company. In November 2008, the Company’s Board of Directors approved an amendment to the
Shareholder Rights Plan to extend the expiration date of the rights to February 10, 2022, remove the ability of Fidelity
Management & Research Company and its affiliates to purchase up to 18% of the shares of common stock of the
Company without triggering the stockholder rights, substitute Computershare Trust Company, N.A. as the rights agent
and effect certain technical changes to the Shareholder Rights Plan.
The rights are designed to assure that all shareholders receive fair and equal treatment in the event of any
proposed takeover of the Company and to encourage a potential acquirer to negotiate with the Board of Directors
prior to attempting a takeover. The rights have an exercise price of $118 per right, subject to subsequent
adjustment. The rights trade with the Company’s common stock and will not be exercisable until the occurrence
of certain takeover-related events.
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Generally, the Shareholder Rights Plan provides that if a person or group acquires 15% or more of the
Company’s common stock without the approval of the Board, subject to certain exception, the holders of the
rights, other than the acquiring person or group, would, under certain circumstances, have the right to purchase
additional shares of the Company’s common stock having a market value equal to two times the then-current
exercise price of the right.
In addition, if the Company is thereafter merged into another entity, or if 50% or more of the Company’s
consolidated assets or earning power are sold, then the right will entitle its holder to buy common shares of the
acquiring entity having a market value equal to two times the then-current exercise price of the right. The
Company’s Board of Directors may exchange or redeem the rights under certain conditions.
EMPLOYEES
As of March 31, 2016, CorVel had 3,508 employees, including nurses, therapists, counselors and other
employees. No employees are represented by any collective bargaining unit. Management believes the
Company’s relationship with its employees to be good.
AVAILABLE INFORMATION
Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K, and amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities
Exchange Act of 1934, and other filings made with the Securities and Exchange Commission, are available free
of charge through our Web site (http://www.corvel.com, under the Investor section) as soon as reasonably
practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange
Commission. The inclusion of our Web site address and the address of any of our portals, such as
www.caremc.com and www.onlinedocumentcenter.com, in this report does not include or incorporate by
reference into this report any information contained on, or accessible through, such Web sites.
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Item 1A. Risk Factors
Past financial performance is not necessarily a reliable indicator of future performance, and investors in our
common stock should not use historical performance to anticipate results or future period trends. Investing in our
common stock involves a high degree of risk. Investors should consider carefully the following risk factors, as
well as the other information in this report and our other filings with the Securities and Exchange Commission,
including our consolidated financial statements and the related notes, before deciding whether to invest or
maintain an investment in shares of our common stock. If any of the following risks actually occurs, our
business, financial condition and results of operations would suffer. In this case, the trading price of our common
stock would likely decline. The risks described below are not the only ones we face. Additional risks that we
currently do not know about or that we currently believe to be immaterial also may impair our business
operations.
If we fail to grow our business internally or through strategic acquisitions we may be unable to execute our
business plan, maintain high levels of service or adequately address competitive challenges.
Our strategy is to continue internal growth and, as strategic opportunities arise in the workers’ compensation
managed care industry, to consider acquisitions of, or relationships with, other companies in related lines of
business. As a result, we are subject to certain growth-related risks, including the risk that we will be unable to
retain personnel or acquire other resources necessary to service such growth adequately. Expenses arising from
our efforts to increase our market penetration may have a negative impact on operating results. In addition, there
can be no assurance that any suitable opportunities for strategic acquisitions or relationships will arise or, if they
do arise, that the transactions contemplated could be completed. If such a transaction does occur, there can be no
assurance that we will be able to integrate effectively any acquired business. In addition, any such transaction
would be subject to various risks associated with the acquisition of businesses, including, but not limited to, the
following:
•
an acquisition may negatively impact our results of operations because it may require incurring large
one-time charges, substantial debt or liabilities; it may require the amortization or write down of
amounts related to deferred compensation, goodwill and other intangible assets; or it may cause
adverse tax consequences, substantial depreciation or deferred compensation charges;
• we may encounter difficulties in assimilating and integrating the business, technologies, products,
services, personnel or operations of companies that are acquired, particularly if key personnel of the
acquired company decide not to work for us;
•
•
an acquisition may disrupt ongoing business, divert resources, increase expenses and distract
management;
the acquired businesses, products, services or technologies may not generate sufficient revenue to
offset acquisition costs;
• we may have to issue equity or debt securities to complete an acquisition, which would dilute the
position of stockholders and could adversely affect the market price of our common stock; and
•
the acquisitions may involve the entry into a geographic or business market in which we have little or
no prior experience.
There can be no assurance that we will be able to identify or consummate any future acquisitions or other
strategic relationships on favorable terms, or at all, or that any future acquisition or other strategic relationship
will not have an adverse impact on our business or results of operations. If suitable opportunities arise, we may
finance such transactions, as well as internal growth, through debt or equity financing. There can be no
assurance, however, that such debt or equity financing would be available to us on acceptable terms when, and if,
suitable strategic opportunities arise.
12
If we are unable to increase our market share among national and regional insurance carriers and large, self-
funded employers, our results may be adversely affected.
Our business strategy and future success depend in part on our ability to capture market share with our cost
containment services as national and regional insurance carriers and large, self-funded employers look for ways
to achieve cost savings. We cannot assure you that we will successfully market our services to these insurance
carriers and employers or that they will not resort to other means to achieve cost savings. Additionally, our
ability to capture additional market share may be adversely affected by the decision of potential customers to
perform services internally instead of outsourcing the provision of such services to us. Furthermore, we may not
be able to demonstrate sufficient cost savings to potential or current customers to induce them not to provide
comparable services internally or to accelerate efforts to provide such services internally.
If competition increases, our growth and profits may decline.
The markets for our network services and patient management services are also fragmented and
competitive. Our competitors include national managed care providers, preferred provider networks, smaller
independent providers and insurance companies. Companies that offer one or more workers’ compensation
managed care services on a national basis are our primary competitors. We also compete with many smaller
vendors who generally provide unbundled services on a local level, particularly companies with an established
relationship with a local insurance company adjuster. In addition, several large workers’ compensation insurance
carriers offer managed care services for their customers, either by performance of the services in-house or by
outsourcing to organizations like ours. If these carriers increase their performance of these services in-house, our
business may be adversely affected. In addition, consolidation in the industry may result in carriers performing
more of such services in-house.
Our sequential revenue may not increase and may decline. As a result, we may fail to meet or exceed the
expectations of investors or analysts which could cause our common stock price to decline.
Our sequential revenue growth may not increase and may decline in the future as a result of a variety of
factors, many of which are outside of our control. If changes in our sequential revenue fall below the
expectations of investors or analysts, the price of our common stock could decline substantially. Fluctuations or
declines in sequential revenue growth may be due to a number of factors, including, but not limited to, those
listed below and identified throughout this “Risk Factors” section: the decline in manufacturing employment, the
decline in workers’ compensation claims, the decline in healthcare expenditures, the considerable price
competition in a flat-to-declining workers’ compensation market, litigation, the increase in competition, and the
changes and the potential changes in state workers’ compensation and automobile-managed care laws which can
reduce demand for our services. These factors create an environment where revenue and margin growth is more
difficult to attain and where revenue growth is less certain than historically experienced. Additionally, our
technology and preferred provider network face competition from companies that have more resources available
to them than we do. Also, some customers may handle their managed care services in-house and may reduce the
amount of services which are outsourced to managed care companies such as CorVel. These factors could cause
the market price of our common stock to fluctuate substantially. There can be no assurance that our growth rate
in the future, if any, will be at or near historical levels.
In addition, the stock market has in the past experienced price and volume fluctuations that have particularly
affected companies in the healthcare and managed care markets resulting in changes in the market price of the
stock of many companies, which may not have been directly related to the operating performance of those
companies.
Due to the foregoing factors, and the other risks discussed in this report, investors should not rely on period-
to-period comparisons of our results of operations as an indication of our future performance.
13
The market price and trading volume of our common stock may be volatile, which could result in rapid and
substantial losses for our stockholders.
The market price of our common stock may be highly volatile and could be subject to wide fluctuations. In
addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur.
The stock market has in the past experienced price and volume fluctuations that have particularly affected
companies in the healthcare and managed care markets resulting in changes in the market price of the stock of
many companies, which may not have been directly related to the operating performance of those companies. We
cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the
future.
We cannot assure our stockholders that our stock repurchase program will enhance long-term stockholder
value and stock repurchases, if any, could increase the volatility of the price of our common stock and will
diminish our cash reserves.
In 1996, our Board of Directors authorized a stock repurchase program and has periodically increased the
number of shares authorized for repurchase under the repurchase program. The most recent increase occurred in
November 2015 and brought the number of shares authorized for repurchase over the life of the program to
35,000,000 shares. There is no expiration date for the repurchase program. The timing and actual number of
shares repurchased, if any, depend on a variety of factors including the timing of open trading windows, price,
corporate and regulatory requirements, and other market conditions. The program may be suspended or
discontinued at any time without prior notice. Repurchases pursuant to our stock repurchase program could affect
our stock price and increase its volatility. The existence of a stock repurchase program could also cause our stock
price to be higher than it would be in the absence of such a program and could potentially reduce the market
liquidity for our stock. Additionally, repurchases under our stock repurchase program will diminish our cash
reserves, which could impact our ability to pursue possible future strategic opportunities and acquisitions and
could result in lower overall returns on our cash balances. There can be no assurance that any further stock
repurchases will enhance stockholder value because the market price of our common stock may decline below
the levels at which we repurchased shares of stock. Although our stock repurchase program is intended to
enhance long-term stockholder value, short-term stock price fluctuations could reduce the program’s
effectiveness.
If the referrals for our patient management services decline, our business, financial condition and results of
operations would be materially adversely affected.
In some years, we have experienced a general decline in the revenue and operating performance of patient
management services. We believe that the performance decline has been due to the following factors: the
decrease of the number of workplace injuries that have become longer-term disability cases; increased regional
and local competition from providers of managed care services; a possible reduction by insurers on the types of
services provided by our patient management business; the closure of offices and continuing consolidation of our
patient management operations; and employee turnover, including management personnel, in our patient
management business. In the past, these factors have all contributed to the lowering of our long-term outlook for
our patient management services. If some or all of these conditions continue, we believe that the performance of
our patient management revenues could decrease.
Declines in workers’ compensation claims may materially harm our results of operations.
Within the past few years, the economy has performed below historical averages which leads to fewer
workers on a national level and could lead to fewer work-related injuries. If declines in workers’ compensation
costs occur in many states and persist over the long-term, it would have a material adverse impact on our
business, financial condition and results of operations.
14
We provide an outsource service to payors of workers’ compensation and auto healthcare benefits. These
payors include insurance companies, TPAs, municipalities, state funds, and self-insured, self-administered
employers. If these payors reduce the amount of work they outsource, our results of operations would be
materially adversely affected.
Healthcare providers are becoming increasingly resistant to the application of certain healthcare cost
containment techniques; this may cause revenue from our cost containment operations to decrease.
Healthcare providers have become more active in their efforts to minimize the use of certain cost
containment techniques and are engaging in litigation to avoid application of certain cost containment practices.
Recent litigation between healthcare providers and insurers has challenged certain insurers’ claims adjudication
and reimbursement decisions. Although these lawsuits do not directly involve us or any services we provide,
these cases may affect the use by insurers of certain cost containment services that we provide and may result in
a decrease in revenue from our cost containment business.
Our failure to compete successfully could make it difficult for us to add and retain customers and could
reduce or impede the growth of our business.
We face competition from PPOs, TPAs and other managed healthcare companies. We believe that as
managed care techniques continue to gain acceptance in the workers’ compensation marketplace, our competitors
will increasingly consist of nationally-focused workers’ compensation managed care service companies,
insurance companies, HMOs and other significant providers of managed care products. Legislative reform in
some states has been considered, but not enacted to permit employers to designate health plans such as HMOs
and PPOs to cover workers’ compensation claimants. Because many health plans have the ability to manage
medical costs for workers’ compensation claimants, such legislation may intensify competition in the markets
served by us. Many of our current and potential competitors are significantly larger and have greater financial
and marketing resources than we do, and there can be no assurance that we will continue to maintain our existing
customers, our past level of operating performance or be successful with any new products or in any new
geographical markets we may enter.
A breach of security may cause our customers to curtail or stop using our services.
We rely largely on our own security systems, confidentiality procedures and employee nondisclosure
agreements to maintain the privacy and security of our Company’s and our customers’ proprietary information.
Accidental or willful security breaches or other unauthorized access by third parties to our information systems,
the existence of computer viruses in our data or software and misappropriation of our proprietary information
could expose us to a risk of information loss, litigation and other possible liabilities which may have a material
adverse effect on our business, financial condition and results of operations. If security measures are breached
because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our software are
exposed and exploited, and, as a result, a third party obtains unauthorized access to any customer data, our
relationships with our customers and our reputation will be damaged, our business may suffer and we could incur
significant liability. Because techniques used to obtain unauthorized access or to sabotage systems change
frequently and generally are not recognized until launched against a target, we may be unable to anticipate these
techniques or to implement adequate preventative measures.
Exposure to possible litigation and legal liability may adversely affect our business, financial condition and
results of operations.
We, through our utilization management services, make recommendations concerning the appropriateness
of providers’ medical treatment plans of patients throughout the country, and as a result, could be exposed to
claims for adverse medical consequences. We do not grant or deny claims for payment of benefits and we do not
believe that we engage in the practice of medicine or the delivery of medical services. There can be no assurance,
however, that we will not be subject to claims or litigation related to the authorization or denial of claims for
payment of benefits or allegations that we engage in the practice of medicine or the delivery of medical services.
15
In addition, there can be no assurance that we will not be subject to other litigation that may adversely affect
our business, financial condition or results of operations, including but not limited to being joined in litigation
brought against our customers in the managed care industry. We maintain professional liability insurance and
such other coverages as we believe are reasonable in light of our experience to date. If such insurance is
insufficient or unavailable in the future at reasonable cost to protect us from liability, our business, financial
condition or results of operations could be adversely affected.
If lawsuits against us are successful, we may incur significant liabilities.
We provide to insurers and other payors of healthcare costs managed care programs that utilize preferred
provider organizations and computerized bill review programs. Health care providers have brought, against us
and our customers, individual and class action lawsuits challenging such programs. If such lawsuits are
successful, we may incur significant liabilities.
We make recommendations about the appropriateness of providers’ proposed medical treatment plans for
patients throughout the country. As a result, we could be subject to claims arising from any adverse medical
consequences. Although plaintiffs have not to date subjected us to any claims or litigation relating to the granting
or denial of claims for payment of benefits or allegations that we engage in the practice of medicine or the
delivery of medical services, we cannot assure you that plaintiffs will not make such claims in future litigation.
We also cannot assure you that our insurance will provide sufficient coverage or that insurance companies will
make insurance available at a reasonable cost to protect us from significant future liability.
If the utilization by healthcare payors of early intervention services continues to increase, the revenue from
our later-stage network and healthcare management services could be negatively affected.
The performance of early intervention services, including injury occupational healthcare, first notice of loss,
and telephonic case management services, often result in a decrease in the average length of, and the total costs
associated with, a healthcare claim. By successfully intervening at an early stage in a claim, the need for
additional cost containment services for that claim often can be reduced or even eliminated. As healthcare payors
continue to increase their utilization of early intervention services, the revenue from our later stage network and
healthcare management services will decrease.
An interruption in our ability to access critical data may cause customers to cancel their service and/or may
reduce our ability to effectively compete.
Certain aspects of our business are dependent upon our ability to store, retrieve, process and manage data
and to maintain and upgrade our data processing capabilities. Interruption of data processing capabilities for any
extended length of time, loss of stored data, programming errors or other system failures could cause customers
to cancel their service and could have a material adverse effect on our business and results of operations.
In addition, we expect that a considerable amount of our future growth will depend on our ability to process
and manage claims data more efficiently and to provide more meaningful healthcare information to customers
and payors of healthcare. There can be no assurance that our current data processing capabilities will be adequate
for our future growth, that we will be able to efficiently upgrade our systems to meet future demands, or that we
will be able to develop, license or otherwise acquire software to address these market demands as well or as
timely as our competitors.
We face competition for staffing, which may increase our labor costs and reduce profitability.
We compete with other healthcare providers in recruiting qualified management and staff personnel for the
day-to-day operations of our business, including nurses and other case management professionals. In some
markets, the scarcity of nurses and other medical support personnel has become a significant operating issue to
healthcare providers. This shortage may require us to enhance wages to recruit and retain qualified nurses and
16
other healthcare professionals. Our failure to recruit and retain qualified management, nurses and other
healthcare professionals, or to control labor costs could have a material adverse effect on profitability.
The increased costs of professional and general liability insurance may have an adverse effect on our
profitability.
The cost of commercial professional and general liability insurance coverage has risen significantly in the
past several years, and this trend may continue. In addition, if we were to suffer a material loss, our costs may
increase over and above the general increases in the industry. If the costs associated with insuring our business
continue to increase, it may adversely affect our business. We believe our current level of insurance coverage is
adequate for a company of our size engaged in our business. Additionally, we may have difficulty getting carriers
to pay under coverage in certain circumstances.
Changes in government regulations could increase our costs of operations and/or reduce the demand for our
services.
Many states, including a number of those in which we transact business, have licensing and other regulatory
requirements applicable to our business. Approximately half of the states have enacted laws that require licensing
of businesses which provide medical review services such as ours. Some of these laws apply to medical review of
care covered by workers’ compensation. These laws typically establish minimum standards for qualifications of
personnel, confidentiality, internal quality control and dispute resolution procedures. These regulatory programs
may result in increased costs of operation for us, which may have an adverse impact upon our ability to compete
with other available alternatives for healthcare cost control. In addition, new laws regulating the operation of
managed care provider networks have been adopted by a number of states. These laws may apply to managed
care provider networks having contracts with us or to provider networks which we may organize. To the extent
we are governed by these regulations, we may be subject to additional licensing requirements, financial and
operational oversight and procedural standards for beneficiaries and providers.
Regulation in the healthcare and workers’ compensation fields is constantly evolving. We are unable to
predict what additional government initiatives, if any, affecting our business may be promulgated in the future.
Our business may be adversely affected by failure to comply with existing laws and regulations, failure to obtain
necessary licenses and government approvals or failure to adapt to new or modified regulatory requirements.
Proposals for healthcare legislative reforms are regularly considered at the federal and state levels. To the extent
that such proposals affect workers’ compensation, such proposals may adversely affect our business, financial
condition and results of operations.
In addition, changes in workers’ compensation, auto and managed health care laws or regulations may
reduce demand for our services, require us to develop new or modified services to meet the demands of the
marketplace or reduce the fees that we may charge for our services.
The introduction of software products incorporating new technologies and the emergence of new industry
standards could render our existing software products less competitive, obsolete or unmarketable.
There can be no assurance that we will be successful in developing and marketing new software products
that respond to technological changes or evolving industry standards. If we are unable, for technological or other
reasons, to develop and introduce new software products cost-effectively, in a timely manner and in response to
changing market conditions or customer requirements, our business, results of operations and financial condition
may be adversely affected.
Developing or implementing new or updated software products and services may take longer and cost more
than expected. We rely on a combination of internal development, strategic relationships, licensing and
acquisitions to develop our software products and services. The cost of developing new healthcare information
17
services and technology solutions is inherently difficult to estimate. Our development and implementation of
proposed software products and services may take longer than originally expected, require more testing than
originally anticipated and require the acquisition of additional personnel and other resources. If we are unable to
develop new or updated software products and services cost-effectively on a timely basis and implement them
without significant disruptions to the existing systems and processes of our customers, we may lose potential
sales and harm our relationships with current or potential customers.
The failure to attract and retain qualified or key personnel may prevent us from effectively developing,
marketing, selling, integrating and supporting our services.
We are dependent, to a substantial extent, upon the continuing efforts and abilities of certain key
management personnel. In addition, we face competition for experienced employees with professional expertise
in the workers’ compensation managed care area. The loss of key personnel, especially V. Gordon Clemons, Sr.,
our Chairman, President, and Chief Executive Officer, or the inability to attract qualified employees, could have
a material unfavorable effect on our business and results of operations.
If we lose several customers in a short period, our results may be materially adversely affected.
Our results may decline if we lose several customers during a short period. Most of our customer contracts
permit either party to terminate without cause. If several customers terminate, or do not renew or extend their
contracts with us, our results could be materially and adversely affected. Many organizations in the insurance
industry have consolidated and this could result in the loss of one or more of our customers through a merger or
acquisition. Additionally, we could lose customers due to competitive pricing pressures or other reasons.
We are subject to risks associated with acquisitions of intangible assets.
Our acquisition of other businesses may result in significant increases in our intangible assets and goodwill.
We regularly evaluate whether events and circumstances have occurred indicating that any portion of our
intangible assets and goodwill may not be recoverable. When factors indicate that intangible assets and goodwill
should be evaluated for possible impairment, we may be required to reduce the carrying value of these assets. We
cannot currently estimate the timing and amount of any such charges.
If we are unable to leverage our information systems to enhance our outcome-driven service model, our
results may be adversely affected.
To leverage our knowledge of workplace injuries, treatment protocols, outcomes data, and complex
regulatory provisions related to the workers’ compensation market, we must continue to implement and enhance
information systems that can analyze our data related to the workers’ compensation industry. We frequently
upgrade existing operating systems and are updating other information systems that we rely upon in providing
our services and financial reporting. We have detailed implementation schedules for these projects that require
extensive involvement from our operational, technological and financial personnel. Delays or other problems we
might encounter in implementing these projects could adversely affect our ability to deliver streamlined patient
care and outcome reporting to our customers.
Our Internet-based services are dependent on the development and maintenance of the Internet
infrastructure.
The Internet has experienced a variety of outages and other delays as a result of damages to portions of its
infrastructure, and it could face outages and delays in the future. These outages and delays could reduce the level
of Internet usage, as well as the availability of the Internet to us for delivery of our Internet-based services. In
addition, our customers who use our Web-based services depend on Internet service providers, online service
providers and other website operators for access to our website. All of these providers have experienced
18
significant outages in the past and could experience outages, delays and other difficulties in the future due to
system failures unrelated to our systems. Any significant interruptions in our services or increases in response
time could result in a loss of potential or existing users, and, if sustained or repeated, could reduce the
attractiveness of our services.
We are sensitive to regional weather conditions that may adversely affect our operations.
Our operations are directly affected in the short term by the weather conditions in certain regions of
operation. Therefore our business is sensitive to the weather conditions of these regions. Unusually inclement
weather, including significant rain, snow, sleet, freezing rain or ice can temporarily affect our operations if
clients are forced to close operational centers. Accordingly, our operating results may vary from quarter to
quarter, depending on the impact of these weather conditions.
Natural and other disasters may adversely affect our business.
We may be vulnerable to damage from severe weather conditions or natural disasters, including hurricanes,
fires, floods, earthquakes, power loss, communications failures and similar events, including the effects of war or
acts of terrorism. If a disaster were to occur, our ability to operate our business could be seriously or completely
impaired or destroyed. The insurance we maintain may not be adequate to cover our losses resulting from
disasters or other business interruptions.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties.
The Company’s principal executive office is located in Irvine, California in approximately 13,000 square
feet of leased space. The lease expires in January 2020. The Company leases approximately 87 branch offices in
43 states, which range in size from 200 square feet up to 94,000 square feet. The lease terms for the branch
offices range from monthly to ten years and expire at various dates through 2023. The Company believes that its
facilities are adequate for its current needs and that suitable additional space will be available as required.
Item 3.
Legal Proceedings.
The Company is involved in litigation arising in the normal course of business. Management believes that
resolution of these matters will not result in any payment that, in the aggregate, would be material to the financial
position or results of the operations of the Company.
Item 4. Mine Safety Disclosures.
Not applicable.
19
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
PART II
Equity Securities.
Market Information
The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol CRVL.
The quarterly high and low per share sales prices for the Company’s common stock for fiscal years 2015 and
2016 as reported by NASDAQ are set forth below for the periods indicated. These prices represent prices among
dealers, do not include retail markups, markdowns or commissions, and may not represent actual transactions.
Fiscal Year Ended March 31, 2015:
Quarter Ended June 30, 2014:
Quarter Ended September 30, 2014:
Quarter Ended December 31, 2014:
Quarter Ended March 31, 2015:
Fiscal Year Ended March 31, 2016:
Quarter Ended June 30, 2015:
Quarter Ended September 30, 2015:
Quarter Ended December 31, 2015:
Quarter Ended March 31, 2016:
High
Low
$52.63
47.21
38.34
37.93
$39.29
34.62
46.20
46.92
$42.18
28.08
31.47
31.91
$31.13
29.27
30.61
38.64
Holders. As of June 3, 2016, there were approximately 1,038 holders of record of the Company’s common
stock according to the information provided by the Company’s transfer agent.
Dividends. The Company has never paid any cash dividends on its common stock and has no current plans
to do so in the foreseeable future. The Company intends to retain future earnings, if any, for use in the
Company’s business. The payment of any future dividends on its common stock will be determined by the Board
of Directors in light of conditions then existing, including the Company’s earnings, financial condition and
requirements, restrictions in financing agreements, business conditions and other factors.
Unregistered Sales of Equity Securities. None.
Issuer Purchases of Equity Securities: The following table summarizes purchases of the Company’s
common stock made by or on behalf of the Company for the quarter ended March 31, 2016 pursuant to a publicly
announced plan.
Period
January 1 to January 31, 2016
February 1 to February 29, 2016
March 1 to March 31, 2016
Total
Total
Number of
Shares
Purchased
42,569
41,596
27,072
111,237
Average Price
Paid Per
Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Program
Maximum Number of
Shares that may yet
be Purchased Under
the Program
$43.42
43.19
40.59
$42.65
42,569
41,596
27,072
111,237
1,182,409
1,140,813
1,113,741
1,113,741
In 1996, the Company’s Board of Directors authorized a stock repurchase program initially for up to
100,000 shares of the Company’s common stock. The Company’s Board of Directors has periodically increased
the number of shares of common stock authorized for repurchase under the program. In November 2015, the
Company’s Board of Directors increased the number of shares of common stock authorized to be repurchased
over the life of the plan by 1,000,000 shares of common stock to 35,000,000 shares of common stock. As of
March 31, 2016, the Company has repurchased 33,886,259 shares of its common stock over the life of the
program. There is no expiration date for the plan.
