e10vq

Large accelerated filer o

Accelerated filer þ

Non-accelerated filer o

Smaller Reporting Company o

(Do not check if a smaller reporting company)

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TRjij6qwhI3HSOjPjwF2njqojYa0b6ITvo+U6/ckqb+wmmnxjVez6c8I1e3OpqYf KMV+XGwd2+9c/uAZnbv26A== 0000950123-10-101888.txt : 20101108 0000950123-10-101888.hdr.sgml : 20101108 20101105190320 ACCESSION NUMBER: 0000950123-10-101888 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20100930 FILED AS OF DATE: 20101108 DATE AS OF CHANGE: 20101105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORVEL CORP CENTRAL INDEX KEY: 0000874866 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 330282651 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19291 FILM NUMBER: 101170306 BUSINESS ADDRESS: STREET 1: 2010 MAIN STREE STREET 2: SUITE 1020 CITY: IRVINE STATE: CA ZIP: 92614 BUSINESS PHONE: 9498511473 MAIL ADDRESS: STREET 1: 2010 MAIN STREET STREET 2: SUITE 1020 CITY: IRVINE STATE: CA ZIP: 92614 FORMER COMPANY: FORMER CONFORMED NAME: FORTIS CORP DATE OF NAME CHANGE: 19600201 10-Q 1 a57738e10vq.htm FORM 10-Q e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-19291

CORVEL CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		33-0282651

(State or other jurisdiction		(IRS Employer Identification No.)
of incorporation or organization)

2010 Main Street, Suite 600
Irvine, CA		92614

(Address of principal executive office)		(zip code)

Registrant’s telephone number, including area code: (949) 851-1473

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 þ No o

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 o No o

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. (check one)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the registrant’s Common Stock, $0.0001 par value per share, as of November 4, 2010 was 11,807,806.

CORVEL CORPORATION
FORM 10-Q
TABLE OF CONTENTS


	Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets — March 31, 2010 and September 30, 2010 (unaudited)		3

Consolidated Income Statements (unaudited) — Three months ended September 30, 2009 and 2010		4

Consolidated Income Statements (unaudited) — Six months ended September 30, 2009 and 2010		5

Consolidated Statements of Cash Flows (unaudited) — Six months ended September 30, 2009 and 2010		6

Notes to Consolidated Financial Statements (unaudited) — September 30, 2010		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3. Quantitative and Qualitative Disclosures About Market Risk		31

Item 4. Controls and Procedures		31

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		32

Item 1A. Risk Factors		32

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		40

Item 3. Defaults Upon Senior Securities		40

Item 4. (Removed and Reserved)		40

Item 5. Other Information		40

Item 6. Exhibits		40

Signatures		42
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Page 2

Part I — Financial Information

Item 1. Financial Statements

CORVEL CORPORATION

CONSOLIDATED BALANCE SHEETS


	March 31, 2010			September 30, 2010
				(Unaudited)
Assets
Current Assets
Cash and cash equivalents (Note A)	$	11,933,000		$	18,747,000
Accounts receivable, net		43,930,000			44,302,000
Prepaid taxes and expenses		6,419,000			3,575,000
Deferred income taxes		4,864,000			5,675,000

Total current assets		67,146,000			72,299,000

Property and equipment, net		30,026,000			35,042,000
Goodwill		35,988,000			35,988,000
Other intangibles, net (Note F)		6,909,000			6,567,000
Other assets		299,000			280,000


TOTAL ASSETS	$	140,368,000		$	150,176,000


Liabilities and Stockholders’ Equity
Current Liabilities
Accounts and taxes payable	$	14,495,000		$	13,521,000
Accrued liabilities		25,455,000			28,318,000

Total current liabilities		39,950,000			41,839,000

Deferred income taxes		4,690,000			4,691,000

Commitments and contingencies (Note G and H)

Stockholders’ Equity

Common stock, $.0001 par value: 60,000,000 shares authorized; 25,801,690 shares issued (12,026,502 shares outstanding, net of Treasury shares) and 25,926,952 shares issued (11,834,279 shares outstanding, net of Treasury shares) at March 31, 2010 and September 30, 2010, respectively		3,000			3,000

Paid-in capital		90,217,000			94,620,000

Treasury Stock (13,775,188 shares at March 31, 2010 and 14,092,673 shares at September 30, 2010)		(218,323,000	)		(230,101,000	)

Retained earnings		223,831,000			239,124,000

Total stockholders’ equity		95,728,000			103,646,000


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	140,368,000		$	150,176,000

See accompanying notes to consolidated financial statements.

