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EXHIBIT 99.3
CORVEL CORPORATION
STOCK OPTION AGREEMENT
WITNESSETH:
RECITALS
A. The Board of Directors (the "Board") of CorVel Corporation
(the "Corporation") has adopted, and the stockholders of the Corporation have
approved, the Corporation's Restated 1988 Executive Stock Option Plan (the
"Plan") for the purpose of attracting and retaining the services of key
employees (including officers and directors), consultants and other independent
contractors of the Corporation and its parent or subsidiary corporations.
B. Optionee is an individual who is to render valuable services
to the Corporation or its parent or subsidiary corporations, and this Agreement
is executed pursuant to, and is intended to carry out the purposes of, the Plan
in connection with the Corporation's grant of a stock option to Optionee.
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, the Corporation hereby grants to Optionee, as of
the grant date (the "Grant Date") specified in the accompanying Notice of Grant
of Stock Option (the "Grant Notice"), a stock option to purchase up to that
number of shares of the Corporation's Common Stock (the "Optioned Shares") as is
specified in the Grant Notice. Such Optioned Shares shall be purchasable from
time to time during the option term at the option price (the "Option Price")
specified in the Grant Notice.
2. OPTION TERM. This option shall expire at the close of business
on the expiration date (the "Expiration Date") specified in the Grant Notice,
unless sooner terminated in accordance with Paragraph 5 or Paragraph 7 of this
Agreement.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, if this option is designated a
Non-Qualified Option in the Grant Notice, then this option may, in connection
with Optionee's estate plan, be assigned in whole or in part during Optionee's
lifetime to one or more members of Optionee's immediate family or to a trust
established for the exclusive benefit of one or more such family members. The
assigned portion shall be exercisable
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only by the person or persons who acquire a proprietary interest in the option
pursuant to such 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 Plan Administrator may deem appropriate.
4. DATES OF EXERCISE. This option shall become exercisable for
the Optioned Shares in one or more installments in accordance with the exercise
schedule specified in the Grant Notice. As the option becomes exercisable in one
or more 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 under Paragraph 5 or Paragraph 7 of this
Agreement.
5. ACCELERATED TERMINATION OF OPTION TERM. The option term
specified in Paragraph 2 shall terminate (and this option shall cease to be
exercisable) prior to the Expiration Date to the extent one or more of the
following provisions become applicable:
(i) Upon the Optionee's cessation of Service Provider
status, this option shall immediately terminate and cease to be
outstanding with respect to any Optioned Shares for which this
option is not otherwise at that time exercisable or in which
Optionee is not otherwise vested.
(ii) Except as otherwise provided in subparagraphs (iii)
through (v) below, should Optionee cease to be a Service
Provider at any time during the option term, then the Optionee
shall have up to a three (3) month period commencing with the
date of such cessation of Service Provider status in which to
exercise this option for any or all vested Optioned Shares for
which this option is exercisable at the time of such cessation
of Service Provider status, but in no event shall this option be
exercisable at any time after the Expiration Date. Upon the
expiration of such three (3) month period or (if earlier) upon
the Expiration Date, this option shall terminate and cease to be
outstanding.
(iii) Should Optionee die while this option is
outstanding, the personal representative of Optionee's estate or
the person or persons to whom the option is transferred pursuant
to the Optionee's will or in accordance with the laws of decent
and distribution shall have the right to exercise this option,
but only with respect to any vested Optioned Shares for which
the option is exercisable on the date of such cessation of
Service Provider status, less any vested Optioned Shares
subsequently purchased by Optionee prior to death. Such right
shall lapse and this option shall cease to be exercisable upon
the earlier of (a) the expiration of the one (1) year period
measured from the date of the Optionee's death or (b) the
Expiration Date. Upon the occurrence of the earlier event, the
option shall terminate and cease to be exercisable.
(iv) Should Optionee become permanently disabled and
cease by reason thereof to be a Service Provider at any time
during the option term, then the Optionee shall have a period of
twelve (12) months (commencing
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with the date of such cessation of Service Provider status)
during which to exercise this option; provided, however, that in
no event shall this option be exercisable at any time after the
Expiration Date. During such limited period of exercisability,
this option may not be exercised for more than that number of
vested Optioned Shares (if any) for which it is exercisable at
the date of the Optionee's cessation of Service Provider status.
Upon the expiration of such limited period of exercisability or
(if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding.