20
STOCK PERFORMANCE GRAPH
The graph depicted below shows a comparison of cumulative total stockholder returns for the Company, the
NASDAQ and the NASDAQ Health Services Index over a five year period beginning on March 31, 2011. The
data depicted on the graph are as set forth in the chart below the graph. The graph assumes that $100 was
invested in the Company’s Common Stock on March 31, 2011, and in each index, and that all dividends were
reinvested. No cash dividends have been paid or declared on the Common Stock. Stockholder returns over the
indicated period should not be considered indicative of future stockholder returns.
CorVel Stock Performance Graph
300.00
200.00
100.00
March 31, 2011 March 31, 2012 March 31, 2013
March 31, 2014 March 31, 2015 March 31, 2016
CorVel
Nasdaq U.S.
Nasdaq Health
CorVel Corporation
U.S. NASDAQ
U.S. NASDAQ Healthcare Services
2011
2012
2013
2014
2015
2016
100.00
100.00
100.00
75.01
111.16
114.36
93.06
117.49
146.82
187.14
150.98
203.76
129.41
176.22
275.69
148.25
175.11
221.74
Notwithstanding anything to the contrary set forth in any of our previous filings made under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future
filings made by us under those statutes, neither the preceding Stock Performance Graph, nor the information
relating to it, is “soliciting material” or is “filed” or is to be incorporated by reference into any such prior filings,
nor shall such graph or information be incorporated by reference into any future filings made by us under those
statutes.
21
Item 6. Selected Financial Data.
The selected consolidated financial data of the Company appears in a separate section of this Annual Report
on Form 10-K immediately preceding the Management’s Discussion and Analysis of Financial Condition and
Results of Operations section and is incorporated herein by this reference.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations appears in a
separate section of this Annual Report on Form 10-K and is incorporated herein by this reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As of March 31, 2016, the Company held no market risk sensitive instruments for trading purposes and the
Company did not employ any derivative financial instruments, other financial instruments, or derivative
commodity instruments to hedge any market risk.
Item 8. Financial Statements and Supplementary Data.
The Company’s consolidated financial statements, as listed under Item 15, appear in a separate section of
this Annual Report on Form 10-K and are incorporated herein by this reference. The financial statement schedule
is included below under Item 15(a) (2).
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, as of March 31, 2016, our disclosure controls and procedures were
effective in ensuring that information required to be disclosed by us in the reports filed or submitted by us under
the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the
Commission’s rules and forms and (ii) accumulated and communicated to our management, including our
principal executive and principal accounting officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining a system of internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability of our financial reporting and
preparation of financial statements for external purposes in accordance with accounting principles generally
accepted in the United States of America. Internal control over financial reporting includes maintaining records
that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that
transactions are recorded as necessary for preparation of our financial statements in accordance with accounting
principles generally accepted in the United States of America; providing reasonable assurance that our receipts
and expenditures are made in accordance with authorizations of our management and directors; and providing
reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material
effect on our financial statements would be prevented or detected on a timely basis.
22
Management conducted an assessment of the effectiveness of our internal control over financial reporting
based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in the 2013 Internal Control — Integrated Framework (“2013 COSO framework”). Based on this
assessment, our management concluded that our internal control over financial reporting was effective as of
March 31, 2016 to provide reasonable assurance regarding the reliability of financial reporting and preparation of
financial statements for external reporting purposes in accordance with accounting principles generally accepted
in the United States of America.
Our independent registered public accounting firm, Haskell & White LLP, has issued an audit report on the
effectiveness of our internal control over financial reporting as of March 31, 2016 as stated in their report that is
included in Part II, Item 8 herein.
Changes to Internal Control over Financial Reporting
During the quarter ended March 31, 2016, there were no changes in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
23
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information in the sections titled “Proposal One: Election of Directors,” “Corporate Governance, Board
Composition and Board Committees,” “Executive Officers of CorVel,” and “Section 16(a) Beneficial Ownership
Reporting Compliance” appearing in the Company’s Definitive Proxy Statement for the 2016 Annual Meeting of
Stockholders is incorporated herein by reference.
The Board of Directors has adopted a code of ethics and business conduct that applies to all of the
Company’s employees, officers and directors. The full text of the Company’s code of ethics and business
conduct is posted on the Company’s web site at www.corvel.com under the “Investor Relations” section. The
Company intends to disclose future amendments to certain provisions of the Company’s code of ethics and
business conduct, or waivers of such provisions, applicable to the Company’s directors and executive officers, at
the same location on the Company’s web site identified above. The inclusion of the Company’s web site address
in this report does not include or incorporate by reference the information on the Company’s web site into this
report.
Item 11. Executive Compensation.
The information in the sections titled “Executive Compensation,” “Compensation Discussion and Analysis,”
“Compensation Committee Interlocks and Insider Participation,” “Compensation Committee Report,” and
“Compensation of Directors,” appearing in the Company’s Definitive Proxy Statement for the 2016 Annual
Meeting of Stockholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The information in the sections titled “Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matter” and “Equity Compensation Plan Information” appearing in the Company’s
Definitive Proxy Statement for the 2016 Annual Meeting of Stockholders is incorporated herein by reference.
Item 13. Certain Relationships and Related Party Transactions, and Director Independence.
The information in the sections titled “Certain Relationships and Related Person Transactions,” “Proposal
One: Election of Directors,” and “Corporate Governance, Board Composition and Board Committees” appearing
in the Company’s Definitive Proxy Statement for the 2016 Annual Meeting of Stockholders is incorporated
herein by reference.
Item 14. Principal Accounting Fees and Services.
The information under the captions “Principal Accountant Fees and Services”, “Audit Committee Pre-
Approval of Audit and Permissible Non-Audit Services of Independent Auditors” and “Ratification of
Appointment of Independent Auditors” appearing in the Company’s Definitive Proxy Statement for the 2016
Annual Meeting of Stockholders is incorporated herein by reference.
24
Item 15. Exhibits, Financial Statement Schedules.
(a)(1) Financial Statements:
PART IV
The Company’s financial statements appear in a separate section of this Annual Report on Form 10-K
beginning on the pages referenced below:
Report of Independent Registered Public Accounting Firm
Consolidated Income Statements for the Fiscal Years Ended March 31, 2014, 2015, and 2016
Consolidated Balance Sheets as of March 31, 2015 and 2016
Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended March 31, 2014, 2015, and
2016
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 2014, 2015, and 2016
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule:
Page
47
49
50
51
52
53
The Company’s consolidated financial statements, as listed under Item 15(a) (1), appear in a separate
section of this Annual Report on Form 10-K. The Company’s financial statement schedule is as follows:
Schedule II — Valuation and Qualifying Accounts
Balance at
Beginning of Year
Additions
Charged to Cost
and Expenses
Deductions
Balance at End
of Year
Allowance for doubtful accounts:
Fiscal Year Ended March 31, 2016:
Fiscal Year Ended March 31, 2015:
Fiscal Year Ended March 31, 2014:
$1,645,000
1,745,000
2,295,000
$1,357,000
1,730,000
1,332,000
$(1,181,000)
(1,830,000)
(1,882,000)
$1,821,000
1,645,000
1,745,000
25
(3) Exhibits:
Exhibit
No.
3.1
EXHIBITS
Title
Method of Filing
Amended and Restated Certificate of
Incorporation of the Company
3.2
Amended and Restated Bylaws of the Company
Incorporated herein by reference to Exhibit 3.1
to the Company’s Current Report on Form 8-K
filed on August 10, 2011.
Incorporated herein by reference to Exhibit 3.2
to the Company’s Quarterly Report on
Form 10-Q for the quarterly period ended
June 30, 2006 filed on August 14, 2006.
3.3
4.1
Certificate of Designation Increasing the
Number of Shares of Series A Junior
Participating Preferred Stock
Incorporated herein by reference to Exhibit 3.1
to the Company’s Form 8-K filed on
November 24, 2008.
Incorporated herein by reference to Exhibit 4.1
to the Company’s Form 8-K filed on
November 24, 2008.
Second Amended and Restated Preferred Shares
Rights Agreement, dated as of November 17,
2008, by and between CorVel Corporation and
Computershare Trust Company, N.A., including
the original Certificate of Designation, the
Certificate of Designation Increasing the
Number of Shares, the form of Right Certificate
(as amended) and the Summary of Rights (as
amended) attached thereto as Exhibits A-1, A-2,
A-3, B and C, respectively
10.1*
Nonqualified Stock Option Agreement between
V. Gordon Clemons, Sr., the Company and
North Star together with all amendments and
addendums thereto
Incorporated herein by reference to Exhibit 10.6
to the Company’s Registration Statement on
Form S-1 Registration No. 33-40629 initially
filed on May 16, 1991.
10.2*
Supplementary Agreement between V. Gordon
Clemons, Sr., the Company and North Star
10.3*
10.4*
Amendment to Supplementary Agreement
between V. Gordon Clemons, Sr., the Company
and North Star
Restated Omnibus Incentive Plan (Formerly
The Restated 1988 Executive Stock Option
Plan)
Incorporated herein by reference to Exhibit 10.7
to the Company’s Registration Statement on
Form S-1 Registration No. 33-40629 initially
filed on May 16, 1991.
Incorporated herein by reference to Exhibit 10.5
to the Company’s Annual Report on Form 10-K
for the fiscal year ended March 31, 1992 filed
on June 29, 1992.
Incorporated herein by reference to Exhibit 10.3
to the Company’s Quarterly Report on
Form 10-Q for the quarterly period ended
September 30, 2015 filed on November 5, 2015.
26
Title
Method of Filing
Forms of Notice of Grant of Stock Option,
Stock Option Agreement and Notice of Exercise
Under the Restated Omnibus Incentive Plan
(Formerly The Restated 1988 Executive Stock
Option)
Incorporated herein by reference to Exhibit 10.2
to the Company’s Quarterly Report on
Form 10-Q for the quarterly period ended
September 30, 2006 filed on November 9, 2006,
Exhibits 10.7, 10.8 and 10.9 to the Company’s
Annual Report on Form 10-K for the fiscal year
ended March 31, 1994 filed on June 29, 1994,
Exhibits 99.2, 99.3, 99.4, 99.5, 99.6, 99.7 and
99.8 to the Company’s Registration Statement
on Form S-8 (File No. 333-94440) filed on
July 10, 1995, and Exhibits 99.3 and 99.5 to the
Company’s Registration Statement on Form S-8
(File No. 333-58455) filed on July 2, 1998.
Incorporated herein by reference to
Exhibit 10.12 to the Company’s Registration
Statement on Form S-1 Registration No. 33-
40629 initially filed on May 16, 1991.
Incorporated herein by reference to Exhibit 10.4
to the Company’s Quarterly Report on
Form 10-Q for the quarterly period ended
September 30, 2015 filed on November 5, 2015.
Incorporated herein by reference to
Exhibits 10.16 and 10.16A to the Company’s
Registration Statement on Form S-1
Registration No. 33-40629 initially filed on
May 16, 1991.
Incorporated herein by reference to Exhibit 4.1
to the Company’s Form 8-K filed on
November 24, 2008.
Exhibit
No.
10.5*
10.8
10.9
10.10
10.11
10.12
10.6*
Employment Agreement of V. Gordon
Clemons, Sr.
10.7*
Restated 1991 Employee Stock Purchase Plan,
as amended
Fidelity Master Plan for Savings and
Investment, and amendments
Second Amended and Restated Preferred Shares
Rights Agreement, dated as of November 17,
2008, by and between CorVel Corporation and
Computershare Trust Company, N.A., including
the original Certificate of Designation, the
Certificate of Designation Increasing the
Number of Shares, the form of Rights
Certificate (as amended) and the Summary of
Rights (as amended) attached thereto as
Exhibits A-1, A-2, A-3, B and C, respectively
Credit Agreement dated May 28, 2009 by and
between CorVel Corporation and Wells Fargo
Bank, National Association.
Incorporated herein by reference to
Exhibit 10.16 to the Company’s Current Report
on Form 8-K filed on June 4, 2009.
Revolving Line of Credit Note dated May 28,
2009 by CorVel Corporation in favor of Wells
Fargo Bank, National Association.
Incorporated herein by reference to
Exhibit 10.17 to the Company’s Current Report
on Form 8-K filed on June 4, 2009.
First Amendment to Credit Agreement dated
June 2, 2010 by and between CorVel
Corporation and Wells Fargo Bank, National
Association.
Incorporated herein by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K
filed on June 7, 2010.
27
Title
Method of Filing
Revolving Line of Credit Note dated June 2,
2010 by CorVel Corporation in favor of Wells
Fargo Bank, National Association.
Incorporated herein by reference to Exhibit 10.2
to the Company’s Current Report on Form 8-K
filed on June 7, 2010.
Exhibit
No.
10.13
10.14*
10.15
10.16
Stock Option Agreement dated December 6,
2010 between the company and Diane J. Blaha,
providing performance vesting.
Second Amendment to Credit Agreement dated
September 1, 2011 by and between CorVel
Corporation and Wells Fargo Bank, National
Association.
Revolving Line of Credit Note dated
September 1, 2011 by CorVel Corporation in
favor of Wells Fargo Bank, National
Association.
10.17*†
Stock option agreement dated November 3,
2011, between the Company and Diane J.
Blaha, providing performance vesting.
10.18
10.19
10.20*†
10.21*†
10.22*†
10.23*†
10.24
Third Amendment to Credit Agreement dated
September 1, 2012 by and between CorVel
Corporation and Wells Fargo Bank, National
Association.
Revolving Line of Credit Note dated
September 1, 2012 by CorVel Corporation in
favor of Wells Fargo Bank, National
Association.
Stock option agreement dated March 1, 2013,
between the Company and V. Gordon
Clemons, Sr., providing performance vesting.
Stock option agreement dated March 1, 2013,
between the Company and Scott McCloud,
providing performance vesting.
Stock option agreement dated March 1, 2013,
between the Company and Donald C.
McFarlane, providing performance vesting.
Stock option agreement dated March 1, 2013,
between the Company and Diane J. Blaha,
providing performance vesting.
Fourth Amendment to Credit Agreement dated
September 1, 2013 by and between CorVel
Corporation and Wells Fargo Bank, National
Association.
28
Incorporated herein by reference to
Exhibit 10.32 to the Company’s Annual Report
on Form 10-K for the fiscal year ended
March 31, 2014 filed on June 12, 2014.
Incorporated herein by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K
filed on August 31, 2011.
Incorporated herein by reference to Exhibit 10.2
to the Company’s Current Report on Form 8-K
filed on August 31, 2011.
Incorporated herein by references to
Exhibit 10.19 to the Company’s Annual Report
on Form 10-K for the fiscal year ended
March 31, 2015 filed on June 11, 2015.
Incorporated herein by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K
filed on September 7, 2012.
Incorporated herein by reference to Exhibit 10.2
to the Company’s Current Report on Form 8-K
filed on September 7, 2012.
Refiled herewith.
Refiled herewith.
Refiled herewith.
Refiled herewith.
Incorporated herein by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K
filed on September 5, 2013.
Exhibit
No.
10.25
10.26*†
10.27*†
10.28*†
10.29*†
10.30*†
10.31
10.32
10.33*†
10.34*†
10.35
10.36
Title
Method of Filing
Revolving Line of Credit Note dated
September 1, 2013 by CorVel Corporation in
favor of Wells Fargo Bank, National
Association.
Stock option agreement dated November 4,
2013, between the Company and Scott
McCloud, providing performance vesting.
Stock option agreement dated November 4,
2013, between the Company and Donald C.
McFarlane, providing performance vesting.
Stock option agreement dated November 4,
2013, between the Company and Diane J.
Blaha, providing performance vesting.
Stock option agreement dated November 4,
2013, between the Company and Richard J.
Schweppe, providing performance vesting.
Stock option agreement dated March 1, 2013,
between the Company and Richard J.
Schweppe, providing performance vesting.
Fifth Amendment to Credit Agreement dated
September 1, 2014 by and between CorVel
Corporation and Wells Fargo Bank, National
Association.
Revolving Line of Credit Note dated
September 1, 2014 by CorVel Corporation in
favor of Wells Fargo Bank, National
Association.
Stock option agreement dated November 10,
2014, between the Company and Richard J.
Schweppe, providing performance vesting.
Stock option agreement dated November 10,
2014, between the Company and Diane J.
Blaha, providing performance vesting.
Sixth Amendment to Credit Agreement dated
September 1, 2015 by and between CorVel
Corporation and Wells Fargo Bank, National
Association.
Incorporated herein by reference to Exhibit 10.2
to the Company’s Current Report on Form 8-K
filed on September 5, 2013.
Refiled herewith.
Refiled herewith.
Refiled herewith.
Refiled herewith.
Refiled herewith
Incorporated herein by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K
filed on September 5, 2014.
Incorporated herein by reference to Exhibit 10.2
to the Company’s Current Report on Form 8-K
filed on September 5, 2014.
Refiled herewith.
Refiled herewith.
Incorporated herein by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K
filed on September 4, 2015.
Revolving Line of Credit Note dated September 1,
2015 by CorVel Corporation in favor of Wells
Fargo Bank, National Association.
Incorporated herein by reference to Exhibit 10.2
to the Company’s Current Report on Form 8-K
filed on September 4, 2015.
10.37*†
Stock option agreement dated November 10,
2015, between the Company and Richard J.
Schweppe, providing performance vesting.
Incorporated herein by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K
filed on November 12, 2015.
29
Exhibit
No.
10.38*†
10.39*†
21.1
23.1
31.1
31.2
32.1
32.2
101.0
Title
Method of Filing
Stock option agreement dated November 10,
2015, between the Company and Michael G.
Combs, providing performance vesting.
Incorporated herein by reference to Exhibit 10.2
to the Company’s Current Report on Form 8-K
filed on November 12, 2015.
Stock option agreement dated November 10,
2015, between the Company and Diane J.
Blaha, providing performance vesting.
Incorporated herein by reference to Exhibit 10.3
to the Company’s Current Report on Form 8-K
filed on November 12, 2015.
Filed herewith
Filed herewith.
Filed herewith.
Filed herewith.
Furnished herewith.
Furnished herewith.
Subsidiaries of the Company
Consent of Independent Registered Public
Accounting Firm, Haskell & White LLP.
Certification of the Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Certification of the Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Certification of the Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Certification of the Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
The following materials from CorVel
Corporation’s Annual Report on Form 10-K for
the fiscal year ended March 31, 2016, formatted
in XBRL (eXtensible Business Reporting
Language): (i) Consolidated Balance Sheets as
of March 31, 2016 and March 31, 2015;
(ii) Consolidated Statements of Income for the
fiscal years ended March 31, 2016, 2015 and
2014; (iii) Consolidated Statements of
Stockholders’ Equity for the fiscal years ended
March 31, 2016, 2015 and 2014;
(iv) Consolidated Statements of Cash Flows for
the fiscal years ended March 31, 2016, 2015
and 2014; and (v) Notes to Consolidated
Financial Statements
*
†
– Denotes management contract or compensatory plan or arrangement.
– Confidential treatment has been requested for certain confidential portions of this exhibit 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.
30
(b) Exhibits
The exhibits filed as part of this report are listed under Item 15(a)-(3) of this Annual Report on Form 10-K.
(c) Financial Statement Schedule
The Financial Statement Schedules required by Regulation S-X and Item 8 of Form 10-K are listed under
Item 15(a)(2) of this Annual Report on Form 10-K.
31
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURES
CORVEL CORPORATION
By:
/S/ V. GORDON CLEMONS, SR.
V. Gordon Clemons, Sr.
Chairman of the Board, President, and Chief
Executive Officer
Date: June 10, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/S/ V. GORDON CLEMONS, SR.
V. Gordon Clemons, Sr.
Chairman of the Board, Chief
Executive Officer, and President
(Principal Executive Officer)
June 10, 2016
/S/ RICHARD J. SCHWEPPE
Richard J. Schweppe
/S/ ALAN R. HOOPS
Alan R. Hoops
/S/ STEVEN J. HAMERSLAG
Steven J. Hamerslag
/S/ R. JUDD JESSUP
R. Judd Jessup
/S/ JEAN H. MACINO
Jean H. Macino
/S/ JEFFREY J. MICHAEL
Jeffrey J. Michael
Chief Financial Officer (Principal
Financial and Accounting Officer)
June 10, 2016
Director
June 10, 2016
Director
June 10, 2016
Director
June 10, 2016
Director
June 10, 2016
Director
June 10, 2016
32
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data for each of the five fiscal years ended March 31, 2016, have been
derived from the Company’s audited consolidated financial statements. The following data should be read in
conjunction with the Company’s Consolidated Financial Statements, the related notes thereto, and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The following
amounts are in thousands, except per share data.
Income Statement Data:
Revenues
Cost of revenues
Gross profit
General and administrative
Income before income taxes
Income tax provision
Net income
Net income per share:
Basic
Diluted
Shares used in computing net income per share:
Basic
Diluted
Return on beginning of year equity
Return on beginning of year assets
Balance Sheet Data as of March 31,
Cash and cash equivalents
Accounts receivable, net
Working capital
Total assets
Retained earnings
Treasury stock
Total stockholders’ equity
Fiscal Year Ended March 31,
2012
2013
2014
2015
2016
$ 412,668
318,826
$ 429,310
337,650
$ 478,816
370,335
$ 492,625
392,656
$ 503,584
399,040
93,842
50,405
43,437
16,885
91,660
47,765
43,895
17,165
108,481
51,974
56,507
22,115
99,969
54,405
45,564
16,974
104,544
58,484
46,060
17,535
$ 26,552
$ 26,730
$ 34,392
$ 28,590
$ 28,525
$
$
1.16
1.14
$
$
1.20
1.19
$
$
1.63
1.61
$
$
1.38
1.37
$
$
1.44
1.43
22,952
23,254
26.6%
16.2%
22,256
22,458
24.2%
15.6%
21,104
21,372
30.9%
18.9%
20,669
20,890
22.6%
13.3%
19,826
20,004
22.3%
13.5%
2012
2013
2014
2015
2016
$
6,597
49,334
36,485
171,882
275,046
(270,574)
110,382
$ 19,822
49,105
40,145
182,382
301,776
(301,301)
111,402
$ 34,866
57,229
49,120
214,481
336,168
(328,480)
126,522
$ 25,516
57,537
37,959
211,573
364,758
(360,278)
127,923
$ 32,779
59,747
42,693
220,269
393,283
(391,803)
131,948
33
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations may include
certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including (without limitation)
statements with respect to anticipated future operating and financial performance, growth and acquisition
opportunities and other similar forecasts and statements of expectation. Words such as “expects,” “anticipates,”
“intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “potential,” “continue,” “strive,” “ongoing,”
“may,” “will,” “would,” “could,” and “should” and variations of these words and similar expressions, are
intended to identify these forward-looking statements. Forward-looking statements made by the Company and its
management are based on estimates, projections, beliefs and assumptions of management at the time of such
statements and are not guarantees of future performance.
The Company disclaims any obligations to update or revise any forward-looking statement based on the
occurrence of future events, the receipt of new information or otherwise. Actual future performance, outcomes
and results may differ materially from those expressed in forward-looking statements made by the Company and
its management as a result of a number of risks, uncertainties and assumptions. Representative examples of these
factors include (without limitation) general industry and economic conditions, including a decreasing number of
national claims due to a decreasing number of injured workers; cost of capital and capital requirements; existing
and possible litigation and legal liability in the course of operations and the Company’s ability to resolve such
litigation; cost of capital and capital requirements; competition from other managed care companies; the ability
to expand certain areas of the Company’s business; shifts in customer demands; the ability of the Company to
produce market-competitive software; changes in operating expenses including employee wages, benefits and
medical inflation; governmental and public policy changes, including but not limited to legislative and
administrative law and rule implementation or change; dependence on key personnel; the continued availability
of financing in the amounts and at the terms necessary to support the Company’s future business; and the other
risks identified under the heading “Risk Factors” appearing elsewhere in the report.
Overview
CorVel Corporation is an independent nationwide provider of medical cost containment and managed care
services designed to address the escalating medical costs of workers’ compensation and auto claims. The
Company’s services are provided to insurance companies, third-party administrators (“TPA’s”), governmental
entities, and self-administered employers to assist them in managing the medical costs and monitoring the quality
of care associated with healthcare claims.
Network Solutions Services
The Company’s network solutions services are designed to reduce the price paid by its customers for
medical services rendered in workers’ compensation cases, auto policies and, to a lesser extent, group health
policies. The network solutions offered by the Company include automated medical fee auditing, preferred
provider services, retrospective utilization review, independent medical examinations, and inpatient bill review.
Network solutions services also includes revenue from the Company’s directed care network (CareIQ), including
imaging and physical therapy.
Patient Management Services
In addition to its network solutions services, the Company offers a range of patient management services,
which involve working on a one-on-one basis with injured employees and their various healthcare professionals,
employers and insurance company adjusters. The services are designed to monitor the medical necessity and
appropriateness of healthcare services provided to workers’ compensation and other healthcare claimants and to
34
expedite return to work. The Company offers these services on a stand-alone basis, or as an integrated component
of its medical cost containment services. Patient management services include the processing of claims for self-
insured payors to property and casualty insurance.
Organizational Structure
The Company’s management is structured geographically with regional vice-presidents who report to the
Chief Executive Officer of the Company. Each of these regional vice-presidents is responsible for all services
provided by the Company in his or her particular region and responsible for the operating results of the Company
in multiple states. These regional vice presidents have area and district managers who are also responsible for all
services provided by the Company in their given area and district.
Business Enterprise Segments
The Company operates in one reportable operating segment, managed care. The Company’s services are
delivered to its customers through its local offices in each region and financial information for the Company’s
operations follows this service delivery model. All regions provide the Company’s patient management and
network solutions services. FASB ASC 280-10, Segment Reporting, establishes standards for the way that public
business enterprises report information about operating segments in annual and interim consolidated financial
statements. The Company’s internal financial reporting is segmented geographically, as discussed above, and
managed on a geographic rather than service line basis, with virtually all of the Company’s operating revenue
generated within the United States.
Under FASB ASC 280-10, two or more operating segments may be aggregated into a single operating
segment for financial reporting purposes if aggregation is consistent with the objective and basic principles, if the
segments have similar economic characteristics, and if the segments are similar in each of the following areas: 1)
the nature of products and services; 2) the nature of the production processes; 3) the type or class of customer for
their products and services; and 4) the methods used to distribute their products or provide their services. The
Company believes each of its regions meet these criteria as each provides similar services and products to similar
customers using similar methods of productions and similar methods to distribute the services and products.