Page 3

CORVEL CORPORATION

CONSOLIDATED INCOME STATEMENTS — UNAUDITED


	Three Months Ended September 30,
	2009		2010
REVENUES	$	82,416,000	$	93,392,000

Cost of revenues		61,609,000		70,153,000


Gross profit		20,807,000		23,239,000

General and administrative expenses (Note H)		10,206,000		14,171,000


Income before income tax provision		10,601,000		9,068,000

Income tax provision (Note A)		4,201,000		1,535,000


NET INCOME	$	6,400,000	$	7,533,000


Net income per common and common equivalent share
Basic	$	0.50	$	0.64


Diluted	$	0.50	$	0.62


Weighted average common and common equivalent shares
Basic		12,758,000		11,861,000

Diluted		12,920,000		12,104,000

See accompanying notes to consolidated financial statements.

Page 4

CORVEL CORPORATION

CONSOLIDATED INCOME STATEMENTS— UNAUDITED


	Six Months Ended September 30,
	2009		2010
REVENUES	$	163,728,000	$	184,895,000

Cost of revenues		121,779,000		137,853,000


Gross profit		41,949,000		47,042,000

General and administrative expenses (Note H)		20,656,000		25,657,000


Income before income tax provision		21,293,000		21,385,000

Income tax provision (Note A)		8,489,000		6,092,000


NET INCOME	$	12,804,000	$	15,293,000


Net income per common and common equivalent share
Basic	$	1.00	$	1.28


Diluted	$	0.99	$	1.26


Weighted average common and common equivalent shares
Basic		12,842,000		11,909,000

Diluted		12,988,000		12,145,000

See accompanying notes to consolidated financial statements.

Page 5

CORVEL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS — UNAUDITED


	Six Months Ended September 30,
	2009			2010
*Cash flows from Operating Activities*
NET INCOME	$	12,804,000		$	15,293,000

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization		5,921,000			5,947,000
Loss on disposal of assets		62,000			111,000
Stock compensation expense		988,000			1,264,000
Write-off of uncollectible accounts		1,483,000			1,087,000

Changes in operating assets and liabilities
Accounts receivable		(2,338,000	)		(1,459,000	)
Prepaid taxes and expenses		1,626,000			2,844,000
Other assets		26,000			19,000
Accounts and taxes payable		(3,013,000	)		(974,000	)
Accrued liabilities		1,290,000			1,163,000
Deferred income taxes		(265,000	)		(810,000	)

Net cash provided by operating activities		18,584,000			24,485,000


*Cash Flows from Investing Activities*
Purchase of property and equipment		(5,645,000	)		(9,032,000	)

Net cash (used in) investing activities		(5,645,000	)		(9,032,000	)


*Cash Flows from Financing Activities*
Purchase of treasury stock		(17,446,000	)		(11,778,000	)
Tax effect of stock option exercises		319,000			1,027,000
Exercise of common stock options		1,325,000			1,952,000
Exercise of employee stock purchase options		164,000			160,000

Net cash (used in) financing activities		(15,638,000	)		(8,639,000	)


*Increase/(decrease) in cash and cash equivalents*		(2,699,000	)		6,814,000
Cash and cash equivalents at beginning of period		14,681,000			11,933,000

Cash and cash equivalents at end of period	$	11,982,000		$	18,747,000


Supplemental Cash Flow Information:
Income taxes paid	$	7,323,000		$	6,165,000
Accrual of earn-out related to acquistion	$	350,000		$	—
Purchase of software license under finance agreement	$	—		$	1,700,000

See accompanying notes to consolidated financial statements.

Page 6

CORVEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

Note A — Basis of Presentation and Summary of Significant Accounting Policies

The unaudited financial statements herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying interim financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited financial statements for the latest fiscal year ended March 31, 2010. Accordingly, footnote disclosures which would substantially duplicate the disclosures contained in the March 31, 2010 audited financial statements have been omitted from these interim financial statements.