(v) Should the Optionee's status as a Service Provider
be involuntarily terminated by the Corporation for (A)
intentional misconduct or continuing gross neglect of duties
which materially and adversely affects the business and
operations of the Corporation or any parent or subsidiary
corporation retaining Optionee, (B) unauthorized use or
disclosure of confidential information or trade secrets of the
Corporation or its parent or subsidiary corporations, (C)
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 Corporation or any parent or subsidiary corporation or (D)
any other acts or omissions which the Corporation may deem to
constitute misconduct or other grounds for involuntary
termination of Optionee's status as a Service Provider, then in
any such event this option shall terminate and cease to be
exercisable immediately upon such termination of Service
Provider status. The grounds for involuntary termination set
forth in this subparagraph (v) are not intended to be, and are
not inclusive, of all acts or omissions which the Corporation
may deem to constitute misconduct or other cause for involuntary
termination of Service Provider status.
(vi) For purposes of this Agreement, the following
definitional provisions shall be in effect:
Optionee shall be deemed to be a SERVICE
PROVIDER for so long as the Optionee renders periodic services
to the Corporation or any parent or subsidiary corporation as an
Employee or independent consultant or advisor.
Optionee shall be deemed to be an EMPLOYEE for
so long as the Optionee remains in the employ of the Corporation
or one or more of its parent or subsidiary corporations, subject
to the control and direction of the employer entity as to both
the work to be performed and the method and manner of
performance.
Optionee shall be deemed to be PERMANENTLY
DISABLED if Optionee is, by reason of any medically-determinable
physical or
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mental impairment expected to result in death or to be of
continuous duration of not less than twelve (12) months, unable
to engage in any substantial gainful activity.
A corporation shall be considered to be a
SUBSIDIARY corporation of the Corporation if it is a member of
an unbroken chain of corporations beginning with the
Corporation, provided each such corporation in the chain (other
than the last corporation) owns, at the time of determination,
stock possessing 50% or more of the total combined voting power
of all classes of stock in one of the other corporations in such
chain. In the event this option is designated a non-statutory
option in the Grant Notice, the term "subsidiary" shall also
include any partnership, joint venture or other business entity
of which the Corporation owns, directly or indirectly through
another subsidiary corporation, more than a fifty percent (50%)
interest in voting power, capital or profits.
A corporation shall be considered to be a PARENT
corporation of the Corporation if it is a member of an unbroken
chain ending with the Corporation, provided each such
corporation in the chain (other than the Corporation) owns, at
the time of determination, stock possessing 50% or more of the
total combined voting power of all classes of stock in one of
the other corporations in such chain.
6. ADJUSTMENT IN OPTION SHARES.
(a) In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock split, stock dividend, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, the Plan
Administrator shall make appropriate adjustments to (i) the total number of
Optioned Shares subject to this option and the (ii) Option Price payable per
share in order to prevent any dilution or enlargement of benefits hereunder. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
(b) If the Corporation is the surviving entity in any Corporate
Transaction which does not result in the termination of this option pursuant to
the provisions of Paragraph 7 or if this option is otherwise to be assumed in
connection with such Corporate Transaction, then this option shall, immediately
after the Corporate Transaction, be appropriately adjusted to apply and pertain
to the number and class of securities which would have been issuable, in
consummation of such Corporate Transaction, to an actual holder of the same
number of shares of Common Stock as are subject to this option immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to
the Option Price payable per share, provided the aggregate Option Price payable
hereunder shall remain the same.
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7. ACCELERATION AND TERMINATION OF OPTION.
(a) In the event of one or more of the following
stockholder-approved transactions (a "Corporate Transaction"):
(i) a merger or acquisition in which the Corporation is
not the surviving entity, except for a transaction the principal
purpose of which is to change the State of the Corporation's
incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation to any entity
other than a parent or subsidiary of the Corporation, or
(iii) any reverse merger in which the Corporation is the
surviving entity but in which fifty percent (50%) or more of the
Corporation's outstanding voting stock is transferred to holders
different from those who held such stock immediately prior to
such merger,
then, to the extent this option is not otherwise at the
time fully exercisable (as provided in the Grant Notice), the exercisability of
this option shall automatically be accelerated so that such option shall
immediately prior to the specified effective date for the Corporate Transaction,
become fully exercisable with respect to the total number of Optioned Shares and
may be exercised for all or any portion of such shares as fully-vested shares.
No such acceleration of this option, however, shall occur if and to the extent:
(i) this option is in connection with the Corporate Transaction, either to be
assumed by the successor corporation or parent thereof or 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 option spread
at the time of the Corporate Transaction and provides for payout upon the same
vesting schedule applicable to this option. The determination of comparability
under clause (i) shall be made by the Plan Administrator and its determination
shall be final, binding and conclusive.
(b) This option, to the extent not previously exercised, shall
terminate upon the consummation of such Corporate Transaction and cease to be
exercisable, except to the extent expressly assumed by the successor corporation
or parent thereof.
(c) This option shall not in any way affect the right of the
Corporation 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.
8. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall
not have any stockholder rights with respect to the Optioned Shares until such
individual shall have exercised the option in accordance with the provisions of
Paragraph 9 and satisfied all other
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conditions precedent to the issuance of the stock certificate for the purchased
shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any
part of the Optioned Shares for which this option is at the time exercisable,
Optionee (or in the case of exercise after Optionee's death, the Optionee's
executor, administrator, heir or legatee, as the case may be) must take the
following actions:
(i) Deliver to the Chief Financial Officer of the
Corporation (A) an executed notice of exercise in substantially the form of
Appendix A hereto (the "Exercise Notice") in which there is specified the number
of Optioned Shares to be purchased under the exercised option and (B) any
additional documents which the Plan Administrator may, in its discretion, deem
advisable.
(ii) Pay the aggregate Option Price for the purchased
shares in one or more of the following alternatives:
(A) full payment in cash or check payable to the
Corporation's order;
(B) full payment in shares of Common Stock held by
Optionee for the requisite period necessary to avoid a charge to the
Corporation's reported earnings (which in any event shall not be less
than 6 months) and valued at Fair Market Value on the Exercise Date (as
such terms are defined below);
(C) full payment through a combination of shares of
Common Stock held by Optionee for the requisite period necessary to
avoid a charge to the Corporation's reported earnings (which in any
event shall not be less than 6 months) and valued at Fair Market Value
on the Exercise Date and cash or check payable to the Corporation's
order;
(D) full payment through a special sale and
remittance procedure pursuant to which the Optionee (i) shall provide
irrevocable written directives to a designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the Corporation,
out of the sale proceeds available on the settlement date, sufficient
funds to cover the aggregate Option Price payable for the purchased
shares plus all applicable Federal and State income and employment taxes
required to be withheld by the Corporation in connection with such
purchase and (II) shall concurrently instruct the Corporation to deliver
the certificates for the purchased shares directly to such brokerage
firm in order to complete the sale transaction; or
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(E) payment in any other form which the Plan
Administrator may, in its discretion, approve at the time of exercise in
accordance with the provisions of Paragraph 10 of this Agreement.(1)
(iii) Furnish to the Corporation appropriate documentation
that the person or persons exercising the option, if other than Optionee, have
the right to exercise this option.
(b) The Exercise Date shall be the date on which written notice
of the option exercise is delivered to the Corporation. Except to the extent the
sale and remittance procedure is utilized for the exercise of the option,
payment of the Option Price for the purchased shares must accompany such notice.
For purposes of this Agreement, the Fair Market Value of a share of Common Stock
on any relevant date shall be determined as follows:
(i) If the Common Stock is not at the time listed or
admitted to trading on any stock exchange but is traded on the
NASDAQ National Market System, the fair market value shall be
the closing selling price of one share of Common Stock on the
date in question, as such price is reported by the National
Association of Securities Dealers through the NASDAQ National
Market System or any successor system. If there is no closing
selling price for the Common Stock on the date in question, then
the closing selling price on the last preceding date for which
such quotation exists shall be determinative of fair market
value.
(ii) If the Common Stock is at the time listed or
admitted to trading on any national stock exchange, 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 quoted
in the composite tape of transactions on such exchange. If there
is no reported sale of Common Stock on such exchange on the date
in question, then the Fair Market Value shall be the closing
selling price on the exchange on the last preceding date for
which such quotation exists.
(c) As soon as practical after the Exercise Date, the Corporation
shall mail or deliver to or on behalf of Optionee (or the other person or
persons exercising this option) a certificate or certificates representing the
purchased Optioned Shares, with the appropriate legends affixed thereto.
(d) In no event may this option be exercised for any fractional
shares.
10. SPECIAL FINANCING. The Plan Administrator may, in its
absolute discretion and without any obligation to do so, assist Optionee in the
exercise of this option by (i)
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(1) Authorization of a loan or installment payment under this provision may,
under currently proposed Treasury Regulations, result in the loss of incentive
stock option treatment under the Federal tax laws.
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authorizing the extension of a loan to Optionee from the Corporation or (ii)
permitting Optionee to pay the option price for the purchased Common Stock in
installments over a period of years. The terms of any loan or installment method
of payment (including the interest rate, the collateral requirements and terms
of repayment) shall be established by the Plan Administrator in its sole
discretion.
11. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this
option and the issuance of Optioned Shares upon such exercise shall be subject
to compliance by the Corporation and the Optionee with all applicable
requirements of law relating thereto and with all applicable regulations of any
stock exchange on which shares of the Corporation's Common Stock may be listed
at the time of such exercise and issuance.
12. INVESTMENT REPRESENTATIONS. In connection with the exercise
of this option, Optionee shall execute and deliver to the Corporation such
representations in writing as may be requested by the Corporation in order for
it to comply with the applicable requirements of Federal and State securities
laws.