Because we believe we meet each of the criteria set forth above and each of our regions have similar
economic characteristics, we aggregate our results of operations in one reportable operating segment, managed
care.
Seasonality
While we are not directly impacted by seasonal shifts, we are affected by the change in working days in a
given quarter. There are generally fewer working days for our employees to generate revenue in the third fiscal
quarter as we experience vacations, inclement weather and holidays.
Summary of Fiscal 2016 Annual Results
The Company had record revenues of $504 million for fiscal year ended March 31, 2016, an increase of $11
million, or 2.2%, compared to $493 million for fiscal year ended March 31, 2015. The increase was primarily due
to growth in the TPA services and network solutions offset by a decrease in CERiS and a nominal decrease in
case management.
During fiscal 2016, the Company’s gross profit increased to $104.5 million from $100.0 million in fiscal
2015, an increase of $4.6 million, or 4.6%. This increase was primarily due to cost of revenues increasing at a
lower rate than revenues, partially due to a decrease in headcount.
35
During fiscal 2016, the Company’s general and administrative expenses increased to $58.5 million from
$54.4 million in fiscal 2015, an increase of $4.1 million, or 7.5%. The increase was primarily due to an increase
in legal and IT expenses.
During fiscal 2016, the Company’s operating income increased to $46.1 million from $45.6 million in fiscal
2015, an increase of $0.5 million, or 1.1%. This increase was primarily due to the aforementioned increase in
revenues and gross profit.
Income tax expense increased by $0.6 million, or 3.3%, from $17.0 million in fiscal 2015 to $17.5 million in
fiscal 2016. This increase was primarily due to increase in pre-tax income.
Weighted diluted shares decreased from 20.9 million shares in fiscal 2015 to 20.0 million shares in fiscal
2016, a decrease of 886,000 shares, or 4.2%. This decrease was primarily due to the repurchase of 893,771 shares
of common stock in fiscal 2016. In November 2015, the Company’s Board of Directors increased the number of
shares authorized to be repurchased over the life of the plan to 35,000,000 shares. Since commencing this
program in the fall of 1996, the Company has repurchased 33,886,259 shares of its common stock through
March 31, 2016, at a cost of $392 million. These repurchases were funded primarily from the Company’s
operating cash flows.
Diluted earnings per share increased from $1.37 in fiscal 2015 to $1.43 in fiscal 2016, an increase of $0.06
per share, or 4.4%. The increase in diluted earnings per share was primarily due to a reduction in the number of
shares outstanding of 4.2% due to shares repurchases.
Results of Operations
The Company derives its revenues from providing patient management and network solutions services to
payors of workers’ compensation benefits, auto insurance claims and health insurance benefits. Patient
management services include utilization review, medical case management, vocational rehabilitation, and claims
processing. Network solutions revenues include fee schedule auditing, hospital bill auditing, independent medical
examinations, diagnostic imaging review services and preferred provider referral services. The percentages of
total revenues attributable to patient management and network solutions services for the fiscal years ended
March 31, 2014, 2015, and 2016 are listed below.
Patient management services
Network solutions services
2014
2015
2016
51.9% 54.5% 55.1%
48.1% 45.5% 44.9%
100.0% 100.0% 100.0%
As noted in the table above, from fiscal 2014 to fiscal 2016, the mix of the Company’s revenues moved 3.2
percentage points from network solutions to patient management. This mix shift is primarily due to the
Company’s increased focus in the sale of TPA services which are included with patient management services.
The Company expects to have more growth in the sale of TPA services than its other services because we are
focusing more of our efforts in this area and because we believe the opportunities for growth in revenue and
gross profits are better in this area.
36
The following table shows the consolidated income statements for the past three fiscal years and the dollar
changes as well as the percentage changes for each fiscal year in thousands, except for per share information.
Fiscal
2014
Fiscal
2015
Fiscal
2016
Amount
Change from
Fiscal 2014 to
2015
Amount
Change from
Fiscal 2015
to 2016
Percent
Change from
Fiscal 2014
to 2015
Percent
Change from
Fiscal 2015
to 2016
Revenues
Cost of revenues
Gross profit
General and
$478,816
370,335
$492,625
392,656
$503,584
399,040
$ 13,809
22,321
$ 10,959
6,384
108,481
99,969
104,544
(8,512)
4,575
2.9%
6.0
(7.8)
administrative
51,974
54,405
58,484
2,431
4,079
4.7
Income before income
taxes
Income tax provision
56,507
22,115
45,564
16,974
46,060
17,535
(10,943)
(5,141)
496
561
(19.4)
(23.2)
2.2%
1.6
4.6
7.5
1.1
3.3
Net income
$ 34,392
$ 28,590
$ 28,525
($ 5,802)
($
65)
(16.9%)
(0.2%)
Net income per share:
Basic
Diluted
Shares used in net
income per share:
Basic
Diluted
$
$
1.63
1.61
$
$
1.38
1.37
$
$
1.44
1.43
$
$
(0.25)
(0.24)
$
$
0.06
0.06
(15.3%)
(14.9%)
4.3%
4.4%
21,104
21,372
20,669
20,890
19,826
20,004
(435)
(482)
(843)
(886)
(2.1%)
(2.3%)
(4.1%)
(4.2%)
As previously identified in the section titled “Risk Factors” in this report, the Company’s ability to maintain
or grow revenues is subject to several risks including, but not limited to, changes in government regulations,
exposure to litigation and the ability to add or retain customers. Any of these, or a combination of all of them,
could have a material and adverse effect on the Company’s results of operations going forward.
The following table sets forth, for the periods indicated, the percentage of revenues represented by certain
items reflected in the Company’s consolidated income statements. The Company’s past operating results are not
necessarily indicative of future operating results. The percentages for the three fiscal years ended March 31,
2014, 2015 and 2016 are as follows:
Income Statement Percentages
Revenues
Cost of revenues
Gross profit
General and administrative
Income before income taxes
Income tax provision
Net Income
2014
2015
2016
100.0% 100.0% 100.0%
77.3% 79.7% 79.2%
22.7% 20.3% 20.8%
10.9% 11.0% 11.6%
11.8%
4.6%
7.2%
9.3%
3.4%
5.9%
9.2%
3.5%
5.7%
Revenue
The Company derives its revenues from providing patient management and network solutions services to
payors of workers’ compensation benefits, auto insurance claims and health insurance benefits. Patient management
services include claims administration, utilization review, medical case management and vocational rehabilitation.
Network solutions revenues include fee schedule auditing, hospital bill auditing, independent medical examinations,
diagnostic imaging review services, directed care services and preferred provider referral services.
37
Change in Revenue
Fiscal 2016 Compared to Fiscal 2015
Revenues increased by 2.2%, to $504 million in fiscal 2016, from $493 million in fiscal 2015, an increase of
$11 million. The increase was primarily due to growth in the TPA services within patient management due to an
increase in customers. Patient management revenues, which include TPA services, increased by $8.6 million, or
3.2%, from $269 million in fiscal 2015 to $277 million in fiscal 2016. This increase in revenues from TPA
services was due to a 7% increase in the number of customers, which contributed to a 7% increase in the total
number of claims opened during the fiscal year. Network solutions services revenues increased by $2.3 million,
or 1.0%, from $224 million in fiscal 2015 to $226 million in fiscal 2016.
Fiscal 2015 Compared to Fiscal 2014
Revenues increased by 2.9%, to $493 million in fiscal 2015, from $479 million in fiscal 2014, an increase of
$14 million. The increase was primarily due to growth in the TPA services within patient management due to an
increase in customers. Patient management revenues, which include TPA services, increased by $21 million, or
8.5%, from $248 million in fiscal 2014 to $269 million in fiscal 2015. This increase in revenues from TPA
services was due to a 5% increase in the number of customers, which contributed to an 11% increase in the total
number of claims opened during the fiscal year. Network solutions services revenues decreased by $6.0 million,
or 2.6%, from $230 million in fiscal 2014 to $224 million in fiscal 2015, due to a 5% decrease in the number of
bills processed slightly offset by a 2% increase in the revenue per bill.
Cost of Revenue
The Company’s cost of revenues consist of direct expenses, costs directly attributable to the generation of
revenue, and field indirect costs which are incurred in the field to support the operations in the field offices which
generate the revenue. Direct costs are primarily case manager salaries, bill review analysts, related payroll taxes
and fringe benefits, and costs for Independent Medical Examinations (IME), prescription drugs, and MRI
providers. Most of the Company’s revenues are generated in offices which provide both patient management
services and network solutions services. The largest of the field indirect costs are manager salaries and bonus,
account executive base pay and commissions, administrative and clerical support, field systems personnel, PPO
network developers, related payroll taxes, fringe benefits, office rent, and telephone expense. During fiscal 2015
and 2016, approximately 32% of the costs incurred in the field are field indirect costs which support both the
patient management services and network solutions operations of the Company’s field operations.
Change in Cost of Revenue
Fiscal 2016 Compared to Fiscal 2015
The Company’s cost of revenues increased from $393 million in fiscal 2015 to $399 million in fiscal 2016,
an increase of 1.6%, or $6 million. The increase in cost of revenues was primarily due to the 2.2% increase in
revenues noted above. The increase in cost of revenues also was due to an increase in lower margin patient
management TPA services due to competitive pricing and a decrease in higher margin bill review services.
Pharmacy costs increased from $61 million to $64 million due to an increase in revenue in this line of business,
which is due to an increase in volume. Additionally, our direct labor costs increased from $107 million to $113
million due to increased headcount in TPA services.
Fiscal 2015 Compared to Fiscal 2014
The Company’s cost of revenues increased from $370 million in fiscal 2014 to $393 million in fiscal 2015,
an increase of 6.0%, or $22 million. The increase in cost of revenues was primarily due to the 2.9% increase in
revenues noted above. The cost of revenues increased at a higher rate than revenue due to an increase in lower
margin patient management TPA services and a decrease in higher margin bill review services. Pharmacy costs
38
increased from $59 million to $61 million due to an increase in revenue in this line of business. Additionally,
headcount increased which is reflected in our direct labor costs that increased from $99 million to $107 million
due to increased services to TPA customers.
General and Administrative Expense
During fiscal years 2014, 2015 and 2016, approximately 59%, 61%, and 60% respectively, of general and
administrative costs consisted of corporate systems costs, which include the corporate systems support,
implementation and training, rules engine development, national information technology (IT) strategy and
planning, depreciation of the hardware costs in the Company’s corporate offices and backup data center, the
Company’s national wide area network, and other systems related costs. The Company includes all IT related
costs managed by the corporate office in general and administrative whereas the field IT related costs are
included in the cost of revenues. The remaining general and administrative costs consist of national marketing,
national sales support, corporate legal, corporate insurance, human resources, accounting, product management,
new business development, and other general corporate expenses.
Change in General and Administrative Expense
Fiscal 2016 Compared to Fiscal 2015
General and administrative expense increased 7.5%, from $54.4 million in fiscal 2015 to $58.5 million in
fiscal 2016. Legal expenses increased $2.1 million due to the settlement of two lawsuits during the last quarter of
fiscal 2016. IT expenses increased from $33 million in fiscal 2015 to $34 million in fiscal 2016 due to hardware
and internally developed software depreciation.
Fiscal 2015 Compared to Fiscal 2014
General and administrative expense increased 4.7% from $52 million in fiscal 2014 to $54.4 million in
fiscal 2015. In fiscal 2015, the Company increased IT expenses related to a new data center being brought online
to increase system capacity. IT expenses increased from $31 million in fiscal 2014 to $33 million in fiscal 2015.
Income Tax Provision
Fiscal 2016 Compared to Fiscal 2015
The Company’s income tax expense was $17.0 million for fiscal year 2015 and $17.5 million for fiscal year
2016. The income tax expense was calculated based on a 37.3% tax rate for fiscal year 2015 and 38.1% for fiscal
year 2016. The increase of $0.5 million was primarily due to an increase in income before income taxes and a
higher tax rate. The income tax provision rates were based upon management’s review of the Company’s
estimated annual income tax rate, including state taxes. This effective tax rate differed from the statutory federal
tax rate of 35.0% primarily due to state income taxes and certain non-deductible expenses offset by tax credits.
Fiscal 2015 Compared to Fiscal 2014
The Company’s income tax expense was $22 million for fiscal year 2014 and $17 million for fiscal year
2015. The income tax expense was calculated based on a 39% tax rate for fiscal year 2014 and 37.3% for fiscal
year 2015. The decrease of $5 million was primarily due to a decrease in income before income taxes.
Additionally, the rate decreased during fiscal year 2015 due to review of the state tax filings and the Company’s
apportionment. The Company expects the rate to normalize in the next fiscal year. The income tax provision
rates were based upon management’s review of the Company’s estimated annual income tax rate, including state
taxes. This effective tax rate differed from the statutory federal tax rate of 35.0% primarily due to state income
taxes and certain non-deductible expenses offset by tax credits.
39
Net Income
Fiscal 2016 Compared to Fiscal 2015
The Company’s net income for fiscal years 2015 and 2016 were $28.6 million and $28.5 million,
respectively, a decrease of $0.1 million. The Company’s net income was relatively unchanged due to an increase
in gross profit, which was offset by an increase in general and administrative expense and an increase in the tax
rate.
Fiscal 2015 Compared to Fiscal 2014
The Company’s net income for fiscal years 2014 and 2015 was $34.4 million and $28.6 million,
respectively. The Company’s net income in fiscal 2015 decreased due to a decrease in gross profit margin due to
an increase in lower margin TPA business.
Earnings per Share
Fiscal 2016 Compared to Fiscal 2015
The Company’s diluted earnings per share for fiscal years 2015 and 2016 were $1.37 and $1.43,
respectively, an increase of $0.06. The Company’s earnings per share in fiscal 2016 increased primarily due to a
decrease in diluted weighted shares outstanding because of shares repurchased in the Company’s share
repurchase program.
Fiscal 2015 Compared to Fiscal 2014
The Company’s diluted earnings per share for fiscal years 2014 and 2015 were $1.61 and $1.37,
respectively. The Company’s earnings per share in fiscal 2015 decreased due to a decrease in net income of $5.8
million.
Liquidity and Capital Resources
Introduction
The Company manages its liquidity and financial position in the context of its overall business strategy. The
Company continually forecasts and manages its cash, investments, working capital balances and capital structure
to meet the short- and long-term obligations of its businesses while seeking to maintain liquidity and financial
flexibility. Cash flows generated from operating activities are principally from earnings before non-cash
expenses. The risk of decreased operating cash flow from a decline in earnings is partially mitigated by the
diversity of the Company’s services, geographies and customers, and the Company has had virtually no interest-
bearing debt for the past 25 years.
The Company has historically funded its operations and capital expenditures primarily from cash flow from
operations, and to a lesser extent, stock option exercises. The Company’s net accounts receivables have averaged
below 43 days of average sales for the past two fiscal years and were at 42 days at March 31, 2016. The
Company expects days sales outstanding (“DSO”) to remain in the low to mid 40-day range. Property, net of
accumulated depreciation, has historically averaged approximately 11% or less of annual revenue. The
Company’s historical profit margins and historical ratio of investments in assets used in the business has allowed
the Company to generate sufficient cash flow to repurchase $392 million of its common stock during the past
nineteen fiscal years, on inception-to-date net earnings of $393 million. The Company repurchases shares during
periods of excess liquidity which has occurred in all 25 years the Company has been public. Should the Company
have lower income or cash flows, it could reduce or eliminate the share repurchase program until earnings and
cash flow improves. Working capital increased from $38 million to $43 million from March 31, 2015 to
March 31, 2016.
The Company believes that cash from operations and funds from exercises of stock options granted to
employees are adequate to fund existing obligations, repurchase shares of the Company’s common stock under
its current share repurchase program, introduce new services, and continue to develop healthcare related
40
businesses for at least the next twelve months. The Company regularly evaluates cash requirements for current
operations, commitments, and for capital acquisitions and other strategic transactions. The Company may elect to
raise additional funds for these purposes, through debt or equity financings or otherwise, as appropriate.
Additional equity or debt financing may not be available when needed, on terms favorable to us or at all.
As of March 31, 2016, the Company had $33 million in cash and cash equivalents, invested primarily in
short-term, interest-bearing highly liquid investment-grade securities with maturities of 90 days or less.
In September 2015, the Company renewed a line of credit agreement. The line is with a financial institution
to provide a revolving credit facility with borrowing capacity of up to $10 million. Borrowings under this
agreement, as amended, bear interest, at the Company’s option, at a fixed LIBOR-based rate plus 1.50% or at a
fluctuating rate determined by the financial institution to be 1.50% above the daily one-month LIBOR rate. The
loan covenants require the Company to maintain the current assets to liabilities ratio of at least 1.25:1, debt to
tangible net worth not greater than 1.25:1 and have positive net income. There were no outstanding revolving
loans as of March 31, 2016, but letters of credit in the aggregate amount of $4.5 million have been issued
separate from the line of credit and therefore do not reduce the amount of borrowings available under the
revolving credit facility. The credit agreement expires in September 2016.
The Company believes that the cash balance at March 31, 2016 along with anticipated internally generated
funds, and the credit facility would be sufficient to meet the Company’s expected cash requirements for at least
the next twelve months.
Operating Cash Flows
Fiscal 2016 Compared to Fiscal 2015
Net cash provided by operating activities was $44 million in fiscal 2015 and $51 million in fiscal 2016. This
increase was primarily due to the fact that in the prior year, the Company had a higher prepaid tax balance than
the current year. During fiscal 2016, the Company’s prepaid tax is closer to the actual tax liability as compared to
fiscal 2015.
Fiscal 2015 Compared to Fiscal 2014
Net cash provided by operating activities was $55 million in fiscal 2014 and $44 million in fiscal 2015. Net
income decreased by $5.8 million, there was also a decrease in accounts and taxes payable. This was due to a
decrease in the tax rate, which was partially offset by an increase in accounts receivable.
Investing Activities
Fiscal 2016 Compared to Fiscal 2015
Net cash flow used in investing activities decreased from $24 million in fiscal 2015 to $17 million in fiscal
2016. The decrease in cash flow used in investing activities was due to a decrease in property additions during
fiscal 2016. In fiscal 2015, there was an increase in leasehold improvements and in the amount spent on
capitalized hardware related to a new data center being built out to increase our system capacity.
Fiscal 2015 Compared to Fiscal 2014
Net cash flow used in investing activities increased from $18 million in fiscal 2014 to $24 million in fiscal
2015. The increase in cash flow used in investing activities was due to an increase in property additions in
leasehold improvements and an increase in the amount spent on capitalized hardware related to a new data center
being built out to increase our system capacity.
41
Financing Activities
Fiscal 2016 Compared to Fiscal 2015
Net cash flow used in financing activities decreased from $29.4 million in fiscal 2015 to $26.7 million in
fiscal 2016. The decrease in cash flow used in financing activities was due to an increase in proceeds from
exercise of stock options. During fiscal 2016, the Company spent $31.5 million to repurchase 893,771 shares of
its common stock (at an average price of $35.27 per share). During fiscal 2015, the Company spent $31.8 million
to repurchase 845,014 shares of its common stock (at an average price of $37.63 per share).
If the Company continues to generate cash flow from operating activities, the Company may continue to
repurchase shares of its common stock on the open market, if authorized by the Company’s Board of Directors,
or seek to identify other businesses to acquire. In November 2015, the Board of Directors increased the number
of shares authorized to be repurchased over the life of the stock repurchase program by an additional 1,000,000
shares to 35,000,000 shares. The Company has historically used cash provided by operating activities and from
the exercise of stock options to repurchase stock. The Company expects that it may use some of the cash on the
balance sheet at March 31, 2016 to repurchase additional shares of its common stock in the future.
Fiscal 2015 Compared to Fiscal 2014
Net cash flow used in financing activities increased from $21.4 million in fiscal 2014 to $29.4 million in
fiscal 2015. The increase in cash flow used in financing activities was due to an increase in the purchase of
common stock under the Company’s share repurchase program. During fiscal 2015, the Company spent
$31.8 million to repurchase 845,014 shares of its common stock (at an average price of $37.63 per share). During
fiscal 2014, the Company spent $27.2 million to repurchase 830,460 shares of its common stock (at an average
price of $32.73 per share).
Contractual Obligations
The following table set forth our contractual obligations at March 31, 2016, which are primarily future
minimum lease payments due under non-cancelable operating leases:
Total
Less than one year
1-3 Years
3-5 Years
More than 5 Years
For the Fiscal Years Ended March 31:
Operating leases
Uncertain tax positions
Software license
$46,237,000
1,830,000
3,249,000
$13,458,000
1,830,000
1,083,000
$17,888,000
—
2,166,000
$9,680,000
$5,211,000
—
—
—
—
Total
$51,316,000
$16,371,000
$20,054,000
$9,680,000
$5,211,000
Litigation. The Company is involved in litigation arising in the normal course of business. Management
believes that resolution of these matters will not result in any payment that, in the aggregate, would be material to
the financial position or results of the operations of the Company.
Inflation. The Company experiences pricing pressures in the form of competitive prices. The Company is
also impacted by rising costs for certain inflation-sensitive operating expenses such as labor and employee
benefits, and facility leases. However, the Company generally does not believe these impacts are material to its
revenues or net income.
Off-Balance Sheet Arrangements
The Company is not a party to off-balance sheet arrangements as defined by the Securities and Exchange
Commission. However, from time to time the Company enters into certain types of contracts that contingently
require the Company to indemnify parties against third-party claims. The contracts primarily relate to: (i) certain
42
contracts to perform services, under which the Company may provide customary indemnification to the
purchases of such services; (ii) certain real estate leases, under which the Company may be required to indemnify
property owners for environmental and other liabilities, and other claims arising from the Company’s use of the
applicable premises; and (iii) certain agreements with the Company’s officers, directors and employees, under
which the Company may be required to indemnify such persons for liabilities arising out of their relationship
with the Company.
The terms of such obligations vary by contract and in most instances a specific or maximum dollar amount
is not explicitly stated therein. Generally, amounts under these contracts cannot be reasonably estimated until a
specific claim is asserted. Consequently, no liabilities have been recorded for these obligations on the Company’s
balance sheets for any of the periods presented.
Critical Accounting Policies
The SEC defines critical accounting policies as those that require application of management’s most
difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain and may change in subsequent periods.
The following is not intended to be a comprehensive list of our accounting policies. Our significant
accounting policies are more fully described in Note A to the Consolidated Financial Statements. In many cases,
the accounting treatment of a particular transaction is specifically dictated by accounting principles generally
accepted in the United States of America, with no need for management’s judgment in their application. There
are also areas in which management’s judgment in selecting an available alternative would not produce a
materially different result.
We have identified the following accounting policies as critical to us: 1) revenue recognition, 2) allowance
for uncollectible accounts, 3) goodwill and long-lived assets, 4) accrual for self-insured costs, 5) accounting for
income taxes, 6) legal and other contingencies, 7) share-based compensation, and 8) software development costs.
Revenue Recognition: The Company recognizes revenue when there is persuasive evidence of an
arrangement, the services have been provided to the customer, the sales price is fixed or determinable, and
collectability is reasonably assured. For the Company’s services, as the Company’s professional staff performs
work, they are contractually permitted to bill for fees earned in fraction of an hour increments worked or by units of
production. The Company recognizes revenue as the time is worked or as units of production are completed, which
is when the revenue is earned and realized. Labor costs are recognized as the costs are incurred. The Company
derives the majority of its revenue from the sale of Network Solutions and Patient Management services. Network
Solutions and Patient Management services may be sold individually or combined with any of the services the
Company provides. When a sale combines multiple elements, the Company accounts for multiple element
arrangements in accordance with the guidance included in Accounting Standard Codification (“ASC”) 605-25.
Management evaluates agreements with customers in accordance with the provision of the revenue
recognition topic that addresses multiple-deliverable revenue arrangements. The multiple-deliverable
arrangements entered into consist of bundled managed care which included various units of accounting such as
Network Solutions, and Patient Management which includes claims administration. Such elements are considered
separate units of accounting due to each element having value to the customer on a stand-alone basis. The selling
price for each unit of accounting is determined using contract price and management estimates. When the
Company’s customers purchase several products, the pricing of the products sold is generally the same as if the
product were sold on an individual basis. Revenue is recognized as the work is performed in accordance with our
customer contracts. Based upon the nature of the Company’s products, bundled managed care elements are
generally delivered in the same accounting period. The Company recognizes revenue for patient management
claims administration services over the life of the claim. Based upon prior experience in managing claims, the
Company estimates the deferral amount from when the claim is received to when the customer contract expires.
43
Allowance for Uncollectible Accounts: The Company determines its allowance by considering a number of
factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history,
the customers’ current ability to pay its obligation to the Company, and the condition of the general economy and
the industry as a whole. The Company writes off accounts receivable when they become uncollectible.
The Company must make significant management judgments and estimates in determining contractual and
bad debt allowances in any accounting period. One significant uncertainty inherent in the Company’s analysis is
whether its past experience will be indicative of future periods. Although the Company considers future
projections when estimating contractual and bad debt allowances, the Company ultimately makes its decisions
based on the best information available to it at that time. Adverse changes in general economic conditions or
trends in reimbursement amounts for the Company’s services could affect the Company’s contractual and bad
debt allowance estimates, collection of accounts receivable, cash flows, and results of operations. No one
customer accounted for 10% or more of accounts receivable at March 31, 2015, and 2016.
Goodwill and Long-Lived Assets: Goodwill arising from business combinations represents the excess of the
purchase price over the estimated fair value of the net assets of the acquired business. Pursuant to ASC 350-10
through ASC 350-30, “Goodwill and Other Intangible Assets,” goodwill is tested annually for impairment or
more frequently if circumstances indicate the potential for impairment. Also, management tests for impairment
of its amortizable intangible assets and long-lived assets annually and whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. The Company’s impairment
analysis is conducted at a regional level. The measurement of fair value is based on an evaluation of market
capitalization and is further tested using a multiple of earnings approach. In projecting the Company’s cash
flows, management considers industry growth rates and trends and cost structure changes. Based on the
Company’s tests and reviews, no impairment of its goodwill, intangible assets or other long-lived assets existed
at March 31, 2016. However, future events or changes in current circumstances could affect the recoverability of
the carrying value of goodwill and long-lived assets. Should an asset be deemed impaired, an impairment loss
would be recognized to the extent the carrying value of the asset exceeded its estimated fair market value.