The Company evaluated all subsequent events or transactions. During the period subsequent to September 30, 2010 the Company repurchased 56,552 shares for $2.5 million or an average of $44.14 per share. These shares were repurchased under the Company’s ongoing share repurchase program described in Note C. See also Note H for a subsequent event related to settlement of litigation.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes for the fiscal year ended March 31, 2010 included in the Company’s Annual Report on Form 10-K. Operating results for the three and six months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2011.

Basis of Presentation: The consolidated financial statements include the accounts of CorVel and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates: The preparation of financial statements conforming 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 allowance for doubtful accounts, accrual for bonuses, accruals for self-insurance reserves, share-based payments related to performance based awards, estimated claims for claims administration revenue recognition, estimates used in stock option valuations, and estimates related to legal matters.

Cash and Cash Equivalents: Cash and cash equivalents consist of short-term highly-liquid investment-grade interest-bearing 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, 2010 and September 30, 2010. Cash at September 30, 2010 included $2.3 million of customer deposits held in bank checking accounts.

Page 7

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010

Note A — Basis of Presentation and Summary of Significant Accounting Policies (continued)

Goodwill: The Company accounts for its business combinations in accordance with 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. The Company’s goodwill impairment test is conducted company-wide and the fair value is compared to its carrying value. The measurement of fair value is based on an evaluation of market capitalization and is further tested using a multiple of earnings approach. For all periods presented, no material impairment existed and, accordingly, no loss was recognized.

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.

In accordance with ASC 605-25, the Company allocates revenue for transactions or collaborations that include multiple elements to each unit of accounting based on its relative fair value, and recognizes revenue for each unit of accounting when the revenue recognition criteria have been met. The price charged when the element is sold separately generally determines fair value. When our 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. As a result, the fair value of each product sold in a multiple element arrangement is almost always determinable. In the absence of fair value of a delivered element, the Company would allocate revenue first to the fair value of the undelivered elements and the residual revenue to the delivered elements. The Company recognizes revenue for delivered elements when the delivered elements have standalone value and the Company has objective and reliable evidence of fair value for each undelivered element. If the fair value of any undelivered element included in a multiple element arrangement cannot be objectively determined, revenue is deferred until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements. Based upon the nature of our products, bundled products are generally delivered in the same accounting period.

In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple Deliverable Revenue Arrangements—a consensus of FASB Emerging Issues Task Force (“ASU 2009-13”). ASU 2009-13 provides for less restrictive separation criteria that must be met for a deliverable to be considered a separate unit of accounting. Additionally, under ASU 2009-13, there is a hierarchy for determining the selling price of a unit of accounting and consideration must be allocated using a relative selling price method. ASU 2009-13 will be effective for the Company on April 1, 2011; however, early adoption is permitted. The Company is currently reviewing the requirements of ASU 2009-13 and has not yet determined the impact on its financial position or results of operations.

Page 8

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010

Note A — Basis of Presentation and Summary of Significant Accounting Policies (continued)

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 government entities. Accounts receivable are due within 30 days and are stated as amounts due from customers net of an allowance for doubtful accounts. 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. No one customer accounted for 10% or more of accounts receivable at either March 31, 2010 or September 30, 2010. No one customer accounted for 10% or more of revenue during either of the three and six month periods ended September 30, 2009 or 2010.

Property and Equipment: Additions to property and equipment are recorded at cost. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets, which range from three to seven years. The Company capitalizes software development costs intended for internal use. The Company accounts for internally developed software costs in accordance with FASB ASC 350-40, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, which allows for the capitalization of software developed for internal use. 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.

Income Taxes: The Company provides for income taxes under the liability method. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities as measured by the enacted tax rates which are expected to be in effect when these differences reverse. Income tax expense is the tax payable for the period and the change during the period in net deferred tax assets and liabilities. The balance of the unrecognized tax benefits as of March 31, 2010 and September 30, 2010 was $3,170,000 and $1,626,000, respectively. In the September 2010 quarter, the Company resolved certain tax issues which resulted in a reduction in income tax expense of $1.9 million.

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 decreased in the September 2010 quarter compared to the same quarter of the prior year for diluted earnings per share due to shares repurchased under the Company’s share repurchase program.