13. SUCCESSORS AND ASSIGNS. Except to the extent otherwise
provided in Paragraph 3 or Paragraph 7, the provisions of this Agreement shall
inure to the benefit of, and be binding upon, the successors, administrators,
heirs and legal representatives of Optionee and the successors and assigns of
the Corporation.
14. LIABILITY OF CORPORATION.
(a) If the Optioned Shares covered by this Agreement exceed, as
of the Grant Date, the number of shares which may without stockholder approval
be issued under the Plan, then this option shall be void with respect to such
excess shares unless stockholder approval of an amendment sufficiently
increasing the number of shares issuable under the Plan is obtained in
accordance with the provisions of Section XIII of the Plan.
(b) The inability of Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation 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.
15. NO EMPLOYMENT/SERVICE CONTRACT. Nothing in this Agreement or
in the Plan shall confer upon Optionee any right to continue in Service Provider
status with the Corporation (or any parent or subsidiary employing or retaining
Optionee) for any period of specific duration or otherwise interfere with or
restrict in any way the rights of the Corporation (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 for any reason whatsoever, with
or without cause.
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16. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of its Chief Financial Officer at its corporate
offices. Any notice required to be given or delivered to Optionee shall be in
writing and addressed to Optionee at the address indicated on the Grant Notice.
All notices shall be deemed to have been given or delivered upon personal
delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
17. 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 express terms and provisions of the Plan. All decisions of the
Plan Administrator 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.
18. GOVERNING LAW. The interpretation, performance, and
enforcement of this Agreement shall be governed by the laws of the State of
California without resort to that State's conflict-of-law rules.
19. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE STOCK OPTION. In
the event this option is designated an incentive stock option in the Grant
Notice, the following terms and conditions shall also apply to the grant:
A. The option shall cease to qualify for favorable tax treatment
as an incentive stock option under the Federal tax laws if (and to the extent)
this option is exercised for one or more Optioned Shares: (i) more than three
(3) months after the date the Optionee ceases to be an Employee for any reason
other than death or permanent disability (as defined in Paragraph 5) or (ii)
more than one (1) year after the date the Optionee ceases to be an Employee by
reason of permanent disability.
B. In the event this option is exercisable in installments as
specified in the Grant Notice, no installment under this option (whether annual
or monthly) shall qualify for favorable tax treatment as an incentive stock
option under the Federal tax laws if (and to the extent) the aggregate fair
market value (determined at the Grant Date) of the Corporation's Common Stock
for which such installment first becomes exercisable hereunder will, when added
to the aggregate fair market value (determined as of the respective date or
dates of grant) of the Corporation's Common Stock for which one or more other
post-1986 incentive stock options granted to the Optionee prior to the Grant
Date (whether under the Plan or any other option plan of the Corporation or any
parent or subsidiary corporation) first become exercisable during the same
calendar year, exceed One Hundred Thousand Dollars ($100,000) in the aggregate.
C. Should the exercisability of this option be accelerated upon a
Corporate Transaction in accordance with Paragraph 7, then this option shall
qualify for favorable tax treatment as an incentive stock option under the
Federal tax laws only to the extent the aggregate fair market value (determined
at the Grant Date) of the Corporation's Common Stock for which
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this option first becomes exercisable in the calendar year in which the
Corporate Transaction occurs does not, when added to the aggregate fair market
value (determined as of the respective date or dates of grant) of the
Corporation's Common Stock for which this option or one or more other post-1986
incentive stock options granted to the Optionee prior to the Grant Date (whether
under the Plan or any other option plan of the Corporation or any parent or
subsidiary corporations) first become exercisable during the same calendar year,
exceed One Hundred Thousand Dollars ($100,000) in the aggregate.
D. To the extent this option should fail to qualify as an
incentive stock option under the Federal tax laws, the Optionee will recognize
compensation income in connection with the acquisition of one or more Optioned
Shares hereunder, and the Optionee must make appropriate arrangements for the
satisfaction of all Federal, State and local income and employment tax
withholding requirements applicable to such compensation income.
20. ADDITIONAL TERMS APPLICABLE TO NON-QUALIFIED STOCK OPTION. In
the event this option is designated as a non-qualified stock option in the Grant
Notice, Optionee shall make appropriate arrangements with the Corporation or any
parent or subsidiary corporation employing or retaining Optionee for the
satisfaction of all Federal, State and local income and employment tax
withholding requirements applicable to the exercise of this option.
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APPENDIX A
NOTICE OF EXERCISE OF STOCK OPTION
I hereby notify CorVel Corporation (the "Corporation") 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 ________________,
19 ____ .
Concurrently with the delivery of this Exercise Notice to the Chief
Financial Officer of the Corporation, I shall hereby pay to the Corporation the
Option Price 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.
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Date Optionee
Address:
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Print name in exact manner
it is to appear on the
stock certificate:
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Address to which certificate
is to be sent, if different
from address above:
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Social Security Number:
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Employee Number:
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