Accrual for Self-insurance Costs: The Company accrues for the group medical costs and workers’
compensation costs of its employees based on claims filed and an estimate of claims incurred but not reported as
of each balance sheet date. The Company purchases stop loss insurance for large claims. The Company
determines its estimated self-insurance reserves based upon historical trends along with outstanding claims
information provided by its claims paying agents. However, it is possible that recorded accruals may not be
adequate to cover the future payment of claims. Adjustments, if any, to estimated accruals resulting from
ultimate claim payments will be reflected in earnings during the periods in which such adjustments are
determined. The Company’s self-insured liabilities contain uncertainties because management is required to
make assumptions and to apply judgment to estimate the ultimate cost to settle reported claims and claims
incurred but not reported at the balance sheet date.
The Company does not believe there is a reasonable likelihood that there will be a material change in the
estimates or assumptions used to calculate its self-insured liabilities. However, if actual results are not consistent
with these estimates or assumptions, the Company may be exposed to losses or gains that could be material.
Accounting for Income Taxes: The Company records a tax provision for the anticipated tax consequences
of the reported results of operations. The provision for income taxes is computed using the asset and liability
method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences
of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating
losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted
tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized
or settled. The Company records a valuation allowance, if necessary, to reduce deferred tax assets to the amount
that is believed more likely than not to be realized.
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The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the
tax position will be sustained on examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such positions are then measured based on
the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
Management believes it is more likely than not that forecasted income, including income that may be
generated as a result of certain tax planning strategies, together with future reversals of existing taxable temporary
differences, will be sufficient to fully recover the deferred tax assets. In the event that the Company determines all
or part of the net deferred tax assets are not realizable in the future, the Company will make an adjustment to the
valuation allowance that would be charged to earnings in the period such determination is made. In addition, the
calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application
of accounting principles generally accepted in the United States of America and complex tax laws. Resolution of
these uncertainties in a manner inconsistent with management’s expectations could have a material impact on the
Company’s financial condition and operating results. The significant assumptions and estimates described above are
important contributors to our ultimate effective tax rate in each year.
Legal and Other Contingencies: As discussed in Part I, Item 3 of this Form 10-K under the heading “Legal
Proceedings” and in Note I, “Contingencies and Legal Proceedings” in Notes to Consolidated Financial
Statements, the Company is subject to various legal proceedings and claims that arise in the ordinary course of
business. The Company records a liability when it is probable that a loss has been incurred and the amount is
reasonably estimable. There is significant judgment required in both the probability determination and as to
whether an exposure can be reasonably estimated. In the opinion of management, there was not at least a
reasonable possibility the Company may have incurred a material loss, or a material loss in excess of a recorded
accrual, with respect to loss contingencies. However, the outcome of legal proceedings and claims brought
against the Company are subject to significant uncertainty.
Share-Based Compensation: The Company accounts for share-based compensation in accordance with the
provisions of ASC Topic 718 “Compensation — Stock Compensation”. Under ASC 718, share-based compensation
cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense
over the employee’s requisite service period (generally the vesting period of the equity grant). For the fiscal year
ended March 31, 2016, the Company recorded share-based compensation expense of $2,192,000. Share-based
compensation expense recognized in fiscal 2016 is based on awards ultimately expected to vest; therefore, it has
been reduced for estimated forfeitures. ASC Topic 718 requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key input
assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected
option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest
rate over the option’s term, and the Company’s expected annual dividend yield. The Company’s management
believes that the valuation technique and the approach utilized to develop the underlying assumptions are
appropriate in calculating the fair values of the Company’s stock options granted in fiscal 2016. Estimates of fair
value are not intended to predict actual future events or the value ultimately realized by persons who receive
equity awards.
We do not believe there is a reasonable likelihood there will be a material change in the future estimates or
assumptions we use to determine stock-based compensation expense. However, if actual results are not consistent
with our estimates or assumptions, we may be exposed to changes in stock-based compensation expense that
could be material.
Software Development Costs: Development costs incurred in the research and development of new software
products and enhancements to existing software products for internal use are expensed as incurred until
technological feasibility has been established. After technological feasibility is established, any additional
external software development costs are capitalized and amortized on a straight-line basis over the estimated
45
economic life of the related product, which is typically five years. The Company performs an annual review of
the estimated economic life and the recoverability of such capitalized software costs. If a determination is made
that capitalized amounts are not recoverable based on the estimated cash flows to be generated from the
applicable software, any remaining capitalized amounts are written off. Although the Company believes that its
approach to estimates and judgments as described herein is reasonable, actual results could differ and the
Company may be exposed to increases or decreases in revenue that could be material.
Recently Issued Accounting Standards
On May 28, 2014, the FASB issued ASU 2014-09 regarding ASC Topic 606, Revenue from Contracts with
Customers. The standard provides principles for recognizing revenue for the transfer of promised goods or
services to customers with the consideration to which the entity expects to be entitled in exchange for those
goods or services. In July 2015, the FASB approved a one-year delay of the effective date of this new revenue
recognition standard. The guidance will now be effective for our fiscal year beginning April 1, 2018. We are
currently evaluating the accounting, transition and disclosure requirements of the standard and cannot currently
estimate the financial statement impact of adoption.
On November 20, 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes.
ASU 2015-17 alters the presentation of deferred tax items on a classified balance sheet requiring companies to
unify previously separated current and noncurrent items and present them as a single noncurrent amount. We
have elected to early adopt this standard as of March 31st, 2016 and have retrospectively applied the amendments
to all periods presented. As a result we reclassified $7,181,000 of current deferred tax assets to non-current
deferred tax assets and netted $7,181,000 non-current deferred tax liabilities against our non-current deferred tax
assets as of March 31, 2015.
In January 2016, the FASB issued ASU 2016-01 regarding Subtopic 825-10, Financials Instruments —
Overall: Recognition and Measurements of Financial Assets and Financial Liabilities. The standard addresses
certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. It requires that
most equity investments be measured at fair value, with subsequent changes in fair value recognized in net
income. The guidance is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2017. We are currently evaluating the accounting, transition, and disclosure requirements of the
standard and cannot currently estimate the financial statement impact of adoption.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which sets out the principles for the
recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and
lessors). The standard requires lessees to apply a dual approach, classifying leases as either finance or operating
leases. This classification will determine whether the lease expense is recognized based on an effective interest
method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use
asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.
Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases.
The new standard requires lessors to account for leases using an approach that is substantially equivalent to
existing guidance for sales-type leases, direct financing leases and operating leases. The standard is effective
January 1, 2019, with early adoption permitted. The standard is to be applied using a modified retrospective
transition method. We are in the process of determining the effect on our consolidated financial position, results
of operations and cash flows.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment
Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions,
including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as
classification on the statement of cash flows. For public companies, the new guidance is effective for annual
reporting periods (including interim periods within those periods) beginning after December 15, 2016, with early
adoption permitted. We are in the process of evaluating the impact of adoption of this guidance on our financial
statements.
46
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of CorVel Corporation
We have audited the accompanying consolidated balance sheets of CorVel Corporation (the “Company”) as
of March 31, 2015 and 2016, and the related consolidated statements of income, stockholders’ equity, and cash
flows for each of the years ended March 31, 2014, 2015 and 2016. In connection with our audits of the
consolidated financial statements, we have also audited the financial statement schedule for each of the years
ended March 31, 2014, 2015 and 2016. We also have audited the Company’s internal control over financial
reporting as of March 31, 2016, based on criteria established in the Internal Control — Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting, included in Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on these consolidated financial statements and an opinion on the
Company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all material respects. Our audits of the
consolidated financial statements included examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of America. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted in the United States of America,
and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the consolidated financial position of the Company as of March 31, 2015 and 2016, and the consolidated results
of its operations and its cash flows for each of the years ended March 31, 2014, 2015 and 2016, in conformity
with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial
statement schedule for each of the years ended March 31, 2014, 2015 and 2016, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein. Also, in our opinion, the Company maintained, in all material respects, effective
47
internal control over financial reporting as of March 31, 2016, based on criteria established in the Internal
Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
/s/ HASKELL & WHITE LLP
Irvine, California
June 10, 2016
48
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Revenues
Cost of revenues
Gross profit
General and administrative
Income before income taxes
Income tax provision
Net income
Net income per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Fiscal Years Ended March 31,
2014
2015
2016
$478,816,000
370,335,000
$492,625,000
392,656,000
$503,584,000
399,040,000
108,481,000
51,974,000
56,507,000
22,115,000
99,969,000
54,405,000
45,564,000
16,974,000
104,544,000
58,484,000
46,060,000
17,535,000
$ 34,392,000
$ 28,590,000
$ 28,525,000
$
$
1.63
1.61
$
$
1.38
1.37
$
$
1.44
1.43
21,104,000
21,372,000
20,669,000
20,890,000
19,826,000
20,004,000
See accompanying notes to consolidated financial statements.
49
CORVEL CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
Current Assets
Cash and cash equivalents
Customer deposits
Accounts receivable (less allowance for doubtful accounts of $1,645,000 at
March 31, 2015 and $1,821,000 at March 31, 2016)
Prepaid expenses and taxes
Total current assets
Property and equipment, net
Goodwill
Other intangible assets, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts and taxes payable
Accrued liabilities
Total current liabilities
Deferred income taxes
Total liabilities
Commitments and contingencies (Notes E, F, H, I, J and L)
Stockholders’ Equity
Common stock, $.0001 par value: 120,000,000 shares authorized at March 31,
2015 and 2016; 53,243,157 shares issued (20,250,669 shares outstanding,
net of Treasury shares) and 53,448,672 shares issued (19,562,413 shares
outstanding, net of Treasury shares) at March 31, 2015 and March 31, 2016,
respectively
Paid-in-capital
Treasury Stock, at cost (32,992,488 and 33,886,259 shares at March 31, 2015
and 2016, respectively)
Retained earnings
Total stockholders’ equity
March 31,
2015
2016
$ 25,516,000
17,319,000
$ 32,779,000
25,649,000
57,537,000
11,675,000
112,047,000
56,299,000
36,814,000
4,736,000
1,677,000
59,747,000
4,933,000
123,108,000
53,268,000
36,814,000
4,287,000
2,792,000
$ 211,573,000
$ 220,269,000
$ 15,770,000
58,318,000
$ 13,233,000
67,182,000
74,088,000
9,562,000
80,415,000
7,906,000
83,650,000
88,321,000
3,000
123,440,000
3,000
130,465,000
(360,278,000)
364,758,000
(391,803,000)
393,283,000
127,923,000
131,948,000
$ 211,573,000
$ 220,269,000
See accompanying notes to consolidated financial statements.
50
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Fiscal Years Ended March 31, 2014, 2015 and 2016
Balance – March 31, 2013
Stock issued under employee
stock purchase plan
Stock issued under stock
option plan, net of shares
repurchased
Stock-based compensation
expense
Income tax benefits from
stock option exercises
Purchase of treasury stock
Net income
Common
Shares
Stock
Amount Paid-in-Capital Treasury Shares
Treasury
Stock
Retained Earnings
Total
Stockholders’
Equity
52,837,262 $3,000 $110,924,000 (31,317,014) $(301,301,000) $301,776,000 $111,402,000
8,489 —
346,000
281,115 —
3,386,000
—
—
—
—
—
—
—
—
2,140,000
2,035,000
—
—
—
—
—
—
—
—
—
—
(830,460)
(27,179,000)
—
—
—
—
—
346,000
3,386,000
2,140,000
—
—
34,392,000
2,035,000
(27,179,000)
34,392,000
Balance – March 31, 2014
53,126,866 3,000 118,831,000 (32,147,474)
(328,480,000)
336,168,000
126,522,000
Stock issued under employee
stock purchase plan
Stock issued under stock
option plan, net of shares
repurchased
Stock-based compensation
expense
Income tax benefits from
stock option exercises
Purchase of treasury stock
Net income
12,299 —
400,000
103,992 —
1,603,000
—
—
—
—
—
—
—
—
2,209,000
397,000
—
—
—
—
—
—
—
—
—
—
(845,014)
(31,798,000)
—
—
—
—
—
400,000
1,603,000
2,209,000
—
—
28,590,000
397,000
(31,798,000)
28,590,000
Balance – March 31, 2015
53,243,157 3,000 123,440,000 (32,992,488)
(360,278,000)
364,758,000
127,923,000
Stock issued under employee
stock purchase plan
Stock issued under stock
option plan, net of shares
repurchased
Stock-based compensation
expense
Income tax benefits from
stock option exercises
Purchase of treasury stock
Net income
10,975 —
371,000
194,540 —
3,749,000
—
—
—
—
—
—
—
—
2,192,000
713,000
—
—
—
—
—
—
—
—
—
—
(893,771)
(31,525,000)
—
—
—
—
—
371,000
3,749,000
2,192,000
—
—
28,525,000
713,000
(31,525,000)
28,525,000
Balance – March 31, 2016
53,448,672 $3,000 $130,465,000 (33,886,259) $(391,803,000) $393,283,000 $131,948,000
See accompanying notes to consolidated financial statements.
51
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Loss on write down or disposal of property or capitalized
software
Stock-based compensation expense
Provision for doubtful accounts
Provision for deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable
Customer deposits
Prepaid expenses and taxes
Other assets
Accounts and taxes payable
Accrued liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in private equity
Purchases of property and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of employee stock purchase options
Exercise of common stock options
Tax benefits from stock options
Purchase of treasury stock
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Fiscal Years Ended March 31,
2014
2015
2016
$ 34,392,000
$ 28,590,000
$ 28,525,000
16,411,000
17,995,000
19,952,000
78,000
2,140,000
1,332,000
(2,519,000)
(9,456,000)
(6,035,000)
1,556,000
159,000
2,535,000
14,207,000
285,000
2,209,000
1,730,000
304,000
(2,038,000)
(1,176,000)
(5,813,000)
(18,000)
(2,695,000)
4,943,000
286,000
2,192,000
1,357,000
(1,656,000)
(3,567,000)
(8,331,000)
6,742,000
(516,000)
(2,537,000)
8,864,000
54,800,000
44,316,000
51,311,000
—
(18,344,000)
(1,400,000)
(22,868,000)
(600,000)
(16,756,000)
(18,344,000)
(24,268,000)
(17,356,000)
346,000
3,386,000
2,035,000
(27,179,000)
400,000
1,603,000
397,000
(31,798,000)
371,000
3,749,000
713,000
(31,525,000)
(21,412,000)
(29,398,000)
(26,692,000)
15,044,000
19,822,000
(9,350,000)
34,866,000
7,263,000
25,516,000
CASH AND CASH EQUIVALENTS AT END OF YEAR
$ 34,866,000
$ 25,516,000
$ 32,779,000
Supplemental cash flow information
Income taxes paid
Accrual of software license purchase
Tenant improvement allowance
$ 20,791,000
$ 2,343,000
$
$ 19,528,000
$
$ 13,589,000
— $ 3,249,000
—
$
— $ 3,100,000
See accompanying notes to consolidated financial statements.
52
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended March 31, 2014, 2015 and 2016
Note A — Summary of Significant Accounting Policies
Organization: CorVel Corporation (“CorVel” or “the Company”), incorporated in Delaware in 1987,
provides services and programs nationwide that are designed to enable insurance carriers, third party
administrators and employers with self-insured programs to administer, manage and control the cost of workers’
compensation and other healthcare benefits. The Company provides case management, claims administration,
and medical bill review services to these payors.
The Company evaluated all subsequent events or transactions through the date of this filing. During the
period subsequent to March 31, 2016, through the date of filing this report, the Company repurchased 26,555
shares of common stock for $1.1 million or an average of $42.71 per share. These shares were repurchased under
the Company’s ongoing share repurchase program described in Note G.
Basis of Presentation: The consolidated financial statements include the accounts of CorVel and its wholly-
owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to fiscal 2016 presentation. These changes had no
impact on previously reported results of operations or shareholders’ equity.
Use of Estimates: The preparation of financial statements in compliance with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions that
affect the amounts reported in the accompanying financial statements. Actual results could differ from those
estimates. Significant estimates include the values assigned to intangible assets, capitalized software
development, the allowance for doubtful accounts, accrual for income taxes, share-based payments related to
performance based awards, loss contingencies, estimated claims for claims administration revenue recognition,
estimates used in stock options valuations, and accrual for self-insurance reserves.
Cash and Cash Equivalents: Cash and cash equivalents consist of short-term, interest-bearing highly-liquid
investment-grade securities with maturities of 90 days or less when purchased. The carrying amounts of the
Company’s financial instruments approximate their fair values at March 31, 2015 and 2016 due to the short-term
nature of those instruments. Customer deposits represent cash that is expected to be returned or applied towards
payment within one year through the Company’s provider reimbursement services.
Fair Value of Financial Instruments: The Company applies ASC 820, “Fair Value Measurements and
Disclosures,” which defines fair value, establishes a framework for measuring fair value, and provides for
disclosures about fair value measurements with respect to fair value measurements of (a) nonfinancial assets and
liabilities that are recognized or disclosed at fair value in the Company’s Consolidated Financial Statements on a
recurring basis (at least annually) and (b) all financial assets and liabilities. ASC 820 prioritizes the inputs used in
measuring fair value into the following hierarchy:
Level 1 Quoted market prices in active markets for identical assets or liabilities;
Level 2 Observable inputs other than those included in Level 1 (for example, quoted prices for similar assets
in active markets or quoted prices for identical assets in inactive markets); and
Level 3 Unobservable inputs reflecting management’s own assumptions about the inputs used in estimating
the value of the asset.
The carrying amount of the Company’s financial instruments (i.e. cash, accounts receivable, accounts
payable, etc.) are all Level 1 and approximate their fair values at March 31, 2015 and 2016 due to the short-term
nature of those instruments. The Company has no Level 2 or Level 3 assets.
53
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended March 31, 2014, 2015 and 2016
Note A — Summary of Significant Accounting Policies (continued)
Investment in Private Equity: During the quarter ended June 30, 2014, the Company’s Board of Director’s
approved an investment of $2,000,000 into a private equity limited partnership (the “partnership”) that invests in
start-up companies. The Company invested $1,400,000 into the partnership during the fiscal year ended
March 31, 2015 and the remaining $600,000 was invested during the quarter ended June 30, 2015. The Company
accounts for the investment on the cost method and will periodically review the investment for possible
impairment. There was no impairment recorded on investment for fiscal year ended March 31, 2016. The
investment is recorded in other assets on the accompanying consolidated balance sheets. Management has not
identified events or changes in circumstances that may have a significant adverse effect on the fair value of the
investment, and in accordance with ASC 825-10-50-16 through 50-19, it is not practicable to estimate the fair
value of the investment.
Revenue Recognition: The Company recognizes revenue when there is persuasive evidence of an
arrangement, the services have been provided to the customer, the sales price is fixed or determinable, and
collectability is reasonably assured. For the Company’s services, as the Company’s professional staff performs
work, they are contractually permitted to bill for fees earned in fraction of an hour increments worked or by units
of production. The Company recognizes revenue as the time is worked or as units of production are completed,
which is when the revenue is earned and realized. Labor costs are recognized as the costs are incurred. The
Company derives the majority of its revenue from the sale of Network Solutions and Patient Management
services. Network Solutions and Patient Management services may be sold individually or combined with any of
the services the Company provides. When a sale combines multiple elements, the Company accounts for multiple
element arrangements in accordance with the guidance included in ASC 605-25.
Management evaluates agreements with customers in accordance with the provision of the revenue
recognition topic that addresses multiple-deliverable revenue arrangements. The multiple-deliverable
arrangements entered into consist of bundled managed care which included various units of accounting such as
network solutions, and patient management which includes claims administration. Such elements are considered
separate units of accounting due to each element having value to the customer on a stand-alone basis. The selling
price for each unit of accounting is determined using contract price and management estimates. When the
Company’s customers purchase several products the pricing of the products sold is generally the same as if the
product were sold on an individual basis. Revenue is recognized as the work is performed in accordance with our
customer contracts. Based upon the nature of the Company’s products, bundled managed care elements are
generally delivered in the same accounting period. The Company recognizes revenue for patient management
claims administration services over the life of the claim. The Company estimates, based upon prior experience in
managing claims, the deferral amount from when the claim is received to when the customer contract expires.
Accounts Receivable: The majority of the Company’s accounts receivable are due from companies in the
property and casualty insurance industries, self-insured employers and governmental entities. Credit is extended
based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts
receivable are generally due within 30 days and are stated at amounts due from customers net of an allowance for
doubtful accounts. Those accounts outstanding longer than the contractual payment terms are considered past
due. The Company determines its allowance by considering a number of factors, including the length of time
trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay
its obligation to the Company and the condition of the general economy and the industry as a whole. The
Company writes off accounts receivable against the reserve when they become uncollectible. Accounts
receivable includes $12,357,000, and $12,066,000 of unbilled receivables at March 31, 2015 and 2016,
respectively. Unbilled receivables represent the revenue for the work performed which has not yet been invoiced
to the customer. Unbilled receivables are generally invoiced within the following three months.
54
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended March 31, 2014, 2015 and 2016
Note A — Summary of Significant Accounting Policies (continued)
Concentrations of Credit Risk: Substantially all of the Company’s customers are payors of workers’
compensation benefits and property and casualty insurance, which include insurance companies, third party
administrators, self-insured employers and government entities. Receivables are generally due within 30 days.
Credit losses relating to customers in the workers’ compensation insurance industry consistently have been
within management’s expectations. Virtually all of the Company’s cash is invested at financial institutions in
amounts which exceed the FDIC insurance levels. No customer accounted for 10% or more of revenue for either
fiscal 2014, 2015, or 2016. No customer accounted for 10% or more of accounts receivable at either March 31,
2015 or 2016.
Property and Equipment: Additions to property and equipment are recorded at cost. The Company provides
for depreciation on property and equipment using the straight-line method by charges to operations in amounts
that allocate the cost of depreciable assets over their estimated lives as follows:
Asset Classification
Leasehold Improvements
Furniture and Equipment
Computer Hardware
Computer Software
Estimated Useful Life
Shorter of five years or the life of lease
Five to seven years
Two to five years
Three to five years
The Company accounts for internally developed software costs in accordance with ASC 350-40, “Internal
— Use Software”. Capitalized software development costs, intended for internal use, totaled $21,327,000 (net of
$61,012,000 in accumulated amortization) and $25,140,000 (net of $69,644,000 in accumulated amortization), as
of March 31, 2015 and 2016, respectively. These costs are included in computer software in property and
equipment and are amortized over a period of five years.
Long-Lived Assets: The carrying amount of all long-lived assets is evaluated periodically to determine if
adjustment to the depreciation and amortization period or to the unamortized balance is warranted. Such
evaluation is based principally on the expected utilization of the long-lived assets and the projected, undiscounted
cash flows of the operations in which the long-lived assets are deployed.
Goodwill and Long-Lived Assets: The Company accounts for its business combinations in accordance with
the Financial Accounting Standards Board (“FASB”) ASC 805-10 through ASC 805-50, “Business
Combinations” which requires that the purchase method of accounting be applied to all business combinations
and addresses the criteria for initial recognition of intangible assets and goodwill. In accordance with FASB ASC
350-10 through ASC 350-30, goodwill and other intangible assets with indefinite lives are not amortized but are
tested for impairment annually, or more frequently if circumstances indicate the possibility of impairment. If the
carrying value of goodwill or an intangible asset exceeds its fair value, an impairment loss shall be recognized.
Based on the Company’s tests and reviews, no impairment of its goodwill, intangible assets or other long-lived
assets existed at March 31, 2016. However, future events or changes in current circumstances could affect the
recoverability of the carrying value of goodwill and long-lived assets. Should an asset be deemed impaired, an
impairment loss would be recognized to the extent the carrying value of the asset exceeded its estimated fair
value. Goodwill amounted to $36,814,000 (net of accumulated amortization of $2,069,000) at March 31, 2015
and at March 31, 2016.
Cost of revenues: Cost of services consists primarily of the compensation and fringe benefits of field
personnel, including managers, medical bill analysts, field case managers, telephonic case managers, systems
55
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended March 31, 2014, 2015 and 2016
Note A — Summary of Significant Accounting Policies (continued)
support, administrative support, account managers and account executives, and related facility costs including
rent, telephone and office supplies. Historically, the costs associated with these additional personnel and facilities
have been the most significant factor driving increases in the Company’s cost of services.
Income Taxes: The Company provides for income taxes in accordance with provisions specified in ASC
740, “Accounting for Income Taxes”. Accordingly, deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and liabilities. These differences will result in
taxable or deductible amounts in the future, based on tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which temporary differences become
deductible. In making an assessment regarding the probability of realizing a benefit from these deductible
differences, management considers the Company’s current and past performance, the market environment in
which the Company operates, tax-planning strategies and the length of carry-forward periods for loss carry-
forwards, if any. Valuation allowances are established when necessary to reduce deferred tax assets to amounts
that are more likely than not to be realized. Further, the Company accrues for income tax issues not yet resolved
with federal, state and local tax authorities, when it appears more likely than not that a tax liability has been
incurred.
Share-Based Compensation: The Company accounts for share-based compensation in accordance with the
provisions of ASC Topic 718 “Compensation — Stock Compensation”. Under ASC 718, share-based
compensation cost is measured at the grant date, based on the calculated fair value of the award, and is
recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity
grant). Share-based compensation expense is based on awards ultimately expected to vest; therefore, it has been
reduced for estimated forfeitures. ASC Topic 718 requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Accrual for Self-insurance Costs: The Company self-insures for the group medical costs and workers’
compensation costs of its employees. The Company purchases stop loss insurance for large claims. Management
believes that the self-insurance reserves are appropriate; however, actual claims costs may differ from the
original estimates requiring adjustments to the reserves. The Company determines its estimated self-insurance
reserves based upon historical trends along with outstanding claims information provided by its claims paying
agents.
Earnings Per Share: Earnings per common share-basic is based on the weighted average number of
common shares outstanding during the period. Earnings per common shares-diluted is based on the weighted
average number of common shares and common share equivalents outstanding during the period. In calculating
earnings per share, earnings are the same for the basic and diluted calculations. Weighted average shares
outstanding is greater for diluted earnings per share due to the effect of stock options.