Page 9

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010

Note B — Stock Based Compensation and Stock Options

The Company’s Restated Omnibus Incentive Plan (Formerly The Restated 1988 Executive Stock Option Plan) (“the Plan”) as in effect at September 30, 2010, permits options for up to 9,682,500 shares of the Company’s common stock to 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.

In May 2006, the Company’s Board of Directors granted performance-based stock options for 149,175 shares of common stock at fair market value at the date of grant, which will only vest if the Company attains certain earnings per share targets, as established by the Company’s Board of Directors, for calendar years 2008, 2009, and 2010. If a target is missed in a calendar year and achieved in the following calendar year, the plan allows for a portion of earlier year option traunche to be earned. Net of cancelations due to employee terminations, options for 136,050 shares remain outstanding under these performance-based stock options as of September 30, 2010. These options were granted with an exercise price of $15.76 per share, which was the fair market value at the date of grant, and have a valuation of $6.75 per share. The Company did not attain the targets for calendar years 2008 and 2009. Currently, management has determined that it is probable that the Company will attain the earnings per share target for calendar year 2010 under these options and, accordingly, the Company recognized $253,000 during the September 2010 quarter and $344,000, cumulatively since the date of these option grants.

In February 2008, the Company’s Board of Directors granted performance-based stock options for 42,000 shares of common stock at fair market value at the date of grant, which will only vest if the Company attains certain revenue targets for all services sold to claims administration clients and out-of-network bill review revenues, as established by the Company’s Board of Directors, for calendar years 2009, 2010, and 2011. The targets for the various options varied by the regions and each region has a different target. Net of cancelations due to employee terminations, options for 38,000 shares remain outstanding under these performance-based stock options as of September 30, 2010. These options were granted with an exercise price of $25.10 per share, which was the fair market value at the date of grant, and have a valuation of $9.81 per share. Currently, management has determined that optionees with 12,000 shares attained the revenue targets for calendar year 2009 and expect to attain the revenue targets for calendar year 2010, and, accordingly, the Company has recognized $3,000 during the September 2010 quarter and $62,000, cumulatively, since the date of the option grant. Currently, management has determined that it is not probable that the revenue targets for the remaining optionees will be attained and, accordingly, the Company has recognized no stock compensation expense for those options.

In February 2009, the Company’s Board of Directors granted performance-based stock options for 100,000 shares of common stock at fair market value at the date of grant, which will only vest if the Company attains certain earnings per share targets, as established by the Company’s Board of Directors, for calendar years 2009, 2010, and 2011. Net of cancelations due to employee terminations, options for 95,000 shares remain outstanding under these performance-based stock options as of September 30, 2010. These options were granted with an exercise price of $19.79 per share, which was the fair market value at the date of grant, and have a valuation of $8.21 per share. The Company attained these targets for calendar year 2009 and management has determined it is probable we will achieve the targets for calendar year 2010, and accordingly, the Company has recognized stock compensation expense of $19,000 during the September 2010 quarter and $409,000, cumulatively, since the date of these option grants.

Page 10

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010

Note B — Stock Based Compensation and Stock Options (continued)

In February 2009, the Company’s Board of Directors granted performance-based stock options for 10,000 shares of common stock at fair market value at the date of grant, which will only vest if the Company attains certain revenue targets for all services sold to claims administration clients and out-of-network bill review revenues, as established by the Company’s Board of Directors, for calendar years 2009, 2010, and 2011. These options were granted with an exercise price of $20.37 per share, which was the fair market value at the date of grant, and have a valuation of $8.45 per share. The Company did not achieve the revenue target for calendar year 2009. Currently, management has determined that it is not probable that the Company will attain the revenue targets for 2010 and 2011, and, accordingly, the Company has recognized no stock compensation expense for this stock option grant.

Finally, in November 2009, the Company’s Board of Directors granted performance-based stock options for 110,000 shares of common stock at fair market value at the date of grant, which will only vest if the Company attains certain earnings per share targets, as established by the Company’s Board of Directors, for calendar years 2010, 2011, and 2012. These options were granted with an exercise price of $28.92 per share, which was the fair market value at the date of grant, and have a valuation of $12.57 per share. Currently, management has determined that it is probable that the Company will attain the earnings per share targets for calendar year 2010 and, accordingly, the Company recognized $20,000 of stock compensation expense for this stock option grant during the September 2010 quarter, and $311,000, cumulatively, since the date of this option grant.

The tables below shows the amounts recognized in the financial statements for the three and six months ended September 30, 2009 and 2010, respectively.


	Three Months Ended
	September 30, 2009			September 30, 2010
Cost of revenues	$	167,000		$	147,000
General and administrative		321,000			526,000


Total cost of stock-based compensation included in income before income tax provision		488,000			673,000
Amount of income tax benefit recognized		(195,000	)		(256,000	)

Amount charged against net income	$	293,000		$	417,000

Effect on diluted net income per share	$	(0.02	)	$	(0.03	)

Page 11

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010

Note B — Stock Based Compensation and Stock Options (continued)


	Six Months Ended
	September 30, 2009			September 30, 2010
Cost of revenues	$	289,000		$	281,000
General and administrative		699,000			983,000


Total cost of stock-based compensation included in income before income tax provision		988,000			1,264,000
Amount of income tax benefit recognized		(395,000	)		(474,000	)

Amount charged against income	$	593,000		$	790,000

Effect on diluted income per share	$	(0.05	)	$	(0.07	)

Summarized information for all stock options for the three and six months ended September 30, 2009 and 2010 follows:


	Three Months Ended September 30, 2009					Three Months Ended September 30, 2010
	Shares			Average Price		Shares			Average Price

Options outstanding, beginning		1,065,842		$	20.51		1,079,022		$	23.35
Options granted		38,600			25.42		45,000			39.06
Options exercised		(63,814	)		15.02		(95,317	)		17.94
Options cancelled		(4,100	)		27.20		(1,266	)		16.81

Options outstanding, ending		1,036,528		$	21.01		1,027,189		$	24.55


	Six Months Ended September 30, 2009					Six Months Ended September 30, 2010
	Shares			Average Price		Shares			Average Price

Options outstanding, beginning		1,115,171		$	20.31		1,065,403		$	22.57
Options granted		49,400			24.62		93,000			37.76
Options exercised		(98,276	)		14.72		(129,538	)		17.77
Options cancelled		(29,767	)		21.59		(1,676	)		20.85

Options outstanding, ending		1,036,528		$	21.01		1,027,189		$	24.55

Page 12

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010

Note B — Stock Based Compensation and Stock Options (continued)

The following table summarizes the status of stock options outstanding and exercisable at September 30, 2010:


									Exercisable
			Weighted		Outstanding		Exercisable		Options –
			Average		Options –		Options –		Weighted
			Remaining		Weighted		Number of		Average
	Number of		Contractual		Average		Exercisable		Exercise
Range of Exercise Price	Outstanding Options		Life		Exercise Price		Options		Price

$11.00 to $17.14		242,160		1.28	$	15.66		107,760	$	15.53

$17.15 to $25.30		287,338		2.97	$	21.50		136,845	$	21.06

$25.31 to $29.41		250,963		3.69	$	27.71		83,994	$	27.31

$29.42 to $47.70		246,728		3.83	$	33.61		94,993	$	31.22


Total		1,027,189		2.95	$	24.55		423,592	$	23.17

A summary of the status for all outstanding options at September 30, 2010, and changes during the three months then ended, is presented in the table below:


								Aggregate
						Weighted Average		Intrinsic Value
				Weighted Average		Remaining Contractual		as of September
	Number of Options			Exercise Per Share		Life (Years)		30, 2010

Options outstanding at June 30, 2010		1,079,022		$	23.35

Granted		45,000			39.06

Exercised		(95,317	)		17.94

Cancelled — forfeited		(829	)		17.35

Cancelled — expired		(437	)		15.79


Ending outstanding		1,027,189		$	24.55		2.95	$	18,394,084


Ending vested and expected to vest		935,488		$	24.29		2.86	$	16,999,104


Ending exercisable at September 30, 2010		423,592		$	23.17		2.45	$	8,174,035

The weighted-average grant-date fair value of options granted during the three months ended September 30, 2009 and 2010, was $10.92 and $16.28, 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