The difference between the basic shares and the diluted shares for each of the three fiscal years ended
March 31, 2014, 2015, and 2016 is as follows:
Basic weighted shares
Treasury stock impact of stock options
Diluted weighted shares
Fiscal 2014
Fiscal 2015
Fiscal 2016
21,104,000
268,000
20,669,000
221,000
19,826,000
178,000
21,372,000
20,890,000
20,004,000
56
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended March 31, 2014, 2015 and 2016
Note A — Summary of Significant Accounting Policies (continued)
Recently Issued Accounting Standards
On May 28, 2014, the FASB issued ASU 2014-09 regarding ASC Topic 606, Revenue from Contracts with
Customers. The standard provides principles for recognizing revenue for the transfer of promised goods or
services to customers with the consideration to which the entity expects to be entitled in exchange for those
goods or services. In July 2015, the FASB approved a one-year delay of the effective date of this new revenue
recognition standard. The guidance will now be effective for our fiscal year beginning April 1, 2018. We are
currently evaluating the accounting, transition and disclosure requirements of the standard and cannot currently
estimate the financial statement impact of adoption.
On November 20, 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes.
ASU 2015-17 alters the presentation of deferred tax items on a classified balance sheet requiring companies to
unify previously separated current and noncurrent items and present them as a single noncurrent amount. We
have elected to early adopt this standard as of March 31st, 2016 and have retrospectively applied the amendments
to all periods presented. As a result we reclassified $7,181,000 of current deferred tax assets to non-current
deferred tax assets and netted $7,181,000 non-current deferred tax liabilities against our non-current deferred tax
assets as of March 31, 2015.
In January 2016, the FASB issued ASU 2016-01 regarding Subtopic 825-10, Financials Instruments —
Overall: Recognition and Measurements of Financial Assets and Financial Liabilities. The standard addresses
certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. It requires that
most equity investments be measured at fair value, with subsequent changes in fair value recognized in net
income. The guidance is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2017. We are currently evaluating the accounting, transition, and disclosure requirements of the
standard and cannot currently estimate the financial statement impact of adoption.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which sets out the principles for the
recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and
lessors). The standard requires lessees to apply a dual approach, classifying leases as either finance or operating
leases. This classification will determine whether the lease expense is recognized based on an effective interest
method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use
asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.
Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases.
The new standard requires lessors to account for leases using an approach that is substantially equivalent to
existing guidance for sales-type leases, direct financing leases and operating leases. The standard is effective
January 1, 2019, with early adoption permitted. The standard is to be applied using a modified retrospective
transition method. We are in the process of determining the effect on our consolidated financial position, results
of operations and cash flows.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment
Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions,
including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as
classification on the statement of cash flows. For public companies, the new guidance is effective for annual
reporting periods (including interim periods within those periods) beginning after December 15, 2016, with early
adoption permitted. We are in the process of evaluating the impact of adoption of this guidance on our financial
statements.
57
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended March 31, 2014, 2015 and 2016
Note B — Stock Options and Stock-Based Compensation
Under the Company’s Restated Omnibus Incentive Plan (Formerly The Restated 1988 Executive Stock
Option Plan) (“the Plan”) as in effect at March 31, 2016, options exercisable for up to 19,365,000 shares of the
Company’s common stock may be granted over the life of the Plan to key employees, non-employee directors
and consultants at exercise prices not less than the fair market value of the stock at the date of grant. Options
granted under the Plan are non-statutory stock options and generally vest 25% one year from date of grant and
the remaining 75% vesting ratably each month for the next 36 months. The options granted to employees and the
board of directors expire at the end of five years and ten years from date of grant, respectively.
The Company records compensation expense for employee stock options based on the estimated fair value
of the options on the date of grant using the Black-Scholes option-pricing model with the assumptions included
in the table below. The Company uses historical data among other factors to estimate the expected volatility, the
expected option life, and the expected forfeiture rate. The risk-free rate is based on the interest rate paid on a U.S.
Treasury issue with a term similar to the estimated life of the option. During fiscal 2016, based upon the
historical experience of option cancellations, the Company has an estimated annualized forfeiture rate of 12.2%.
Forfeiture rates will be adjusted over the requisite service period when actual forfeitures differ, or are expected to
differ, from the estimate.
The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model.
The following weighted average assumptions were used for fiscal years ended March 31, 2014, 2015 and 2016:
Fiscal 2014
Fiscal 2015
Fiscal 2016
Expected volatility
Risk free interest rate
Dividend yield
Weighted average option life
47%
0.7% to 1.5%
0.0%
4.4 to 4.5 years
45%
43%
1.3% to 1.7% 1.25% to 1.65%
0.0%
4.4 to 4.5 years
0.0%
4.4 to 4.5 years
For the fiscal years ended March 31, 2014, 2015 and 2016, the Company recorded share-based
compensation expense of $2,140,000, $2,209,000, and $2,192,000, respectively. The table below shows the
amounts recognized in the financial statements for the fiscal years ended March 31, 2014, 2015 and 2016.
Cost of revenue
General and administrative
Total cost of stock-based compensation included in income before
income tax
Amount of income tax benefit recognized
Amount charged to net income
Effect on basic earnings per share
Effect on diluted earnings per share
Fiscal 2014
Fiscal 2015
Fiscal 2016
$ 672,000
1,468,000
$1,021,000
1,188,000
$1,288,000
904,000
2,140,000
835,000
2,209,000
862,000
2,192,000
852,000
$1,305,000
$1,347,000
$1,340,000
$
$
0.06
0.06
$
$
0.07
0.06
$
$
0.07
0.07
58
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended March 31, 2014, 2015 and 2016
Note B — Stock Options and Stock-Based Compensation (continued)
All options granted in the three fiscal years ended March 31, 2014, 2015, and 2016 were granted at fair
value and are non-statutory stock options. Summarized information for all stock options for the past three fiscal
years follows:
Options outstanding – beginning of the year
Options granted
Options exercised
Options cancelled/forfeited
Fiscal 2014
Fiscal 2015
Fiscal 2016
1,100,952
441,550
(310,729)
(115,789)
1,115,984
241,625
(111,758)
(82,672)
1,163,179
276,275
(200,753)
(123,236)
Options outstanding – end of year
1,115,984
1,163,179
1,115,465
During the year, weighted average exercise price of:
Options granted
Options exercised
Options cancelled/forfeited
At the end of the year:
Price range of outstanding options
Weighted average exercise price per share
Options available for future grants
Exercisable options
$
$
$
33.06
15.31
23.33
$
$
$
37.64
17.27
32.31
$
$
$
35.51
19.75
33.44
$7.78-$45.55
24.80
$
959,295
430,294
$7.78-$45.55
27.65
$
800,342
559,168
$9.05-$45.55
30.36
$
650,345
529,691
The following table summarizes the status of stock options outstanding and exercisable at March 31, 2016:
Range of Exercise Prices
$9.05 to $23.10
$23.11 to $34.78
$34.79 to $44.86
$44.87 to $45.55
Total
Number of
Outstanding
Options
394,458
456,246
209,039
55,722
1,115,465
Weighted
Average
Remaining
Contractual Life
Outstanding
Options –
Weighted
Average Exercise
Price
Exercisable
Options –
Number of
Exercisable
Options
Exercisable
Options –
Weighted
Average Exercise
Price
2.74
3.72
3.75
2.85
3.33
$19.94
32.70
40.88
45.55
$30.36
326,460
117,986
56,191
29,054
529,691
$19.34
27.71
40.98
45.55
$24.93
59
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended March 31, 2014, 2015 and 2016
Note B — Stock Options and Stock-Based Compensation (continued)
A summary of the status for all outstanding options at March 31, 2016, and changes during the fiscal year
then ended is presented in the table below:
Options outstanding, March 31, 2015
Granted
Exercised
Cancelled – forfeited
Cancelled – expired
Number of
Options
1,163,179
276,275
(200,753)
(115,300)
(7,936)
Options outstanding, March 31, 2016
1,115,465
Options vested and expected to vest
Ending exercisable
984,006
529,691
Weighted
Average
Exercise Price
per Share
Weighted Average
Remaining
Contractual Life
(Years)
Aggregate
Intrinsic Value as
of March 31, 2016
$27.65
35.51
19.75
33.79
30.10
$30.36
$29.63
$24.93
3.33
3.21
2.66
$10,862,335
$10,337,930
$ 7,969,066
The weighted average fair value of options granted during fiscal 2014, 2015, and 2016 was $13.96, $15.00,
and $13.68, respectively. The total intrinsic value of options exercised during fiscal years 2014, 2015, and 2016
were $7,726,000, $2,455,000, and $3,581,000 respectively.
Included in the above-noted stock option grants and stock compensation expense are performance-based
stock options pursuant to which vesting occurs only upon the Company achieving certain earnings per share
targets as determined by the Company’s board of directors. The options were valued in the same manner as the
time-vesting options. However, the Company only recognizes stock compensation to the extent that the targets
are probable which allow the performance options to vest. During fiscal years ended March 31, 2014, 2015, and
2016, the Company recognized stock compensation expense for performance-based options in the amount of
$630,000, $211,000, and $28,000, respectively.
The Company received $3,386,000, $1,603,000, and $3,749,000 of cash receipts from the exercise of stock
options during fiscal 2014, 2015, and 2016, respectively. As of March 31, 2016, $4,425,000 of total
unrecognized compensation costs related to stock options is expected to be recognized over a weighted average
period of 3 years.
Note C — Property and Equipment
Property and equipment, net consisted of the following at March 31, 2015 and 2016:
Computer software
Office equipment and computers
Leasehold improvements
Less: accumulated depreciation and amortization
2015
2016
$ 101,955,000 $ 114,883,000
60,061,000
9,060,000
64,462,000
8,594,000
175,011,000
184,004,000
(118,712,000) (130,736,000)
$ 56,299,000 $ 53,268,000
60
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended March 31, 2014, 2015 and 2016
Note C — Property and Equipment (continued)
Depreciation expense totaled $17,538,000 and $19,502,000 for the fiscal years ended March 31, 2015 and
2016, respectively.
Note D — Accounts and Taxes Payable and Accrued Liabilities
Accounts and income taxes payable consisted of the following at March 31, 2015 and 2016:
Accounts payable
Income taxes payable and uncertain tax positions
$13,578,000
2,192,000
$11,191,000
2,042,000
$15,770,000
$13,233,000
2015
2016
Accrued liabilities consisted of the following at March 31, 2015 and 2016:
Payroll, payroll taxes and employee benefits
Customer deposits
Accrued professional service fees
Self-insurance accruals
Deferred revenue
Accrued rent
Other
2015
2016
$17,774,000
17,760,000
5,308,000
3,305,000
7,294,000
5,608,000
1,269,000
$18,003,000
25,649,000
4,692,000
3,095,000
7,821,000
4,907,000
3,015,000
$58,318,000
$67,182,000
Note E — Income Taxes
The income tax provision consisted of the following for the three fiscal years ended March 31, 2014, 2015
and 2016:
Current – Federal
Current – State
Subtotal
Deferred – Federal
Deferred – State
Subtotal
2014
2015
2016
$21,978,000
2,656,000
$16,534,000
136,000
$16,600,000
2,591,000
24,634,000
16,670,000
19,191,000
(2,367,000)
(152,000)
(2,519,000)
312,000
(8,000)
(1,679,000)
23,000
304,000
(1,656,000)
$22,115,000
$16,974,000
$17,535,000
61
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended March 31, 2014, 2015 and 2016
Note E — Income Taxes (continued)
The following is a reconciliation of the income tax provision from the statutory federal income tax rate to
the effective rate for the three fiscal years ended March 31, 2014, 2015 and 2016:
Income taxes at federal statutory rate (35%)
State income taxes, net of federal benefit
Uncertain tax positions
Adjustments to returns as filed
Other
2014
2015
2016
$20,633,000
1,826,000
(245,000)
(293,000)
194,000
$15,947,000
1,535,000
1,346,000
(1,978,000)
124,000
$16,121,000
1,704,000
78,000
(232,000)
(136,000)
$22,115,000
$16,974,000
$17,535,000
Income taxes paid totaled $20,791,000, $19,528,000, and $13,589,000 for the fiscal years ended March 31,
2014, 2015, and 2016, respectively.
Deferred tax assets and liabilities at March 31, 2015 and 2016 are:
Deferred income tax assets:
Accrued liabilities not currently deductible
Allowance for doubtful accounts
Stock-based compensation
Accrued rent
Other
Deferred assets
Deferred income tax liabilities:
Excess of book over tax basis of fixed assets
Intangible assets
Other
Deferred liabilities
Net deferred tax liability
2015
2016
$ 7,547,000
631,000
1,044,000
2,152,000
830,000
$ 9,656,000
696,000
1,245,000
1,875,000
762,000
12,204,000
14,234,000
(15,985,000)
(5,217,000)
(564,000)
(16,151,000)
(5,555,000)
(434,000)
(21,766,000)
(22,140,000)
$ (9,562,000)
$ (7,906,000)
Prepaid expenses and taxes include $5,758,000 and $301,000 at March 31, 2015 and 2016, respectively, for
income taxes due in the first quarter of the succeeding fiscal year.
A reconciliation of the financial statement recognition and measurement of unrecognized tax positions
during the current fiscal year is as follows:
Balance as of March 31, 2015
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions related to the current year
Reductions for tax positions of prior years
Balance as of March 31, 2016
$1,989,000
337,000
—
(229,000)
(267,000)
$1,830,000
62
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended March 31, 2014, 2015 and 2016
Note E — Income Taxes (continued)
The Company recognizes interest and penalties related to uncertain tax positions in income tax
expense. During the years ended March 31, 2014, 2015 and 2016, the Company recognized approximately
($173,000), $57,000 and $72,000 in interest and penalties, respectively. As of March 31, 2014, 2015 and 2016,
accrued interest and penalties related to uncertain tax positions were $83,000, $140,000 and $212,000,
respectively.
The tax fiscal years 2012-2015 remain open to examination by the major taxing jurisdictions to which the
Company is subject.
Note F — Employee Stock Purchase Plan
The Company maintains an Employee Stock Purchase Plan (“ESPP”) which allows employees of the
Company and its subsidiaries to purchase shares of common stock on the last day of two six-month purchase
periods (i.e. March 31 and September 30) at a purchase price which is 95% of the closing sale price of shares as
quoted on NASDAQ on the last day of such purchase period. Employees are allowed to contribute up to 20% of
their gross pay. A maximum of 2,850,000 shares has been authorized for issuance under the ESPP, as amended.
As of March 31, 2016, 2,450,271 had been issued pursuant to the ESPP. Summarized ESPP information is as
follows:
Employee contributions
Shares acquired
Average purchase price
Note G — Treasury Stock
2014
2015
2016
$346,000
8,489
40.71
$
$400,000
12,299
32.52
$
$371,000
10,975
33.81
$
During each of the fiscal years in the three fiscal year period ended March 31, 2016, the Company continued
to repurchase shares of its common stock under a plan originally approved by the Company’s Board of Directors
in 1996. Including a 1,000,000 share expansion authorized in November 2015, the total number of shares of
common stock authorized to be repurchased over the life of the plan is 35,000,000 shares of common stock.
Purchases may be made from time to time depending on market conditions and other relevant factors. The share
repurchases for fiscal years ended March 31, 2014, 2015 and 2016 and cumulatively since inception of the
authorization are as follows:
Shares repurchased
Cost
Average price
2014
2015
2016
Cumulative
830,460
$27,179,000
32.73
$
845,014
$31,798,000
37.63
$
893,771
$31,525,000
35.27
$
33,886,000
$391,803,000
11.56
$
During the period subsequent to March 31, 2016, through the date of filing this report, the Company
repurchased 26,555 shares for $1.1 million or an average of $42.71 per share. The repurchased shares were
recorded as treasury stock, at cost, and are available for general corporate purposes. The repurchases were
primarily financed from cash generated from operations and from the cash proceeds from the exercise of stock
options.
63
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended March 31, 2014, 2015 and 2016
Note H — Commitments
The Company leases office facilities under non-cancelable operating leases. Some of these leases contain
escalation clauses. Future minimum rental commitments under operating leases at March 31, 2016 are
$13,458,000 in fiscal 2017, $10,335,000 in fiscal 2018, $7,553,000 in fiscal 2019, $5,363,000 in fiscal 2020,
$4,317,000 in fiscal 2021, $5,211,000 thereafter, and $46,237,000 in the aggregate. Total rental expense of
$13,890,000, $15,297,000, and $14,405,000 was charged to operations for the fiscal years ended March 31, 2014,
2015, and 2016, respectively.
Note I — Contingencies and Legal Proceedings
The Company is involved in litigation arising in the normal course of business. Management believes that
resolution of these matters will not result in any payment that, in the aggregate, would be material to the financial
position or results of the operations of the Company.
Note J — Retirement Savings Plan
The Company maintains a retirement savings plan for its employees, which is a qualified plan under
Section 401(k) of the Internal Revenue Code. Full-time employees that meet certain requirements are eligible to
participate in the plan. Employer contributions are made annually, primarily at the discretion of the Company’s
Board of Directors. Contributions of $338,000, $443,000 and $392,000 were charged to operations for the fiscal
years ended March 31, 2014, 2015, and 2016, respectively.
Note K — Shareholder Rights Plan
During fiscal 1997, the Company’s Board of Directors approved the adoption of a Shareholder Rights Plan.
The Shareholder Rights Plan provides for a dividend distribution to CorVel stockholders of one preferred stock
purchase right for each outstanding share of CorVel’s common stock under certain circumstances. In April 2002,
the Board of Directors of CorVel approved an amendment to the Shareholder Rights Plan to extend the expiration
date of the rights to February 10, 2012, set the exercise price of each right at $118, and enable Fidelity
Management & Research Company and its affiliates to purchase up to 18% of the shares of common stock of the
Company without triggering the stockholder rights, with the limitations under the Shareholder Rights Plan
remaining in effect for all other stockholders of the Company. In November 2008, the Company’s Board of
Directors approved an amendment to the Shareholder Rights Plan to extend the expiration date of the rights to
February 10, 2022, remove the ability of Fidelity Management & Research Company and its affiliates to
purchase up to 18% of the shares of common stock of the Company without triggering the stockholder rights,
substitute Computershare Trust Company, N.A. as the rights agent and effect certain technical changes to the
Shareholder Rights Plan.
Generally, the Shareholder Rights Plan provides that if a person or group acquires 15% or more of the
Company’s common stock without the approval of the Board, subject to certain exceptions, the holders of the
rights, other than the acquiring person or group, would, under certain circumstances, have the right to purchase
additional shares of the Company’s common stock having a market value equal to two times the then-current
exercise price of the right. In addition, if the Company is thereafter merged into another entity, or if 50% or more
of the Company’s consolidated assets or earning power are sold, then the right will entitle its holder to buy
common shares of the acquiring entity having a market value equal to two times the then-current exercise price
of the right. The Company’s Board of Directors may exchange or redeem the rights under certain conditions.
64
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended March 31, 2014, 2015 and 2016
Note L — Line of Credit
In September 2015, the Company renewed a line of credit agreement. The line is with a financial institution
to provide a revolving credit facility with borrowing capacity of up to $10 million. Borrowings under this
agreement, as amended, bear interest, at the Company’s option, at a fixed LIBOR-based rate plus 1.50% or at a
fluctuating rate determined by the financial institution to be 1.50% above the daily one-month LIBOR rate. The
loan covenants require the Company to maintain the current assets to liabilities ratio of at least 1.25:1, debt to
tangible net worth not greater than 1.25:1 and have positive net income. There were no outstanding revolving
loans as of March 31, 2016, but letters of credit in the aggregate amount of $4.5 million have been issued
separate from the line of credit and therefore do not reduce the amount of borrowings available under the
revolving credit facility. The credit agreement expires in September 2016.
Note M — Quarterly Results (Unaudited)
The following is a summary of unaudited quarterly results of operations for each of the quarters in the two
fiscal years ended March 31, 2015 and 2016:
Revenues
Gross Profit
Net Income
Net Income
per Basic
Common
Share
Net Income
per Diluted
Common
Share
$124,364,000
123,714,000
122,352,000
122,195,000
$27,700,000
25,467,000
24,128,000
22,674,000
$8,299,000
7,883,000
6,832,000
5,576,000
$126,939,000
124,460,000
123,891,000
128,294,000
$26,183,000
26,684,000
25,232,000
26,445,000
$6,900,000
8,267,000
6,691,000
6,667,000
$0.40
0.38
0.33
0.27
$0.34
0.42
0.34
0.34
$0.39
0.37
0.33
0.27
$0.34
0.41
0.34
0.34
Fiscal Year Ended March 31, 2015:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year Ended March 31, 2016:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Note N — Segment Reporting
The Company derives the majority of its revenues from providing patient management and network
solutions services to payors of workers’ compensation benefits, automobile insurance claims and health
insurance benefits. Patient management services include claims administration, utilization review, medical case
management, and vocational rehabilitation. Network solutions revenues include fee schedule auditing, hospital
bill auditing, coordination of independent medical examinations, diagnostic imaging review services and
preferred provider referral services. The percentages of revenues attributable to patient management and network
solutions services for the fiscal years ended March 31, 2014, 2015, and 2016 are listed below.
Patient management services
Network solutions services
2014
2015
2016
51.9% 54.5% 55.1%
48.1% 45.5% 44.9%
100.0% 100.0% 100.0%
65
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended March 31, 2014, 2015 and 2016
Note N — Segment Reporting (continued)
The Company’s management is structured geographically with regional vice-presidents who report to the
Chief Executive Officer of the Company. Each of these regional vice-presidents is responsible for all services
provided by the Company in his or her particular region and responsible for the operating results of the Company
in multiple states. These regional vice-presidents have area and district managers who are also responsible for all
services provided by the Company in their given area and district.
Under FASB ASC 280-10, two or more operating segments may be aggregated into a single operating
segment for financial reporting purposes if aggregation is consistent with the objective and basic principles, if the
segments have similar economic characteristics, and if the segments are similar in each of the following areas: 1)
the nature of products and services; 2) the nature of the production processes; 3) the type or class of customer for
their products and services; and 4) the methods used to distribute their products or provide their services. The
Company believes each of the Company’s regions meet these criteria as they provide similar managed care
services to similar customers using similar methods of productions and similar methods to distribute their
services. All of the Company’s regions perform both patient management and network solutions services.
Because the Company believes it meets each of the criteria set forth above and each of the Company’s
regions has similar economic characteristics, the Company aggregates its results of operations in one reportable
operating segment.
Note O — Other Intangible Assets
Other intangible assets consist of the following at March 31, 2015:
Item
Covenant Not to Compete
Customer relationships
TPA Licenses
Total
Life
Cost
Fiscal 2015
Amortization
Expense
Accumulated
Amortization at
March 31, 2015
5 years
18-20 years
15 years
$ 775,000
7,922,000
204,000
$ 20,000
423,000
14,000
$ 762,000
3,299,000
104,000
Cost, Net of
Accumulated
Amortization at
March 31, 2015
$
13,000
4,623,000
100,000
$8,901,000
$457,000
$4,165,000
$4,736,000
Other intangible assets consist of the following at March 31, 2016:
Item
Covenant Not to Compete
Customer Relationships
TPA Licenses
Total
Life
Cost
Fiscal 2016
Amortization
Expense
Accumulated
Amortization at
March 31, 2016
5 years
18-20 years
15 years
$ 775,000
7,922,000
204,000
$ 13,000
423,000
14,000
$ 775,000
3,721,000
118,000
Cost, Net of
Accumulated
Amortization at
March 31, 2016
$
—
4,201,000
86,000
$8,901,000
$450,000
$4,614,000
$4,287,000
Amortization expense for the next five fiscal years is expected to be $437,000 in fiscal 2017, $437,000 in
fiscal 2018, $437,000 in fiscal 2019, $437,000 in fiscal 2020, $437,000 in fiscal 2021, and $2,110,000 thereafter.
66
Exhibit
No.
3.1
3.2
3.3
4.1
10.1*
10.2*
10.3*
10.4*
10.5*
10.6
10.7
EXHIBIT INDEX
Title — Method of Filing
Amended and Restated Certificate of Incorporation of the Company — Incorporated herein by
reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on August 10, 2011.
Amended and Restated Bylaws of the Company — Incorporated herein by reference to Exhibit 3.2 to
the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006 filed on
August 14, 2006.
Certificate of Designation Increasing the Number of Shares of Series A Junior Participating Preferred
Stock — Incorporated herein by reference to Exhibit 3.1 to the Company’s Form 8-K filed on
November 24, 2008.
Second Amended and Restated Preferred Shares Rights Agreement, dated as of November 17, 2008,
by and between CorVel Corporation and Computershare Trust Company, N.A., including the original
Certificate of Designation, the Certificate of Designation Increasing the Number of Shares, the form
of Right Certificate (as amended) and the Summary of Rights (as amended) attached thereto as
Exhibits A-1, A-2, A-3, B and C, respectively — Incorporated herein by reference to Exhibit 4.1 to
the Company’s Form 8-K filed on November 24, 2008.
Nonqualified Stock Option Agreement between V. Gordon Clemons, Sr., the Company and North
Star together with all amendments and addendums thereto — Incorporated herein by reference to
Exhibit 10.6 to the Company’s Registration Statement on Form S-1 Registration No. 33-40629
initially filed on May 16, 1991.
Supplementary Agreement between V. Gordon Clemons, Sr., the Company and North Star —
Incorporated herein by reference to Exhibit 10.7 to the Company’s Registration Statement on
Form S-1 Registration No. 33-40629 initially filed on May 16, 1991.
Amendment to Supplementary Agreement between V. Gordon Clemons, Sr., the Company and North
Star — Incorporated herein by reference to Exhibit 10.5 to the Company’s Annual Report on
Form 10-K for the fiscal year ended March 31, 1992 filed on June 29, 1992.
Restated Omnibus Incentive Plan (Formerly The Restated 1988 Executive Stock Option Plan) —
Incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q
filed on November 5, 2015.
Forms of Notice of Grant of Stock Option, Stock Option Agreement and Notice of Exercise Under
the Restated Omnibus Incentive Plan (Formerly The Restated 1988 Executive Stock Option) —
Incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2006 filed on November 9, 2006, Exhibits 10.7, 10.8
and 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1994
filed on June 29, 1994, Exhibits 99.2, 99.3, 99.4, 99.5, 99.6, 99.7 and 99.8 to the Company’s
Registration Statement on Form S-8 (File No. 333-94440) filed on July 10, 1995, and Exhibits 99.3
and 99.5 to the Company’s Registration Statement on Form S-8 (File No. 333-58455) filed on July 2,
1998.