Page 13

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010

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. Based upon the historical experience of options cancellations, the Company has estimated an annualized forfeiture rate of 10.64% and 9.27% for the three months ended September 30, 2009 and 2010, respectively. Forfeiture rates will be adjusted over the requisite service period when actual forfeitures differ, or are expected to differ, from the estimate. The following assumptions were used to estimate the fair value of options granted during the three months ended September 30, 2009 and 2010 using the Black-Scholes option-pricing model:


	Three Months Ended September 30,
	2009			2010

Risk-free interest rate		2.71	%		2.15	%

Expected volatility		47	%		46	%

Expected dividend yield		0.00	%		0.00	%

Expected forfeiture rate		10.64	%		9.27	%

Expected weighted average life of option in years	4.8 years			4.7 years

All options granted in the six months ended September 30, 2009 and 2010 were granted at an exercise price which was equal to fair market value on the date of grant and are non-statutory stock options.

Note C — Treasury Stock and Subsequent Event

The Company’s Board of Directors initially approved the commencement of a share repurchase program in the fall of 1996. In June 2010, the Board approved an 850,000 share expansion of the repurchase program to 15,000,000 shares over the life of the share repurchase program. Since the commencement of the share repurchase program, the Company has spent $230 million to repurchase 14,092,673 shares of its common stock, equal to 54% of the outstanding common stock had there been no repurchases. The average price of these repurchases is $16.33 per share. These repurchases have been funded primarily from the net earnings of the Company, along with the proceeds from the exercise of common stock options. During the three months ended September 30, 2010, the Company repurchased 164,198 shares for $6.3 million, or an average of $38.42 per share. During the six months ended September 30, 2010, the Company repurchased 317,485 shares for $11.8 million, or an average of $37.10 per share. The Company had 11,834,279 shares of common stock outstanding as of September 30, 2010, net of the 14,092,673 shares in treasury. Subsequent to the end of the quarter, through November 4, 2010, the Company repurchased 56,552 shares of common stock for $2.5 million, or an average of $44.14 per share.

Note D — Weighted Average Shares and Net Income Per Share

Weighted average basic common and common equivalent shares decreased from 12,758,000 for the quarter ended September 30, 2009 to 11,861,000 for the quarter ended September 30, 2010. Weighted average diluted common and common equivalent shares decreased from 12,920,000 for the quarter ended September 30, 2009 to 12,104,000 for the quarter ended September 30, 2010. The net decrease in both of these weighted share calculations is due to the repurchase of common stock as noted above, offset by an increase in shares outstanding due to the exercise of stock options under the Company’s employee stock option plan.

Net income per common and common equivalent shares was computed by dividing net income by the weighted average number of common and common stock equivalents outstanding during the quarter. The calculations of the basic and diluted weighted shares for the three months and six months ended September 30, 2009 and 2010, are as follows:

Page 14

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010

Note D — Weighted Average Shares and Net Income Per Share (continued)


	Three Months Ended September 30,
	2009		2010
Net Income	$	6,400,000	$	7,533,000


Basic:
Weighted average common shares outstanding		12,758,000		11,861,000

Net Income per share	$	0.50	$	0.64


Diluted:
Weighted average common shares outstanding		12,758,000		11,861,000
Treasury stock impact of stock options		162,000		243,000

Total common and common equivalent shares		12,920,000		12,104,000

Net Income per share	$	0.50	$	0.62


	Six Months Ended September 30,
	2009		2010
Net Income	$	12,804,000	$	15,293,000


Basic:
Weighted average common shares outstanding		12,842,000		11,909,000

Net Income per share	$	1.00	$	1.28


Diluted:
Weighted average common shares outstanding		12,842,000		11,909,000
Treasury stock impact of stock options		146,000		236,000

Total common and common equivalent shares		12,988,000		12,145,000

Net Income per share	$	0.99	$	1.26

Page 15

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010

Note E — 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 November 2008, the Company’s Board of Directors approved an amendment to the Shareholder Rights Plan to, among other things, extend the expiration date of the rights to February 10, 2022 and set the exercise price of each right at $118.

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.

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.