Employment Agreement of V. Gordon Clemons, Sr. — Incorporated herein by reference to
Exhibit 10.12 to the Company’s Registration Statement on Form S-1 Registration No. 33-40629
initially filed on May 16, 1991.
Restated 1991 Employee Stock Purchase Plan, as amended — Incorporated herein by reference to
Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2015 filed on November 5, 2015.
67
Exhibit
No.
10.8
10.9
10.10
10.11
10.12
10.13
10.14*
10.15
10.16
EXHIBIT INDEX (continued)
Title — Method of Filing
Fidelity Master Plan for Savings and Investment, and amendments — Incorporated herein by
reference to Exhibits 10.16 and 10.16A to the Company’s Registration Statement on Form S-1
Registration No. 33-40629 initially filed on May 16, 1991.
Second Amended and Restated Preferred Shares Rights Agreement, dated as of November 17, 2008,
by and between CorVel Corporation and Computershare Trust Company, N.A., including the original
Certificate of Designation, the Certificate of Designation Increasing the Number of Shares, the form
of Right Certificate (as amended) and the Summary of Rights (as amended) attached thereto as
Exhibits A-1, A-2, A-3, B and C, respectively. Incorporated herein by reference to Exhibit 4.1 to the
Company’s Form 8-K filed on November 24, 2008.
Credit Agreement dated May 28, 2009 by and between CorVel Corporation and Wells Fargo Bank,
National Association. — Incorporated herein by reference to Exhibit 10.16 to the Company’s Current
Report on Form 8-K filed on June 4, 2009.
Revolving Line of Credit Note dated May 28, 2009 by CorVel Corporation in favor of Wells Fargo
Bank, National Association — Incorporated herein by reference to Exhibit 10.17 to the Company’s
Current Report on Form 8-K filed on June 4, 2009.
First Amendment to Credit Agreement dated June 2, 2010 by and between CorVel Corporation and
Wells Fargo Bank, National Association. Incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on June 7, 2010.
Revolving Line of Credit Note dated June 2, 2010 by CorVel Corporation in favor of Wells Fargo
Bank, National Association. Incorporated herein by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed on June 7, 2010.
Stock Option Agreement dated December 6, 2010 between the company and Diane J. Blaha,
providing performance vesting. Incorporated herein by reference to Exhibit 10.32 to the Company’s
Annual Report on Form 10-K for the fiscal year ended March 31, 2014 filed on June 12, 2014.
Second Amendment to Credit Agreement dated September 1, 2011 by and between CorVel
Corporation and Wells Fargo Bank, National Association. Incorporated herein by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 31, 2011.
Revolving Line of Credit Note dated September 1, 2011 by CorVel Corporation in favor of Wells
Fargo Bank, National Association. Incorporated herein by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed on August 31, 2011.
10.17*† Stock option agreement dated November 3, 2011 between the Company and Diane J. Blaha,
providing performance vesting. Incorporated herein by references to Exhibit 10.19 to the Company’s
Annual Report on Form 10-K for the fiscal year ended March 31, 2015 filed on June 11, 2015.
10.18
10.19
Third Amendment to Credit Agreement dated September 1, 2012 by and between CorVel
Corporation and Wells Fargo Bank, National Association. Incorporated herein by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 7, 2012.
Revolving Line of Credit Note dated September 1, 2012 by CorVel Corporation in favor of Wells
Fargo Bank, National Association. Incorporated herein by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed on September 7, 2012.
10.20*† Stock option agreement dated March 1, 2013 between the Company and V. Gordon Clemons, Sr.,
providing performance vesting. Refiled herewith.
68
Exhibit
No.
EXHIBIT INDEX (continued)
Title — Method of Filing
10.21*† Stock option agreement dated March 1, 2013 between the Company and Scott McCloud, providing
performance vesting. Refiled herewith.
10.22*† Stock option agreement dated March 1, 2013 between the Company and Donald C. McFarlane,
providing performance vesting. Refiled herewith.
10.23*† Stock option agreement dated March 1, 2013 between the Company and Diane J. Blaha, providing
performance vesting. Refiled herewith.
10.24
10.25
Fourth Amendment to Credit Agreement dated September 1, 2013 by and between CorVel
Corporation and Wells Fargo Bank, National Association. Incorporated herein by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 5, 2013.
Revolving Line of Credit Note dated September 1, 2013 by CorVel Corporation in favor of Wells
Fargo Bank, National Association. Incorporated herein by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed on September 5, 2013.
10.26*† Stock option agreement dated November 4, 2013 between the Company and Scott McCloud,
providing performance vesting. Refiled herewith.
10.27*† Stock option agreement dated November 4, 2013 between the Company and Donald C. McFarlane,
providing performance vesting. Refiled herewith.
10.28*† Stock option agreement dated November 4, 2013 between the Company and Diane J. Blaha,
providing performance vesting. Refiled herewith.
10.29*† Stock option agreement dated November 4, 2013, between the Company and Richard Schweppe,
providing performance vesting. Refiled herewith.
10.30*† Stock option agreement dated March 1, 2013, between the Company and Richard Schweppe,
providing performance vesting. Refiled herewith.
10.31
10.32
Fifth Amendment to Credit Agreement dated September 1, 2014 by and between CorVel Corporation
and Wells Fargo Bank, National Association. Incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on September 5, 2014.
Revolving Line of Credit Note dated September 1, 2014 by CorVel Corporation in favor of Wells
Fargo Bank, National Association. Incorporated herein by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed on September 5, 2014.
10.33*† Stock option agreement dated November 10, 2014, between the Company and Richard Schweppe,
providing performance vesting. Refiled herewith
10.34*† Stock option agreement dated November 10, 2014, between the Company and Diane J. Blaha,
providing performance vesting. Refiled herewith.
10.35
10.36
Sixth Amendment to Credit Agreement dated September 1, 2015 by and between CorVel Corporation
and Wells Fargo Bank, National Association. Incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on September 4, 2015.
Revolving Line of Credit Note dated September 1, 2015 by CorVel Corporation in favor of Wells
Fargo Bank, National Association. Incorporated herein by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed on September 4, 2015.
69
Exhibit
No.
EXHIBIT INDEX (continued)
Title — Method of Filing
10.37*† Stock option agreement dated November 10, 2015, between the Company and Richard J. Schweppe,
providing performance vesting. Incorporated herein by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed on November 12, 2015.
10.38*† Stock option agreement dated November 10, 2015, between the Company and Michael G. Combs,
providing performance vesting. Incorporated herein by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed on November 12, 2015.
10.39*† Stock option agreement dated November 10, 2015, between the Company and Diane J. Blaha,
providing performance vesting. Incorporated herein by reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K filed on November 12, 2015.
21.1
23.1
31.1
31.2
32.1
32.2
101.0
Subsidiaries of the Company. Filed herewith.
Consent of Independent Registered Public Accounting Firm, Haskell & White LLP. Filed herewith.
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. — Filed herewith.
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. — Filed herewith.
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. — Furnished herewith.
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. — Furnished herewith.
The following materials from CorVel Corporation’s Annual Report on Form 10-K for the fiscal year
ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language):
(i) Consolidated Balance Sheets as of March 31, 2016 and March 31, 2015; (ii) Consolidated Income
Statements for the fiscal years ended March 31, 2016, 2015 and 2014; (iii) Consolidated Statements
of Stockholders’ Equity for the fiscal years ended March 31, 2016, 2015 and 2014; (iv) Consolidated
Statements of Cash Flows for the fiscal years ended March 31, 2016, 2015 and 2014; and (v) Notes to
Consolidated Financial Statements.
* — Denotes management contract or compensatory plan or arrangement.
† — Confidential treatment has been requested for certain confidential portions of this exhibit 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.
70
Exhibit 10.20
Notice of Grant of Stock Options and Option Agreement
CorVel Corporation
ID: 33-0282651
2010 Main Street Suite 600
Irvine, California 92614
Gordon Clemons
2010 Main Street, Suite 600
Irvine, CA United States 92614
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.
Date of Grant
Stock Option Plan
Option Price Per Share
Total Number of Shares Granted
Total Price of Shares Granted
Expiration Date
004755
3/1/2013
1988
48.48
$
10,000.00
$484,800.00
3/1/2018
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.
CorVel Corporation
Gordon Clemons
Spouse
March 4, 2013
Date
Date
Date
Date: 3/4/2013
Time: 10:50:04AM
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.
terminate immediately.
(c) Should Optionee cease to be a Service Provider due to termination for Misconduct, then this option shall
(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.
by the successor corporation (or parent thereof) in connection with the Corporate Transaction.
(b) Upon the consummation of the Corporate Transaction, this option shall terminate, except to the extent assumed
(c) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately
adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been
issuable to Optionee as a result of the consummation of such Corporate Transaction had the option been exercised immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise
Price shall remain the same.
(d) This Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
7. Adjustment in Option Shares. Should any change be made to the Common Stock by reason of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares, exchange of shares, reorganization, merger, consolidation, split-
up, spin-off, or other change affecting the outstanding Common Stock as a class without the Company’s receipt of consideration,
appropriate adjustments shall be made to (a) the total number and/or class of securities subject to this option and (b) the Exercise
Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any stockholder rights with respect to the Option Shares
until such person shall have exercised the option in accordance with the provisions of Paragraph 9, paid the Exercise Price and
become a holder of record of the purchased shares.
9. Manner of Exercising Option.
time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions:
(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
(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.
with the option exercise, payment of the option price for the purchased shares must accompany the Notice of Exercise.
(c) Except to the extent the sale and remittance procedure specified in Paragraph 9(a)(ii)(C) is utilized in connection
(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
NOTICE OF EXERCISE OF STOCK OPTION
EXHIBIT I
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-5
Schedule A: Performance Option
CORVEL CORPORATION
Percentage of shares earned by tranche
CY 2013, 2014, 2015
EPS Target for each calendar year
Percentage of option grant for tranche (totals 100%)
To earn 100% of tranche (105% of EPS target)
To earn 80% of tranche (100% of EPS target)
To earn 30% of tranche (95% of EPS target)
EPS at Zero (90% of EPS target)
CY 2013
$ 1.255
CY 2014
$ 1.380
CY 2015
$ 1.520
30%
30%
40%
$ 1.320
$ 1.450
$ 1.595
$ 1.255
$ 1.380
$ 1.520
$ 1.190
$ 1.310
$ 1.445
$ 1.130
$ 1.240
$ 1.365
CORVEL CORPORATION
Shares earned by EPS number by Tranche year
CY 2013, 2014, 2015
Option grant:
20000 Shares option grant
CY 2013 Tranche
CY 2014 Tranche
CY 2015 Tranche
6000 30% of total grant
6000 30% of total grant
8000 40% of total grant
$1.130
$1.135
$1.140
$1.145
$1.150
$1.155
$1.160
$1.165
$1.170
$1.175
$1.180
$1.185
$1.190
$1.195
$1.200
$1.205
$1.210
$1.215
$1.220
$1.225
$1.230
$1.235
$1.240
$1.245
$1.250
$1.255
$1.260
$1.265
$1.270
$1.275
$1.280
$1.285
$1.290
$1.295
$1.300
$1.305
$1.310
$1.315
$1.320
CY 2013
Percentage
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
17.5%
20.0%
22.5%
25.0%
27.5%
30.0%
33.8%
37.7%
41.5%
45.4%
49.2%
53.1%
56.9%
60.8%
64.6%
68.5%
72.3%
76.2%
80.0%
81.5%
83.1%
84.6%
86.2%
87.7%
89.2%
90.8%
92.3%
93.8%
95.4%
96.9%
98.5%
100.0%
Shares
0
150
300
450
600
750
900
1,050
1,200
1,350
1,500
1,650
1,800
2,031
2,262
2,492
2,723
2,954
3,185
3,415
3,646
3,877
4,108
4,338
4,569
4,800
4,892
4,985
5,077
5,169
5,262
5,354
5,446
5,538
5,631
5,723
5,815
5,908
6,000
$1.240
$1.245
$1.250
$1.255
$1.260
$1.265
$1.270
$1.275
$1.280
$1.285
$1.290
$1.295
$1.300
$1.305
$1.310
$1.315
$1.320
$1.325
$1.330
$1.335
$1.340
$1.345
$1.350
$1.355
$1.360
$1.365
$1.370
$1.375
$1.380
$1.385
$1.390
$1.395
$1.400
$1.405
$1.410
$1.415
$1.420
$1.425
$1.430
$1.435
$1.440
$1.445
$1.450
CY 2014
Percentage
Shares
CY 2015
Percentage
Shares
0.0%
2.1%
4.3%
6.4%
8.6%
10.7%
12.9%
15.0%
17.1%
19.3%
21.4%
23.6%
25.7%
27.9%
30.0%
33.6%
37.1%
40.7%
44.3%
47.9%
51.4%
55.0%
58.6%
62.1%
65.7%
69.3%
72.9%
76.4%
80.0%
81.4%
82.9%
84.3%
85.7%
87.1%
88.6%
90.0%
91.4%
92.9%
94.3%
95.7%
97.1%
98.6%
100.0%
0
129
257
386
514
643
771
900
1,029
1,157
1,286
1,414
1,543
1,671
1,800
2,014
2,229
2,443
2,657
2,871
3,086
3,300
3,514
3,729
3,943
4,157
4,371
4,586
4,800
4,886
4,971
5,057
5,143
5,229
5,314
5,400
5,486
5,571
5,657
5,743
5,829
5,914
6,000
$1.365
$1.370
$1.375
$1.380
$1.385
$1.390
$1.395
$1.400
$1.405
$1.410
$1.415
$1.420
$1.425
$1.430
$1.435
$1.440
$1.445
$1.450
$1.455
$1.460
$1.465
$1.470
$1.475
$1.480
$1.485
$1.490
$1.495
$1.500
$1.505
$1.510
$1.515
$1.520
$1.525
$1.530
$1.535
$1.540
$1.545
$1.550
$1.555
$1.560
$1.565
$1.570
$1.575
$1.580
$1.585
$1.590
$1.595
0.0%
1.9%
3.8%
5.6%
7.5%
9.4%
11.3%
13.1%
15.0%
16.9%
18.8%
20.6%
22.5%
24.4%
26.3%
28.1%
30.0%
33.3%
36.7%
40.0%
43.3%
46.7%
50.0%
53.3%
56.7%
60.0%
63.3%
66.7%
70.0%
73.3%
76.7%
80.0%
81.3%
82.7%
84.0%
85.3%
86.7%
88.0%
89.3%
90.7%
92.0%
93.3%
94.7%
96.0%
97.3%
98.7%
100.0%
0
150
300
450
600
750
900
1,050
1,200
1,350
1,500
1,650
1,800
1,950
2,100
2,250
2,400
2,667
2,933
3,200
3,467
3,733
4,000
4,267
4,533
4,800
5,067
5,333
5,600
5,867
6,133
6,400
6,507
6,613
6,720
6,827
6,933
7,040
7,147
7,253
7,360
7,467
7,573
7,680
7,787
7,893
8,000
Notwithstanding anything to the contrary in this Schedule A or the Stock Option Agreement to which this Schedule A is attached, the
Company shall have the right, in its sole discretion, with or without the consent of the Optionee, to amend this Schedule A to adjust any or all
of the targets, dates and/or target EPS amounts as it deems equitable to recognize unusual or non-recurring events, including, but not limited
to the Company’s acquisition of another business entity or assets, a corporate merger or other consolidation, or the sale or discontinuation of
significant business operations or business units of the Company; changes in tax laws or accounting procedures; and any other extraordinary
circumstances.
Exhibit 10.21
Notice of Grant of Stock Options and Option Agreement
CorVel Corporation
ID: 33-0282651
2010 Main Street Suite 600
Irvine, California 92614
Scott R. McCloud
511 NW Mawrcrest Place
Gresham, OR United States 97030
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.
Date of Grant
Stock Option Plan
Option Price Per Share
Total Number of Shares Granted
Total Price of Shares Granted
Expiration Date
004769
3/1/2013
1988
$
48.48
500.00
$24,240.00
3/1/2018
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.
CorVel Corporation
Scott R. McCloud
Spouse
March 14, 2013
Date
Date
Date
Date: 3/14/2013
Time: 9:57:39AM
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.
terminate immediately.
(c) Should Optionee cease to be a Service Provider due to termination for Misconduct, then this option shall
(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.
by the successor corporation (or parent thereof) in connection with the Corporate Transaction.
(b) Upon the consummation of the Corporate Transaction, this option shall terminate, except to the extent assumed
(c) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately
adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been
issuable to Optionee as a result of the consummation of such Corporate Transaction had the option been exercised immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise
Price shall remain the same.
(d) This Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
7. Adjustment in Option Shares. Should any change be made to the Common Stock by reason of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares, exchange of shares, reorganization, merger, consolidation, split-
up, spin-off, or other change affecting the outstanding Common Stock as a class without the Company’s receipt of consideration,
appropriate adjustments shall be made to (a) the total number and/or class of securities subject to this option and (b) the Exercise
Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any stockholder rights with respect to the Option Shares
until such person shall have exercised the option in accordance with the provisions of Paragraph 9, paid the Exercise Price and
become a holder of record of the purchased shares.
9. Manner of Exercising Option.
time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions:
(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
(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.
with the option exercise, payment of the option price for the purchased shares must accompany the Notice of Exercise.
(c) Except to the extent the sale and remittance procedure specified in Paragraph 9(a)(ii)(C) is utilized in connection
(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
NOTICE OF EXERCISE OF STOCK OPTION
EXHIBIT I
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-5
Schedule A: Performance Option
CORVEL CORPORATION
Percentage of shares earned by tranche
CY 2013, 2014, 2015
EPS Target for each calendar year
Percentage of option grant for tranche (totals 100%)
To earn 100% of tranche (105% of EPS target)
To earn 80% of tranche (100% of EPS target)
To earn 30% of tranche (95% of EPS target)
EPS at Zero (90% of EPS target)
CY 2013
$ 1.255
CY 2014
$ 1.380
CY 2015
$ 1.520
30%
30%
40%
$ 1.320
$ 1.450
$ 1.595
$ 1.255
$ 1.380
$ 1.520
$ 1.190
$ 1.310
$ 1.445
$ 1.130
$ 1.240
$ 1.365
CORVEL CORPORATION
Shares earned by EPS number by Tranche year
CY 2013, 2014, 2015
Option grant:
1000 Shares option grant
CY 2013 Tranche
CY 2014 Tranche
CY 2015 Tranche
300 30% of total grant
300 30% of total grant
400 40% of total grant
$1.130
$1.135
$1.140
$1.145
$1.150
$1.155
$1.160
$1.165
$1.170
$1.175
$1.180
$1.185
$1.190
$1.195
$1.200
$1.205
$1.210
$1.215
$1.220
$1.225
$1.230
$1.235
$1.240
$1.245
$1.250
$1.255
$1.260
$1.265
$1.270
$1.275
$1.280
$1.285
$1.290
$1.295
$1.300
$1.305
$1.310
$1.315
$1.320
CY 2013
Percentage
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
17.5%
20.0%
22.5%
25.0%
27.5%
30.0%
33.8%
37.7%
41.5%
45.4%
49.2%
53.1%
56.9%
60.8%
64.6%
68.5%
72.3%
76.2%
80.0%
81.5%
83.1%
84.6%
86.2%
87.7%
89.2%
90.8%
92.3%
93.8%
95.4%
96.9%
98.5%
100.0%
Shares
0
8
15
23
30
38
45
53
60
68
75
83
90
102
113
125
136
148
159
171
182
194
205
217
228
240
245
249
254
258
263
268
272
277
282
286
291
295
300
CY 2014
Percentage
Shares
CY 2015
Percentage
Shares
$1.240
$1.245
$1.250
$1.255
$1.260
$1.265
$1.270
$1.275
$1.280
$1.285
$1.290
$1.295
$1.300
$1.305
$1.310
$1.315
$1.320
$1.325
$1.330
$1.335
$1.340
$1.345
$1.350
$1.355
$1.360
$1.365
$1.370
$1.375
$1.380
$1.385
$1.390
$1.395
$1.400
$1.405
$1.410
$1.415
$1.420
$1.425
$1.430
$1.435
$1.440
$1.445
$1.450
0.0%
2.1%
4.3%
6.4%
8.6%
10.7%
12.9%
15.0%
17.1%
19.3%
21.4%
23.6%
25.7%
27.9%
30.0%
33.6%
37.1%
40.7%
44.3%
47.9%
51.4%
55.0%
58.6%
62.1%
65.7%
69.3%
72.9%
76.4%
80.0%
81.4%
82.9%
84.3%
85.7%
87.1%
88.6%
90.0%
91.4%
92.9%
94.3%
95.7%
97.1%
98.6%
100.0%
0
6
13
19
26
32
39
45
51
58
64
71
77
84
90
101
111
122
133
144
154
165
176
186
197
208
219
229
240
244
249
253
257
261
266
270
274
279
283
287
291
296
300
$1.365
$1.370
$1.375
$1.380
$1.385
$1.390
$1.395
$1.400
$1.405
$1.410
$1.415
$1.420
$1.425
$1.430
$1.435
$1.440
$1.445
$1.450
$1.455
$1.460
$1.465
$1.470
$1.475
$1.480
$1.485
$1.490
$1.495
$1.500
$1.505
$1.510
$1.515
$1.520
$1.525
$1.530
$1.535
$1.540
$1.545
$1.550
$1.555
$1.560
$1.565
$1.570
$1.575
$1.580
$1.585
$1.590
$1.595
0.0%
1.9%
3.8%
5.6%
7.5%
9.4%
11.3%
13.1%
15.0%
16.9%
18.8%
20.6%
22.5%
24.4%
26.3%
28.1%
30.0%
33.3%
36.7%
40.0%
43.3%
46.7%
50.0%
53.3%
56.7%
60.0%
63.3%
66.7%
70.0%
73.3%
76.7%
80.0%
81.3%
82.7%
84.0%
85.3%
86.7%
88.0%
89.3%
90.7%
92.0%
93.3%
94.7%
96.0%
97.3%
98.7%
100.0%
0
8
15
23
30
38
45
53
60
68
75
83
90
98
105
113
120
133
147
160
173
187
200
213
227
240
253
267
280
293
307
320
325
331
336
341
347
352
357
363
368
373
379
384
389
395
400
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.
Exhibit 10.22
Notice of Grant of Stock Options and Option Agreement
CorVel Corporation
ID: 33-0282651
2010 Main Street Suite 600
Irvine, California 92614
Donald C. McFarlane
18 Morningview Circle
Lake Oswego, OR United States 97035
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.
Date of Grant
Stock Option Plan
Option Price Per Share
Total Number of Shares Granted
Total Price of Shares Granted
Expiration Date
004763
3/1/2013
1988
48.48
$
3,000.00
$145,440.00
3/1/2018
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.
CorVel Corporation
Donald C. McFarlane
Spouse
March 4, 2013
Date
Date
Date
Date: 3/4/2013
Time: 10:50:04AM
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.
terminate immediately.
(c) Should Optionee cease to be a Service Provider due to termination for Misconduct, then this option shall
(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.
by the successor corporation (or parent thereof) in connection with the Corporate Transaction.
(b) Upon the consummation of the Corporate Transaction, this option shall terminate, except to the extent assumed
(c) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately
adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been
issuable to Optionee as a result of the consummation of such Corporate Transaction had the option been exercised immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise
Price shall remain the same.
(d) This Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
7. Adjustment in Option Shares. Should any change be made to the Common Stock by reason of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares, exchange of shares, reorganization, merger, consolidation, split-
up, spin-off, or other change affecting the outstanding Common Stock as a class without the Company’s receipt of consideration,
appropriate adjustments shall be made to (a) the total number and/or class of securities subject to this option and (b) the Exercise
Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any stockholder rights with respect to the Option Shares
until such person shall have exercised the option in accordance with the provisions of Paragraph 9, paid the Exercise Price and
become a holder of record of the purchased shares.
9. Manner of Exercising Option.
time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions:
(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
(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.
with the option exercise, payment of the option price for the purchased shares must accompany the Notice of Exercise.
(c) Except to the extent the sale and remittance procedure specified in Paragraph 9(a)(ii)(C) is utilized in connection
(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
NOTICE OF EXERCISE OF STOCK OPTION
EXHIBIT I
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-5
Schedule A: Performance Option
CORVEL CORPORATION
Percentage of shares earned by tranche
CY 2013, 2014, 2015
EPS Target for each calendar year
Percentage of option grant for tranche (totals 100%)
To earn 100% of tranche (105% of EPS target)
To earn 80% of tranche (100% of EPS target)
To earn 30% of tranche (95% of EPS target)
EPS at Zero (90% of EPS target)
CY 2013
$ 1.255
CY 2014
$ 1.380
CY 2015
$ 1.520
30%
30%
40%
$ 1.320
$ 1.450
$ 1.595
$ 1.255
$ 1.380
$ 1.520
$ 1.190
$ 1.310
$ 1.445
$ 1.130
$ 1.240
$ 1.365
CORVEL CORPORATION
Shares earned by EPS number by Tranche year
CY 2013, 2014, 2015
Option grant:
6000 Shares option grant
CY 2013 Tranche
CY 2014 Tranche
CY 2015 Tranche
1800 30% of total grant
1800 30% of total grant
2400 40% of total grant
$1.130
$1.135
$1.140
$1.145
$1.150
$1.155
$1.160
$1.165
$1.170
$1.175
$1.180
$1.185
$1.190
$1.195
$1.200
$1.205
$1.210
$1.215
$1.220
$1.225
$1.230
$1.235
$1.240
$1.245
$1.250
$1.255
$1.260
$1.265
$1.270
$1.275
$1.280
$1.285
$1.290
$1.295
$1.300
$1.305
$1.310
$1.315
$1.320
CY 2013
Percentage
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
17.5%
20.0%
22.5%
25.0%
27.5%
30.0%
33.8%
37.7%
41.5%
45.4%
49.2%
53.1%
56.9%
60.8%
64.6%
68.5%
72.3%
76.2%
80.0%
81.5%
83.1%
84.6%
86.2%
87.7%
89.2%
90.8%
92.3%
93.8%
95.4%
96.9%
98.5%
100.0%
Shares
0
45
90
135
180
225
270
315
360
405
450
495
540
609
678
748
817
886
955
1,025
1,094
1,163
1,232
1,302
1,371
1,440
1,468
1,495
1,523
1,551
1,578
1,606
1,634
1,662
1,689
1,717
1,745
1,772
1,800
$1.240
$1.245
$1.250
$1.255
$1.260
$1.265
$1.270
$1.275
$1.280
$1.285
$1.290
$1.295
$1.300
$1.305
$1.310
$1.315
$1.320
$1.325
$1.330
$1.335
$1.340
$1.345
$1.350
$1.355
$1.360
$1.365
$1.370
$1.375
$1.380
$1.385
$1.390
$1.395
$1.400
$1.405
$1.410
$1.415
$1.420
$1.425
$1.430
$1.435
$1.440
$1.445
$1.450
CY 2014
Percentage
Shares
CY 2015
Percentage
Shares
0.0%
2.1%
4.3%
6.4%
8.6%
10.7%
12.9%
15.0%
17.1%
19.3%
21.4%
23.6%
25.7%
27.9%
30.0%
33.6%
37.1%
40.7%
44.3%
47.9%
51.4%
55.0%
58.6%
62.1%
65.7%
69.3%
72.9%
76.4%
80.0%
81.4%
82.9%
84.3%
85.7%
87.1%
88.6%
90.0%
91.4%
92.9%
94.3%
95.7%
97.1%
98.6%
100.0%
0
39
77
116
154
193
231
270
309
347
386
424
463
501
540
604
669
733
797
861
926
990
1,054
1,119
1,183
1,247
1,311
1,376
1,440
1,466
1,491
1,517
1,543
1,569
1,594
1,620
1,646
1,671
1,697
1,723
1,749
1,774
1,800
$1.365
$1.370
$1.375
$1.380
$1.385
$1.390
$1.395
$1.400
$1.405
$1.410
$1.415
$1.420
$1.425
$1.430
$1.435
$1.440
$1.445
$1.450
$1.455
$1.460
$1.465
$1.470
$1.475
$1.480
$1.485
$1.490
$1.495
$1.500
$1.505
$1.510
$1.515
$1.520
$1.525
$1.530
$1.535
$1.540
$1.545
$1.550
$1.555
$1.560
$1.565
$1.570
$1.575
$1.580
$1.585
$1.590
$1.595
0.0%
1.9%
3.8%
5.6%
7.5%
9.4%
11.3%
13.1%
15.0%
16.9%
18.8%
20.6%
22.5%
24.4%
26.3%
28.1%
30.0%
33.3%
36.7%
40.0%
43.3%
46.7%
50.0%
53.3%
56.7%
60.0%
63.3%
66.7%
70.0%
73.3%
76.7%
80.0%
81.3%
82.7%
84.0%
85.3%
86.7%
88.0%
89.3%
90.7%
92.0%
93.3%
94.7%
96.0%
97.3%
98.7%
100.0%
0
45
90
135
180
225
270
315
360
405
450
495
540
585
630
675
720
800
880
960
1,040
1,120
1,200
1,280
1,360
1,440
1,520
1,600
1,680
1,760
1,840
1,920
1,952
1,984
2,016
2,048
2,080
2,112
2,144
2,176
2,208
2,240
2,272
2,304
2,336
2,368
2,400
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.
Exhibit 10.23
Notice of Grant of Stock Options and Option Agreement
CorVel Corporation
ID: 33-0282651
2010 Main Street Suite 600
Irvine, California 92614
Diane J. Blaha
10N 612 Highland Trail
Hampshire, IL United States 60140
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.
Date of Grant
Stock Option Plan
Option Price Per Share
Total Number of Shares Granted
Total Price of Shares Granted
Expiration Date
004752
3/1/2013
1988
48.48
$
3,000.00
$145,440.00
3/1/2018
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.
CorVel Corporation
Diane J. Blaha
Spouse
March 4, 2013
Date
Date
Date
Date: 3/4/2013
Time: 10:50:04AM
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.
terminate immediately.
(c) Should Optionee cease to be a Service Provider due to termination for Misconduct, then this option shall
(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.
by the successor corporation (or parent thereof) in connection with the Corporate Transaction.
(b) Upon the consummation of the Corporate Transaction, this option shall terminate, except to the extent assumed
(c) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately
adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been
issuable to Optionee as a result of the consummation of such Corporate Transaction had the option been exercised immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise
Price shall remain the same.
(d) This Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
7. Adjustment in Option Shares. Should any change be made to the Common Stock by reason of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares, exchange of shares, reorganization, merger, consolidation, split-
up, spin-off, or other change affecting the outstanding Common Stock as a class without the Company’s receipt of consideration,
appropriate adjustments shall be made to (a) the total number and/or class of securities subject to this option and (b) the Exercise
Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any stockholder rights with respect to the Option Shares
until such person shall have exercised the option in accordance with the provisions of Paragraph 9, paid the Exercise Price and
become a holder of record of the purchased shares.
9. Manner of Exercising Option.
time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions:
(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
(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.
with the option exercise, payment of the option price for the purchased shares must accompany the Notice of Exercise.
(c) Except to the extent the sale and remittance procedure specified in Paragraph 9(a)(ii)(C) is utilized in connection
(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
NOTICE OF EXERCISE OF STOCK OPTION
EXHIBIT I
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-5
Schedule A: Performance Option
CORVEL CORPORATION
Percentage of shares earned by tranche
CY 2013, 2014, 2015
EPS Target for each calendar year
Percentage of option grant for tranche (totals 100%)
To earn 100% of tranche (105% of EPS target)
To earn 80% of tranche (100% of EPS target)
To earn 30% of tranche (95% of EPS target)
EPS at Zero (90% of EPS target)
CY 2013
$ 1.255
CY 2014
$ 1.380
CY 2015
$ 1.520
30%
30%
40%
$ 1.320
$ 1.450
$ 1.595
$ 1.255
$ 1.380
$ 1.520
$ 1.190
$ 1.310
$ 1.445
$ 1.130
$ 1.240
$ 1.365
CORVEL CORPORATION
Shares earned by EPS number by Tranche year
CY 2013, 2014, 2015
Option grant:
6000 Shares option grant
CY 2013 Tranche
CY 2014 Tranche
CY 2015 Tranche
1800 30% of total grant
1800 30% of total grant
2400 40% of total grant
$1.130
$1.135
$1.140
$1.145
$1.150
$1.155
$1.160
$1.165
$1.170
$1.175
$1.180
$1.185
$1.190
$1.195
$1.200
$1.205
$1.210
$1.215
$1.220
$1.225
$1.230
$1.235
$1.240
$1.245
$1.250
$1.255
$1.260
$1.265
$1.270
$1.275
$1.280
$1.285
$1.290
$1.295
$1.300
$1.305
$1.310
$1.315
$1.320
CY 2013
Percentage
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
17.5%
20.0%
22.5%
25.0%
27.5%
30.0%
33.8%
37.7%
41.5%
45.4%
49.2%
53.1%
56.9%
60.8%
64.6%
68.5%
72.3%
76.2%
80.0%
81.5%
83.1%
84.6%
86.2%
87.7%
89.2%
90.8%
92.3%
93.8%
95.4%
96.9%
98.5%
100.0%
Shares
0
45
90
135
180
225
270
315
360
405
450
495
540
609
678
748
817
886
955
1,025
1,094
1,163
1,232
1,302
1,371
1,440
1,468
1,495
1,523
1,551
1,578
1,606
1,634
1,662
1,689
1,717
1,745
1,772
1,800
$1.240
$1.245
$1.250
$1.255
$1.260
$1.265
$1.270
$1.275
$1.280
$1.285
$1.290
$1.295
$1.300
$1.305
$1.310
$1.315
$1.320
$1.325
$1.330
$1.335
$1.340
$1.345
$1.350
$1.355
$1.360
$1.365
$1.370
$1.375
$1.380
$1.385
$1.390
$1.395
$1.400
$1.405
$1.410
$1.415
$1.420
$1.425
$1.430
$1.435
$1.440
$1.445
$1.450
CY 2014
Percentage
Shares
CY 2015
Percentage
Shares
0.0%
2.1%
4.3%
6.4%
8.6%
10.7%
12.9%
15.0%
17.1%
19.3%
21.4%
23.6%
25.7%
27.9%
30.0%
33.6%
37.1%
40.7%
44.3%
47.9%
51.4%
55.0%
58.6%
62.1%
65.7%
69.3%
72.9%
76.4%
80.0%
81.4%
82.9%
84.3%
85.7%
87.1%
88.6%
90.0%
91.4%
92.9%
94.3%
95.7%
97.1%
98.6%
100.0%
0
39
77
116
154
193
231
270
309
347
386
424
463
501
540
604
669
733
797
861
926
990
1,054
1,119
1,183
1,247
1,311
1,376
1,440
1,466
1,491
1,517
1,543
1,569
1,594
1,620
1,646
1,671
1,697
1,723
1,749
1,774
1,800
$1.365
$1.370
$1.375
$1.380
$1.385
$1.390
$1.395
$1.400
$1.405
$1.410
$1.415
$1.420
$1.425
$1.430
$1.435
$1.440
$1.445
$1.450
$1.455
$1.460
$1.465
$1.470
$1.475
$1.480
$1.485
$1.490
$1.495
$1.500
$1.505
$1.510
$1.515
$1.520
$1.525
$1.530
$1.535
$1.540
$1.545
$1.550
$1.555
$1.560
$1.565
$1.570
$1.575
$1.580
$1.585
$1.590
$1.595
0.0%
1.9%
3.8%
5.6%
7.5%
9.4%
11.3%
13.1%
15.0%
16.9%
18.8%
20.6%
22.5%
24.4%
26.3%
28.1%
30.0%
33.3%
36.7%
40.0%
43.3%
46.7%
50.0%
53.3%
56.7%
60.0%
63.3%
66.7%
70.0%
73.3%
76.7%
80.0%
81.3%
82.7%
84.0%
85.3%
86.7%
88.0%
89.3%
90.7%
92.0%
93.3%
94.7%
96.0%
97.3%
98.7%
100.0%
0
45
90
135
180
225
270
315
360
405
450
495
540
585
630
675
720
800
880
960
1,040
1,120
1,200
1,280
1,360
1,440
1,520
1,600
1,680
1,760
1,840
1,920
1,952
1,984
2,016
2,048
2,080
2,112
2,144
2,176
2,208
2,240
2,272
2,304
2,336
2,368
2,400
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.
Exhibit 10.26
Notice of Grant of Stock Options and Option Agreement
CorVel Corporation
ID: 33-0282651
2010 Main Street Suite 600
Irvine, California 92614
Scott R. McCloud
511 NW Mawrcrest Place
Gresham, OR United States 97030
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.
Date of Grant
Stock Option Plan
Option Price Per Share
Total Number of Shares Granted
Total Price of Shares Granted
Expiration Date
004962
11/4/2013
1988
$
40.24
1,200.00
$48,288.00
11/4/2018
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/ Richard Schweppe
CorVel Corporation
/s/ Scott R. McCloud
Scott R. McCloud
Spouse
11/12/13
Date
12/30/13
Date
Date
Date: 11/12/2013
Time: 9:06:58AM
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.
terminate immediately.
(c) Should Optionee cease to be a Service Provider due to termination for Misconduct, then this option shall
(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.
by the successor corporation (or parent thereof) in connection with the Corporate Transaction.
(b) Upon the consummation of the Corporate Transaction, this option shall terminate, except to the extent assumed
(c) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately
adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been
issuable to Optionee as a result of the consummation of such Corporate Transaction had the option been exercised immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise
Price shall remain the same.
(d) This Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
7. Adjustment in Option Shares. Should any change be made to the Common Stock by reason of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares, exchange of shares, reorganization, merger, consolidation, split-
up, spin-off, or other change affecting the outstanding Common Stock as a class without the Company’s receipt of consideration,
appropriate adjustments shall be made to (a) the total number and/or class of securities subject to this option and (b) the Exercise
Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any stockholder rights with respect to the Option Shares
until such person shall have exercised the option in accordance with the provisions of Paragraph 9, paid the Exercise Price and
become a holder of record of the purchased shares.
9. Manner of Exercising Option.
time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions:
(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
(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.
with the option exercise, payment of the option price for the purchased shares must accompany the Notice of Exercise.
(c) Except to the extent the sale and remittance procedure specified in Paragraph 9(a)(ii)(C) is utilized in connection
(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
NOTICE OF EXERCISE OF STOCK OPTION
EXHIBIT I
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-5
Schedule A: Performance Option
CORVEL CORPORATION
Percentage of shares earned by tranche
CY 2014, 2015, 2016
EPS Target for each calendar year
Percentage of option grant for tranche (totals 100%)
To earn 100% of tranche (105% of EPS target)
To earn 80% of tranche (100% of EPS target)
To earn 30% of tranche (95% of EPS target)
CY 2014
$ 1.65
CY 2015
$ 1.90
CY 2016
$ *.**
30%
30%
40%
$ 1.73
$ 1.99
$ *.**
$ 1.65
$ 1.90
$ *.**
$ 1.57
$ 1.80
$ *.**
$ 1.49
$ 1.71
$ *.**
* 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.
CORVEL CORPORATION
Shares earned by EPS number by Tranche year
CY 2014, 2015, 2016
Option grant:
1200 Shares option grant
CY 2014 Tranche
CY 2015 Tranche
CY 2016 Tranche
360 30% of total grant
360 30% of total grant
480 40% of total grant
CY 2014
Percentage
0.0%
3.8%
7.5%
11.3%
15.0%
18.8%
22.5%
26.3%
30.0%
36.3%
42.5%
48.8%
55.0%
61.3%
67.5%
73.8%
80.0%
82.5%
85.0%
87.5%
90.0%
92.5%
95.0%
97.5%
100.0%
Shares
0
14
27
41
54
68
81
95
108
131
153
176
198
221
243
266
288
297
306
315
324
333
342
351
360
$1.49
$1.50
$1.51
$1.52
$1.53
$1.54
$1.55
$1.56
$1.57
$1.58
$1.59
$1.60
$1.61
$1.62
$1.63
$1.64
$1.65
$1.66
$1.67
$1.68
$1.69
$1.70
$1.71
$1.72
$1.73
CY 2015
Percentage
Shares
CY 2016
Percentage
Shares
$1.71
$1.72
$1.73
$1.74
$1.75
$1.76
$1.77
$1.78
$1.79
$1.80
$1.81
$1.82
$1.83
$1.84
$1.85
$1.86
$1.87
$1.88
$1.89
$1.90
$1.91
$1.92
$1.93
$1.94
$1.95
$1.96
$1.97
$1.98
$1.99
0.0%
3.3%
6.7%
10.0%
13.3%
16.7%
20.0%
23.3%
26.7%
30.0%
35.0%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
70.0%
75.0%
80.0%
82.2%
84.4%
86.7%
88.9%
91.1%
93.3%
95.6%
97.8%
100.0%
0
12
24
36
48
60
72
84
96
108
126
144
162
180
198
216
234
252
270
288
296
304
312
320
328
336
344
352
360
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
21.0%
24.0%
27.0%
30.0%
34.5%
39.1%
43.6%
48.2%
52.7%
57.3%
61.8%
66.4%
70.9%
75.5%
80.0%
82.0%
84.0%
86.0%
88.0%
90.0%
92.0%
94.0%
96.0%
98.0%
100.0%
0
14
29
43
58
72
86
101
115
130
144
166
188
209
231
253
275
297
319
340
362
384
394
403
413
422
432
442
451
461
470
480
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.
* 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.
Exhibit 10.27
Notice of Grant of Stock Options and Option Agreement
CorVel Corporation
ID: 33-0282651
2010 Main Street Suite 800
(Irvine, California 92614
Donald C. McFarlane
18 Morningview Circle
Lake Oswego, OR United States 97035
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.
Date of Grant
Stock Option Plan
Option Price Per Share
Total Number of Shares Granted
Total Price of Shares Granted
Expiration Date
004960
11/4/2013
1988
40.24
$
4,800.00
$193,152.00
11/4/2018
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/ Richard Schweppe
CorVel Corporation
Donald C. McFarlane
Spouse
11/12/13
Date
Date
Date
Date: 11/12/2013
Time: 9:06:58AM
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.
terminate immediately.
(c) Should Optionee cease to be a Service Provider due to termination for Misconduct, then this option shall
(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.
by the successor corporation (or parent thereof) in connection with the Corporate Transaction.
(b) Upon the consummation of the Corporate Transaction, this option shall terminate, except to the extent assumed
(c) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately
adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been
issuable to Optionee as a result of the consummation of such Corporate Transaction had the option been exercised immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise
Price shall remain the same.
(d) This Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
7. Adjustment in Option Shares. Should any change be made to the Common Stock by reason of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares, exchange of shares, reorganization, merger, consolidation, split-
up, spin-off, or other change affecting the outstanding Common Stock as a class without the Company’s receipt of consideration,
appropriate adjustments shall be made to (a) the total number and/or class of securities subject to this option and (b) the Exercise
Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any stockholder rights with respect to the Option Shares
until such person shall have exercised the option in accordance with the provisions of Paragraph 9, paid the Exercise Price and
become a holder of record of the purchased shares.
9. Manner of Exercising Option.
time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions:
(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
(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.
with the option exercise, payment of the option price for the purchased shares must accompany the Notice of Exercise.
(c) Except to the extent the sale and remittance procedure specified in Paragraph 9(a)(ii)(C) is utilized in connection
(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
NOTICE OF EXERCISE OF STOCK OPTION
EXHIBIT I
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-5
Schedule A: Performance Option
CORVEL CORPORATION
Percentage of shares earned by tranche
CY 2014, 2015, 2016
EPS Target for each calendar year
Percentage of option grant for tranche (totals 100%)
To earn 100% of tranche (105% of EPS target)
To earn 80% of tranche (100% of EPS target)
To earn 30% of tranche (95% of EPS target)
CY 2014
$ 1.65
CY 2015
$ 1.90
CY 2016
$ *.**
30%
30%
40%
$ 1.73
$ 1.99
$ *.**
$ 1.65
$ 1.90
$ *.**
$ 1.57
$ 1.80
$ *.**
$ 1.49
$ 1.71
$ *.**
* 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.
CORVEL CORPORATION
Shares earned by EPS number by Tranche year
CY 2014, 2015, 2016
Option grant:
4800 Shares option grant
CY 2014 Tranche
CY 2015 Tranche
CY 2016 Tranche
1440 30% of total grant
1440 30% of total grant
1920 40% of total grant
CY 2014
Percentage
0.0%
3.8%
7.5%
11.3%
15.0%
18.8%
22.5%
26.3%
30.0%
36.3%
42.5%
48.8%
55.0%
61.3%
67.5%
73.8%
80.0%
82.5%
85.0%
87.5%
90.0%
92.5%
95.0%
97.5%
100.0%
Shares
0
54
108
162
216
270
324
378
432
522
612
702
792
882
972
1,062
1,152
1,188
1,224
1,260
1,296
1,332
1,368
1,404
1,440
$1.49
$1.50
$1.51
$1.52
$1.53
$1.54
$1.55
$1.56
$1.57
$1.58
$1.59
$1.60
$1.61
$1.62
$1.63
$1.64
$1.65
$1.66
$1.67
$1.68
$1.69
$1.70
$1.71
$1.72
$1.73
$1.71
$1.72
$1.73
$1.74
$1.75
$1.76
$1.77
$1.78
$1.79
$1.80
$1.81
$1.82
$1.83
$1.84
$1.85
$1.86
$1.87
$1.88
$1.89
$1.90
$1.91
$1.92
$1.93
$1.94
$1.95
$1.96
$1.97
$1.98
$1.99
CY 2015
Percentage
Shares
CY 2016
Percentage
Shares
0.0%
3.3%
6.7%
10.0%
13.3%
16.7%
20.0%
23.3%
26.7%
30.0%
35.0%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
70.0%
75.0%
80.0%
82.2%
84.4%
86.7%
88.9%
91.1%
93.3%
95.6%
97.8%
100.0%
0
48
96
144
192
240
288
336
384
432
504
576
648
720
792
864
936
1,008
1,080
1,152
1,184
1,216
1,248
1,280
1,312
1,344
1,376
1,408
1,440
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
21.0%
24.0%
27.0%
30.0%
34.5%
39.1%
43.6%
48.2%
52.7%
57.3%
61.8%
66.4%
70.9%
75.5%
80.0%
82.0%
84.0%
86.0%
88.0%
90.0%
92.0%
94.0%
96.0%
98.0%
100.0%
0
58
115
173
230
288
346
403
461
518
576
663
751
838
925
1,012
1,100
1,187
1,274
1,361
1,449
1,536
1,574
1,613
1,651
1,690
1,728
1,766
1,805
1,843
1,882
1,920
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.
* 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.
Exhibit 10.28
Notice of Grant of Stock Options and Option Agreement
CorVel Corporation
ID: 33-0282851
2010 Main Street Suite 600
Irvine, California 92614
Diane J. Blaha
10N 612 Highland Trail
Hampshire, IL United States 60140
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.
Date of Grant
Stock Option Plan
Option Price Per Share
Total Number of Shares Granted
Total Price of Shares Granted
Expiration Date
004958
11/4/2013
1988
40.24
$
6,000.00
$241,440.00
11/4/2018
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/ Richard Schweppe
CorVel Corporation
/s/ Diane J. Blaha
Diane J. Blaha
Spouse
11/12/13
Date
11/16/2013
Date
Date
Date: 11/12/2013
Time: 9:06:58AM
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.
terminate immediately.
(c) Should Optionee cease to be a Service Provider due to termination for Misconduct, then this option shall
(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.
by the successor corporation (or parent thereof) in connection with the Corporate Transaction.
(b) Upon the consummation of the Corporate Transaction, this option shall terminate, except to the extent assumed
(c) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately
adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been
issuable to Optionee as a result of the consummation of such Corporate Transaction had the option been exercised immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise
Price shall remain the same.
(d) This Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
7. Adjustment in Option Shares. Should any change be made to the Common Stock by reason of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares, exchange of shares, reorganization, merger, consolidation,
split-up, spin-off, or other change affecting the outstanding Common Stock as a class without the Company’s receipt of consideration,
appropriate adjustments shall be made to (a) the total number and/or class of securities subject to this option and (b) the Exercise
Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any stockholder rights with respect to the Option Shares
until such person shall have exercised the option in accordance with the provisions of Paragraph 9, paid the Exercise Price and
become a holder of record of the purchased shares.
9. Manner of Exercising Option.
time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions:
(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
(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.
with the option exercise, payment of the option price for the purchased shares must accompany the Notice of Exercise.
(c) Except to the extent the sale and remittance procedure specified in Paragraph 9(a)(ii)(C) is utilized in connection
(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
NOTICE OF EXERCISE OF STOCK OPTION
EXHIBIT I
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-5
Schedule A: Performance Option
CORVEL CORPORATION
Percentage of shares earned by tranche
CY 2014, 2015, 2016
EPS Target for each calendar year
Percentage of option grant for tranche (totals 100%)
To earn 100% of tranche (105% of EPS target)
To earn 80% of tranche (100% of EPS target)
To earn 30% of tranche (95% of EPS target)
CY 2014
$ 1.65
CY 2015
$ 1.90
CY 2016
$ *.**
30%
30%
40%
$ 1.73
$ 1.99
$ *.**
$ 1.65
$ 1.90
$ *.**
$ 1.57
$ 1.80
$ *.**
$ 1.49
$ 1.71
$ *.**
* 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.
CORVEL CORPORATION
Shares earned by EPS number by Tranche year
CY 2014, 2015, 2016
Option grant:
6000 Shares option grant
CY 2014 Tranche
CY 2015 Tranche
CY 2016 Tranche
1800 30% of total grant
1800 30% of total grant
2400 40% of total grant
CY 2014
Percentage
0.0%
3.8%
7.5%
11.3%
15.0%
18.8%
22.5%
26.3%
30.0%
36.3%
42.5%
48.8%
55.0%
61.3%
67.5%
73.8%
80.0%
82.5%
85.0%
87.5%
90.0%
92.5%
95.0%
97.5%
100.0%
Shares
0
68
135
203
270
338
405
473
540
653
765
878
990
1,103
1,215
1,328
1,440
1,485
1,530
1,575
1,620
1,665
1,710
1,755
1,800
$1.49
$1.50
$1.51
$1.52
$1.53
$1.54
$1.55
$1.56
$1.57
$1.58
$1.59
$1.60
$1.61
$1.62
$1.63
$1.64
$1.65
$1.66
$1.67
$1.68
$1.69
$1.70
$1.71
$1.72
$1.73
$1.71
$1.72
$1.73
$1.74
$1.75
$1.76
$1.77
$1.78
$1.79
$1.80
$1.81
$1.82
$1.83
$1.84
$1.85
$1.86
$1.87
$1.88
$1.89
$1.90
$1.91
$1.92
$1.93
$1.94
$1.95
$1.96
$1.97
$1.98
$1.99
CY 2015
Percentage
Shares
CY 2016
Percentage
Shares
0.0%
3.3%
6.7%
10.0%
13.3%
16.7%
20.0%
23.3%
26.7%
30.0%
35.0%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
70.0%
75.0%
80.0%
82.2%
84.4%
86.7%
88.9%
91.1%
93.3%
95.6%
97.8%
100.0%
0
60
120
180
240
300
360
420
480
540
630
720
810
900
990
1,080
1,170
1,260
1,350
1,440
1,480
1,520
1,560
1,600
1,640
1,680
1,720
1,760
1,800
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
21.0%
24.0%
27.0%
30.0%
34.5%
39.1%
43.6%
48.2%
52.7%
57.3%
61.8%
66.4%
70.9%
75.5%
80.0%
82.0%
84.0%
86.0%
88.0%
90.0%
92.0%
94.0%
96.0%
98.0%
100.0%
0
72
144
216
288
360
432
504
576
648
720
829
938
1,047
1,156
1,265
1,375
1,484
1,593
1,702
1,811
1,920
1,968
2,016
2,064
2,112
2,160
2,208
2,256
2,304
2,352
2,400
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.
* 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.
Exhibit 10.29
Notice of Grant of Stock Options and Option Agreement
CorVel Corporation
ID: 33-0282651
2010 Main Street Suite 600
Irvine, California 92614
Richard Schweppe
1825 W. Carriage Drive
Santa Ana, CA United States 92704
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.
Date of Grant
Stock Option Plan
Option Price Per Share
Total Number of Shares Granted
Total Price of Shares Granted
Expiration Date
004983
11/4/2013
1988
$
40.24
2,400.00
$96,576.00
11/4/2018
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/ Sharon O’Connor
CorVel Corporation
/s/ Richard Schweppe
Richard Schweppe
Spouse
11/4/2013
Date
11/4/2013
Date
Date
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.
terminate immediately.
(c) Should Optionee cease to be a Service Provider due to termination for Misconduct, then this option shall
(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.
by the successor corporation (or parent thereof) in connection with the Corporate Transaction.
(b) Upon the consummation of the Corporate Transaction, this option shall terminate, except to the extent assumed
(c) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately
adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been
issuable to Optionee as a result of the consummation of such Corporate Transaction had the option been exercised immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise
Price shall remain the same.
(d) This Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
7. Adjustment in Option Shares. Should any change be made to the Common Stock by reason of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares, exchange of shares, reorganization, merger, consolidation, split-
up, spin-off, or other change affecting the outstanding Common Stock as a class without the Company’s receipt of consideration,
appropriate adjustments shall be made to (a) the total number and/or class of securities subject to this option and (b) the Exercise
Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any stockholder rights with respect to the Option Shares
until such person shall have exercised the option in accordance with the provisions of Paragraph 9, paid the Exercise Price and
become a holder of record of the purchased shares.
9. Manner of Exercising Option.
time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions:
(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
(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.
with the option exercise, payment of the option price for the purchased shares must accompany the Notice of Exercise.
(c) Except to the extent the sale and remittance procedure specified in Paragraph 9(a)(ii)(C) is utilized in connection
(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
NOTICE OF EXERCISE OF STOCK OPTION
EXHIBIT I
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-5
Schedule A: Performance Option
CORVEL CORPORATION
Percentage of shares earned by tranche
CY 2014, 2015, 2016
EPS Target for each calendar year
Percentage of option grant for tranche (totals 100%)
To earn 100% of tranche (105% of EPS target)
To earn 80% of tranche (100% of EPS target)
To earn 30% of tranche (95% of EPS target)
EPS at Zero (90% of EPS target)
CY 2014
$ 1.65
CY 2015
$ 1.90
CY 2016
$ *.**
30%
30%
40%
$ 1.73
$ 1.99
$ *.**
$ 1.65
$ 1.90
$ *.**
$ 1.57
$ 1.80
$ *.**
$ 1.49
$ 1.71
$ *.**
* 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.
CORVEL CORPORATION
Shares earned by EPS number by Tranche year
CY 2014, 2015, 2016
Option grant:
2400 Shares option grant
CY 2014 Tranche 720 30% of total grant
CY 2015 Tranche 720 30% of total grant
CY 2016 Tranche 960 40% of total grant
$1.49
$1.50
$1.51
$1.52
$1.53
$1.54
$1.55
$1.56
$1.57
$1.58
$1.59
$1.60
$1.61
$1.62
$1.63
$1.64
$1.65
$1.66
$1.67
$1.68
$1.69
$1.70
$1.71
$1.72
$1.73
CY 2014
Percentage
0.0%
3.8%
7.5%
11.3%
15.0%
18.8%
22.5%
26.3%
30.0%
36.3%
42.5%
48.8%
55.0%
61.3%
67.5%
73.8%
80.0%
82.5%
85.0%
87.5%
90.0%
92.5%
95.0%
97.5%
100.0%
Shares
0
27
54
81
108
135
162
189
216
261
306
351
396
441
486
531
576
594
612
630
648
666
684
702
720
CY 2015
Percentage
Shares
CY 2016
Percentage
Shares
$1.71
$1.72
$1.73
$1.74
$1.75
$1.76
$1.77
$1.78
$1.79
$1.80
$1.81
$1.82
$1.83
$1.84
$1.85
$1.86
$1.87
$1.88
$1.89
$1.90
$1.91
$1.92
$1.93
$1.94
$1.95
$1.96
$1.97
$1.98
$1.99
0.0%
3.3%
6.7%
10.0%
13.3%
16.7%
20.0%
23.3%
26.7%
30.0%
35.0%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
70.0%
75.0%
80.0%
82.2%
84.4%
86.7%
88.9%
91.1%
93.3%
95.6%
97.8%
100.0%
0
24
48
72
96
120
144
168
192
216
252
288
324
360
396
432
468
504
540
576
592
608
624
640
656
672
688
704
720
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
21.0%
24.0%
27.0%
30.0%
34.5%
39.1%
43.6%
48.2%
52.7%
57.3%
61.8%
66.4%
70.9%
75.5%
80.0%
82.0%
84.0%
86.0%
88.0%
90.0%
92.0%
94.0%
96.0%
98.0%
100.0%
0
29
58
86
115
144
173
202
230
259
288
332
375
419
463
506
550
593
637
681
724
768
787
806
826
845
864
883
902
922
941
960
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.
* 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.
Exhibit 10.30
Notice of Grant of Stock Options and Option Agreement
CorVel Corporation
ID: 33-0282651
2010 Main Street Suite 600
Irvine, California 92614
Richard Schweppe
1825 W. Carriage Drive
Santa Ana, CA United States 92704
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.
Date of Grant
Stock Option Plan
Option Price Per Share
Total Number of Shares Granted
Total Price of Shares Granted
Expiration Date
004768
3/1/2013
1988
$
48.48
1,000.00
$48,480.00
3/1/2018
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/ Sharon O’Connor
CorVel Corporation
/s/ Richard Schweppe
Richard Schweppe
Spouse
March 4, 2013
Date
March 1, 2013
Date
Date
Date: 3/4/2013
Time: 10:50:04AM
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.
terminate immediately.
(c) Should Optionee cease to be a Service Provider due to termination for Misconduct, then this option shall
(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.
by the successor corporation (or parent thereof) in connection with the Corporate Transaction.
(b) Upon the consummation of the Corporate Transaction, this option shall terminate, except to the extent assumed
(c) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately
adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been
issuable to Optionee as a result of the consummation of such Corporate Transaction had the option been exercised immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise
Price shall remain the same.
(d) This Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
7. Adjustment in Option Shares. Should any change be made to the Common Stock by reason of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares, exchange of shares, reorganization, merger, consolidation,
split-up, spin-off, or other change affecting the outstanding Common Stock as a class without the Company’s receipt of consideration,
appropriate adjustments shall be made to (a) the total number and/or class of securities subject to this option and (b) the Exercise
Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any stockholder rights with respect to the Option Shares
until such person shall have exercised the option in accordance with the provisions of Paragraph 9, paid the Exercise Price and
become a holder of record of the purchased shares.
9. Manner of Exercising Option.
time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions:
(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
(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.
with the option exercise, payment of the option price for the purchased shares must accompany the Notice of Exercise.
(c) Except to the extent the sale and remittance procedure specified in Paragraph 9(a)(ii)(C) is utilized in connection
(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
NOTICE OF EXERCISE OF STOCK OPTION
EXHIBIT I
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-5
Schedule A: Performance Option
CORVEL CORPORATION
Percentage of shares earned by tranche
CY 2013, 2014, 2015
EPS Target for each calendar year
Percentage of option grant for tranche (totals 100%)
To earn 100% of tranche (105% of EPS target)
To earn 80% of tranche (100% of EPS target)
To earn 30% of tranche (95% of EPS target)
EPS at Zero (90% of EPS target)
CY 2013
$ 1.255
CY 2014
$ 1.380
CY 2015
$ 1.520
30%
30%
40%
$ 1.320
$ 1.450
$ 1.595
$ 1.255
$ 1.380
$ 1.520
$ 1.190
$ 1.310
$ 1.445
$ 1.130
$ 1.240
$ 1.365
CORVEL CORPORATION
Shares earned by EPS number by Tranche year
CY 2013, 2014, 2015
Option grant:
2000 Shares option grant
CY 2013 Tranche
CY 2014 Tranche
CY 2015 Tranche
600 30% of total grant
600 30% of total grant
800 40% of total grant
$1.130
$1.135
$1.140
$1.145
$1.150
$1.155
$1.160
$1.165
$1.170
$1.175
$1.180
$1.185
$1.190
$1.195
$1.200
$1.205
$1.210
$1.215
$1.220
$1.225
$1.230
$1.235
$1.240
$1.245
$1.250
$1.255
$1.260
$1.265
$1.270
$1.275
$1.280
$1.285
$1.290
$1.295
$1.300
$1.305
$1.310
$1.315
$1.320
CY 2013
Percentage
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
17.5%
20.0%
22.5%
25.0%
27.5%
30.0%
33.8%
37.7%
41.5%
45.4%
49.2%
53.1%
56.9%
60.8%
64.6%
68.5%
72.3%
76.2%
80.0%
81.5%
83.1%
84.6%
86.2%
87.7%
89.2%
90.8%
92.3%
93.8%
95.4%
96.9%
98.5%
100.0%
Shares
0
15
30
45
60
75
90
105
120
135
150
165
180
203
226
249
272
295
318
342
365
388
411
434
457
480
489
498
508
517
526
535
545
554
563
572
582
591
600
CY 2014
Percentage
Shares
CY 2015
Percentage
Shares
$1.240
$1.245
$1.250
$1.255
$1.260
$1.265
$1.270
$1.275
$1.280
$1.285
$1.290
$1.295
$1.300
$1.305
$1.310
$1.315
$1.320
$1.325
$1.330
$1.335
$1.340
$1.345
$1.350
$1.355
$1.360
$1.365
$1.370
$1.375
$1.380
$1.385
$1.390
$1.395
$1.400
$1.405
$1.410
$1.415
$1.420
$1.425
$1.430
$1.435
$1.440
$1.445
$1.450
0.0%
2.1%
4.3%
6.4%
8.6%
10.7%
12.9%
15.0%
17.1%
19.3%
21.4%
23.6%
25.7%
27.9%
30.0%
33.6%
37.1%
40.7%
44.3%
47.9%
51.4%
55.0%
58.6%
62.1%
65.7%
69.3%
72.9%
76.4%
80.0%
81.4%
82.9%
84.3%
85.7%
87.1%
88.6%
90.0%
91.4%
92.9%
94.3%
95.7%
97.1%
98.6%
100.0%
0
13
26
39
51
64
77
90
103
116
129
141
154
167
180
201
223
244
266
287
309
330
351
373
394
416
437
459
480
489
497
506
514
523
531
540
549
557
566
574
583
591
600
$1.365
$1.370
$1.375
$1.380
$1.385
$1.390
$1.395
$1.400
$1.405
$1.410
$1.415
$1.420
$1.425
$1.430
$1.435
$1.440
$1.445
$1.450
$1.455
$1.460
$1.465
$1.470
$1.475
$1.480
$1.485
$1.490
$1.495
$1.500
$1.505
$1.510
$1.515
$1.520
$1.525
$1.530
$1.535
$1.540
$1.545
$1.550
$1.555
$1.560
$1.565
$1.570
$1.575
$1.580
$1.585
$1.590
$1.595
0.0%
1.9%
3.8%
5.6%
7.5%
9.4%
11.3%
13.1%
15.0%
16.9%
18.8%
20.6%
22.5%
24.4%
26.3%
28.1%
30.0%
33.3%
36.7%
40.0%
43.3%
46.7%
50.0%
53.3%
56.7%
60.0%
63.3%
66.7%
70.0%
73.3%
76.7%
80.0%
81.3%
82.7%
84.0%
85.3%
86.7%
88.0%
89.3%
90.7%
92.0%
93.3%
94.7%
96.0%
97.3%
98.7%
100.0%
0
15
30
45
60
75
90
105
120
135
150
165
180
195
210
225
240
267
293
320
347
373
400
427
453
480
507
533
560
587
613
640
651
661
672
683
693
704
715
725
736
747
757
768
779
789
800
Notwithstanding anything to the contrary in this Schedule A or the Stock Option Agreement to which this Schedule A is attached, the
Company shall have the right, in its sole discretion, with or without the consent of the Optionee, to amend this Schedule A to adjust any or all
of the targets, dates and/or target 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.
Exhibit 10.33
Notice of Grant of Stock Options and Option Agreement
CorVel Corporation
ID: 33-0282651
2010 Main Street Suite 600
Irvine, California 92614
Richard Schweppe
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.
Date of Grant
Stock Option Plan
Option Price Per Share
Total Number of Shares Granted
Total Price of Shares Granted
Expiration Date
005416
11/10/2014
1988
34.78
$
2,400.00
$ 83,472.00
11/10/2019
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/ Sharon O’Connor
CorVel Corporation
Richard Schweppe
Spouse
November 19, 2014
Date
Date
Date
Date: 11/19/2014
Time: 11:07:21AM
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.
terminate immediately.
(c) Should Optionee cease to be a Service Provider due to termination for Misconduct, then this option shall
(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.
by the successor corporation (or parent thereof) in connection with the Corporate Transaction.
(b) Upon the consummation of the Corporate Transaction, this option shall terminate, except to the extent assumed
(c) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately
adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been
issuable to Optionee as a result of the consummation of such Corporate Transaction had the option been exercised immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise
Price shall remain the same.
(d) This Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
7. Adjustment in Option Shares. Should any change be made to the Common Stock by reason of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares, exchange of shares, reorganization, merger, consolidation, split-
up, spin-off, or other change affecting the outstanding Common Stock as a class without the Company’s receipt of consideration,
appropriate adjustments shall be made to (a) the total number and/or class of securities subject to this option and (b) the Exercise
Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any stockholder rights with respect to the Option Shares
until such person shall have exercised the option in accordance with the provisions of Paragraph 9, paid the Exercise Price and
become a holder of record of the purchased shares.
9. Manner of Exercising Option.
time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions:
(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
(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.
with the option exercise, payment of the option price for the purchased shares must accompany the Notice of Exercise.
(c) Except to the extent the sale and remittance procedure specified in Paragraph 9(a)(ii)(C) is utilized in connection
(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
NOTICE OF EXERCISE OF STOCK OPTION
EXHIBIT I
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-5
Schedule A: Performance Option
CORVEL CORPORATION
Percentage of shares earned by tranche
CY 2015, 2016, 2017
EPS Target for each calendar year
Percentage of option grant for tranche (totals 100%)
To earn 100% of tranche (105% of EPS target)
To earn 80% of tranche (100% of EPS target)
To earn 30% of tranche (95% of EPS target)
EPS at Zero (90% of EPS target)
CY 2015
$ 1.70
CY 2016
$ *.**
CY 2017
$ *.**
30%
30%
40%
$ 1.79
$ *.**
$ *.**
$ 1.70
$ *.**
$ *.**
$ 1.62
$ *.**
$ *.**
$ 1.53
$ *.**
$ *.**
* 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.
SCHEDULE A
CORVEL CORPORATION
Shares earned by EPS number by Tranche year
CY 2015, 2016, 2017
Option grant:
2400 Shares option grant
CY 2015 Tranche
CY 2016 Tranche
CY 2017 Tranche
720 30% of total grant
720 30% of total grant
960 40% of total grant
CY 2015
Percentage
0.0%
3.3%
6.7%
10.0%
13.3%
16.7%
20.0%
23.3%
26.7%
30.0%
36.3%
42.5%
48.8%
55.0%
61.3%
67.5%
73.8%
80.0%
82.2%
84.4%
86.7%
88.9%
91.1%
93.3%
95.6%
97.8%
100.0%
Shares
0
24
48
72
96
120
144
168
192
216
261
306
351
396
441
486
531
576
592
608
624
640
656
672
688
704
720
$1.53
$1.54
$1.55
$1.56
$1.57
$1.58
$1.59
$1.60
$1.61
$1.62
$1.63
$1.64
$1.65
$1.66
$1.67
$1.68
$1.69
$1.70
$1.71
$1.72
$1.73
$1.74
$1.75
$1.76
$1.77
$1.78
$1.79
CY 2016
Percentage
Shares
CY 2017
Percentage
Shares
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
21.0%
24.0%
27.0%
30.0%
35.6%
41.1%
46.7%
52.2%
57.8%
63.3%
68.9%
74.4%
80.0%
82.2%
84.4%
86.7%
88.9%
91.1%
93.3%
95.6%
97.8%
100.0%
0
22
43
65
86
108
130
151
173
194
216
256
296
336
376
416
456
496
536
576
592
608
624
640
656
672
688
704
720
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
21.0%
24.0%
27.0%
30.0%
34.5%
39.1%
43.6%
48.2%
52.7%
57.3%
61.8%
66.4%
70.9%
75.5%
80.0%
82.0%
84.0%
86.0%
88.0%
90.0%
92.0%
94.0%
96.0%
98.0%
100.0%
0
29
58
86
115
144
173
202
230
259
288
332
375
419
463
506
550
593
637
681
724
768
787
806
826
845
864
883
902
922
941
960
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.
* 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.
Exhibit 10.34
Notice of Grant of Stock Options and Option Agreement
CorVel Corporation
ID: 33-0282651
2010 Main Street Suite 600
Irvine, California 92614
Diane J. Blaha
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.
Date of Grant
Stock Option Plan
Option Price Per Share
Total Number of Shares Granted
Total Price of Shares Granted
Expiration Date
005415
11/10/2014
1988
34.78
$
6,000.00
$208,680.00
11/10/2019
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/ Richard Schweppe
CorVel Corporation
Diane J. Blaha
Spouse
November 19, 2014
Date
Date
Date
Date: 11/19/2014
Time: 11:07:21AM
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.
terminate immediately.
(c) Should Optionee cease to be a Service Provider due to termination for Misconduct, then this option shall
(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.
by the successor corporation (or parent thereof) in connection with the Corporate Transaction.
(b) Upon the consummation of the Corporate Transaction, this option shall terminate, except to the extent assumed
(c) If this option is assumed in connection with a Corporate Transaction, then this option shall be appropriately
adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been
issuable to Optionee as a result of the consummation of such Corporate Transaction had the option been exercised immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to the Exercise Price, provided the aggregate Exercise
Price shall remain the same.
(d) This Agreement shall not in any way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
7. Adjustment in Option Shares. Should any change be made to the Common Stock by reason of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares, exchange of shares, reorganization, merger, consolidation, split-
up, spin-off, or other change affecting the outstanding Common Stock as a class without the Company’s receipt of consideration,
appropriate adjustments shall be made to (a) the total number and/or class of securities subject to this option and (b) the Exercise
Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.
8. Stockholder Rights. The holder of this option shall not have any stockholder rights with respect to the Option Shares
until such person shall have exercised the option in accordance with the provisions of Paragraph 9, paid the Exercise Price and
become a holder of record of the purchased shares.
9. Manner of Exercising Option.
time exercisable, Optionee (or any other person or persons exercising the option) must take the following actions:
(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
(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.
with the option exercise, payment of the option price for the purchased shares must accompany the Notice of Exercise.
(c) Except to the extent the sale and remittance procedure specified in Paragraph 9(a)(ii)(C) is utilized in connection
(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
NOTICE OF EXERCISE OF STOCK OPTION
EXHIBIT I
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-5
Schedule A: Performance Option
CORVEL CORPORATION
Percentage of shares earned by tranche
CY 2015, 2016, 2017
EPS Target for each calendar year
Percentage of option grant for tranche (totals 100%)
To earn 100% of tranche (105% of EPS target)
To earn 80% of tranche (100% of EPS target)
To earn 30% of tranche (95% of EPS target)
EPS at Zero (90% of EPS target)
CY 2015
$ 1.70
CY 2016
$ *.**
CY 2017
$ *.**
30%
30%
40%
$ 1.79
$ *.**
$ *.**
$ 1.70
$ *.**
$ *.**
$ 1.62
$ *.**
$ *.**
$ 1.53
$ *.**
$ *.**
* 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.
CORVEL CORPORATION
Shares earned by EPS number by Tranche year
CY 2015, 2016, 2017
Option grant:
6000 Shares option grant
CY 2015 Tranche
CY 2016 Tranche
CY 2017 Tranche
1800 30% of total grant
1800 30% of total grant
2400 40% of total grant
CY 2015
Percentage
0.0%
3.3%
6.7%
10.0%
13.3%
16.7%
20.0%
23.3%
26.7%
30.0%
36.3%
42.5%
48.8%
55.0%
61.3%
67.5%
73.8%
80.0%
82.2%
84.4%
86.7%
88.9%
91.1%
93.3%
95.6%
97.8%
100.0%
Shares
0
60
120
180
240
300
360
420
480
540
653
765
878
990
1,103
1,215
1,328
1,440
1,480
1,520
1,560
1,600
1,640
1,680
1,720
1,760
1,800
$1.53
$1.54
$1.55
$1.56
$1.57
$1.58
$1.59
$1.60
$1.61
$1.62
$1.63
$1.64
$1.65
$1.66
$1.67
$1.68
$1.69
$1.70
$1.71
$1.72
$1.73
$1.74
$1.75
$1.76
$1.77
$1.78
$1.79
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
SCHEDULE A
CY 2016
Percentage
Shares
CY 2017
Percentage
Shares
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
21.0%
24.0%
27.0%
30.0%
35.6%
41.1%
46.7%
52.2%
57.8%
63.3%
68.9%
74.4%
80.0%
82.2%
84.4%
86.7%
88.9%
91.1%
93.3%
95.6%
97.8%
100.0%
0
54
108
162
216
270
324
378
432
486
540
640
740
840
940
1,040
1,140
1,240
1,340
1,440
1,480
1,520
1,560
1,600
1,640
1,680
1,720
1,760
1,800
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
$*.**
0.0%
3.0%
6.0%
9.0%
12.0%
15.0%
18.0%
21.0%
24.0%
27.0%
30.0%
34.5%
39.1%
43.6%
48.2%
52.7%
57.3%
61.8%
66.4%
70.9%
75.5%
80.0%
82.0%
84.0%
86.0%
88.0%
90.0%
92.0%
94.0%
96.0%
98.0%
100.0%
0
72
144
216
288
360
432
504
576
648
720
829
938
1,047
1,156
1,265
1,375
1,484
1,593
1,702
1,811
1,920
1,968
2,016
2,064
2,112
2,160
2,208
2,256
2,304
2,352
2,400
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.
* 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.
EXHIBIT 21.1 — SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary
State of Incorporation
Relationship to Registrant
CorVel Health Care Organization
CorVel Healthcare Corporation
California
California
CorVel Enterprise Comp, Inc. of New York
New York
CorVel Enterprise Comp, Inc.
CorVel IME Corporation
CareIQ, Inc.
Enterprise Comp, Inc.
CorVel Ohio MCO, Inc.
Eagle Claims Services, Inc.
CorVel NY IPA, Inc.
CorVel Rehabilitation Services, Inc.
Delaware
New York
Minnesota
Delaware
Ohio
New York
New York
Minnesota
wholly-owned subsidiary
wholly-owned subsidiary
wholly-owned subsidiary
wholly-owned subsidiary
wholly-owned subsidiary
wholly-owned subsidiary
wholly-owned subsidiary
wholly-owned subsidiary
wholly-owned subsidiary
wholly-owned subsidiary
wholly-owned subsidiary
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-144402, 333-58455, 333-
16379, 333-107428, 333-128739, 333-94440, 333-53684, 333-48186, 333-42554, and 333-42424) and in the Registration Statement
on Form S-3 (File No. 333-209388) of CorVel Corporation (the “Company”) of our report dated June 10, 2016, relating to the
Company’s consolidated financial statements, financial statement schedule and internal controls included in the Company’s Annual
Report on Form 10-K for the fiscal year ended March 31, 2016.
/s/ HASKELL & WHITE LLP
EXHIBIT 23.1
Irvine, California
June 10, 2016
Exhibit 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, V. Gordon Clemons, Sr., certify that:
1. I have reviewed this annual report on Form 10-K of CorVel Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: June 10, 2016
/s/ V. Gordon Clemons, Sr.
V. Gordon Clemons, Sr.
Chairman of the Board, President, Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard J. Schweppe, certify that:
1. I have reviewed this annual report on Form 10-K of CorVel Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based
on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: June 10, 2016
/s/ Richard J. Schweppe
Richard J. Schweppe
Chief Financial Officer (Principal Financial
and Accounting Officer)
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of CorVel Corporation (the “Registrant”) on Form 10-K for the fiscal year ended
March 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Annual Report”), I, V. Gordon
Clemons, Sr., Chief Executive Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Annual Report fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934;
and
(2) the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of
operations of the Registrant.
/s/ V. Gordon Clemons, Sr.
V. Gordon Clemons, Sr.
Chairman of the Board, President, Chief Executive Officer
(Principal Executive Officer)
June 10, 2016
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise
adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has
been provided to CorVel Corporation and will be retained by CorVel Corporation and furnished to the Securities and Exchange
Commission or its staff upon request.
This certification accompanies this Annual Report and is being furnished pursuant to Item 601(b)(32) of Regulation S-K promulgated
under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This certification shall not, except to the extent
required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Registrant for purposes of Section 18 of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, or incorporated by reference into
any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific incorporation by reference
in such a filing.
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of CorVel Corporation (the “Registrant”) on Form 10-K for the fiscal year ended
March 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Annual Report”), I, Richard J.
Schweppe, Chief Financial Officer of the Registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Annual Report fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934;
and
(2) the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of
operations of the Registrant.
/s/ Richard J. Schweppe
Richard J. Schweppe
Chief Financial Officer (Principal Financial and
Accounting Officer)
June 10, 2016
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise
adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has
been provided to CorVel Corporation and will be retained by CorVel Corporation and furnished to the Securities and Exchange
Commission or its staff upon request.
This certification accompanies this Annual Report and is being furnished pursuant to Item 601(b)(32) of Regulation S-K promulgated
under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This certification shall not, except to the extent
required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Registrant for purposes of Section 18 of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, or incorporated by reference into
any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific incorporation by reference
in such a filing.
Corporate Address
CorVel Corporation
2010 Main Street
Suite 600
Irvine, California 92614
Telephone: 888.7.CORVEL
Transfer Agent and Registrar
Computershare Investor Services
Canton, Massachusetts
Counsel
Dorsey & Whitney, LLP
Costa Mesa, California
Independent Auditors
Haskell & White LLP
Irvine, California
Stock Symbol
The common stock of CorVel
Corporation is traded on the
NASDAQ Global Select Market
under the stock symbol CRVL.
Form 10K
CorVel Corporation Annual Report on Form
10K filed with the Securities and Exchange
Commission may be obtained without charge
by contacting Investor Relations.
Investor Relations
CorVel Corporation
2010 Main Street
Suite 600
Irvine, California 92614
Telephone: 888.7.CORVEL
www.corvel.com/ar2016
investor_relations@corvel.com
CORVEL CORPORATION | 2016 ANNUAL REPORT AND FORM 10K
www.corvel.com