Page 16

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010

Note F — Other Intangible Assets

Other intangible assets consist of the following at September 30, 2010:


								Cost, Net of
				Six Months Ended		Accumulated		Accumulated
				September 30, 2010		Amortization at		Amortization at
				Amortization		September 30,		September 30,
Item	Life	Cost		Expense		2010		2010

Covenants Not to Compete	5 Years	$	675,000	$	135,000	$	440,000	$	235,000
Customer Relationships	18-20 Years		7,571,000		203,000		1,400,000		6,171,000
TPA Licenses	15 Years		204,000		7,000		43,000		161,000

Total		$	8,450,000	$	345,000	$	1,883,000	$	6,567,000

Note G — Line of Credit

In June 2010, the Company renewed a credit agreement that had been in place throughout fiscal 2010. 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 at any time during fiscal 2010 or the quarter ended September 30, 2010, or as of the date hereof, but letters of credit in the aggregate amount of $6.3 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 renewed credit agreement expires in September 2011.

Note H — Contingencies, Litigation and Subsequent Event

In February 2005, Kathleen Roche, D.C., as plaintiff, filed a putative class action in Circuit Court for the 20th Judicial District, St. Clair County, Illinois, against the Company. The case sought unspecified damages based on the Company’s alleged failure to direct patients to medical providers who were members of the CorVel CorCare PPO network and also alleged that the Company used biased and arbitrary computer software to review medical providers’ bills. On October 29, 2010, the Company entered into a settlement agreement providing for the payment of $2.1 million to class members and up to an additional $700,000 for attorneys’ fees and expenses, as a result the Company accrued $2.8 million of estimated liability for this settlement agreement. The Company denies that its conduct was improper in any way and has denied all liability. The settlement agreement must receive approval by the Circuit Court before it becomes effective. There can be no assurance that the Circuit Court will approve the settlement agreement.

Page 17

CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010

Note H — Contingencies and Litigation (continued)

In December 2006, Southwest Louisiana Hospital Association dba Lake Charles Memorial Hospital filed a class action arbitration with the American Arbitration Association against the Company (Southwest Louisiana Hospital Association d/b/a. Lake Charles Memorial Hospital, individually and on behalf of those similarly situated v. CorVel Corporation, AAA Case No. 11 193 2760 06). Lake Charles Memorial Hospital alleges that the Company violated Louisiana’s Any Willing Provider Act (the “AWPA”), which requires a payor accessing a preferred provider contract to give 30 days’ advance written notice or point of service notice in the form of a benefit card before the payor accesses the discounted rates in the contract to pay the provider for services rendered to a insured under that payor’s health benefit plan. In response, the Company filed a counter-suit on December 7, 2007 (CorVel Corporation v. Dr. Kevin Gorin, et. al, Docket No. 653896, 24^th Judicial District Court for the Parish of Jefferson, State of Louisiana) seeking a declaratory judgment challenging the constitutionality of the AWPA’s damage provision. In the first phase of the arbitration, the clause construction phase, which concluded in September 2010, the arbitration panel decided that the arbitration agreement between the Company and Lake Charles Memorial Hospital permits class actions. The three additional phases of the arbitration (the class certification, class notification and merits phases) have been stayed pending appeal to permit the Company to seek judicial review of the clause construction phase decision. The Company intends to pursue all available legal remedies, including seeking judicial review of the clause construction phase decision and vigorously defending the arbitration, but there can be no assurance that the Company will be successful in doing so. The Company is not able to estimate the amount of possible loss, if any, at this time.

The Company is involved in other 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.

Page 18

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report 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,” “believes,” “seeks,” “estimates” “may”, “will”, “would”, “could” and “should”, and variations of these words and similar expressions, are intended to identify these forward-looking statements, and include, but are not limited to, statements regarding projected results of operations, management’s future strategic plans, market acceptance and performance of our software and services, the competitive nature of and anticipated growth in our markets, the status of pending litigation, our accounting estimates, and our assumptions and judgments. 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.

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 decreasing number of injured workers; cost of capital and capital requirements; existing and possible litigation and legal liability in the course of operations; 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; dependence on key personnel; and the continued availability of financing in the amounts and at the terms necessary to support the Company’s future business. 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, except as required by law.

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 policies. The Company’s services are provided to insurance companies, third party administrators (“TPAs”) and self-administered employers to assist them in managing 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, including imaging and physical therapy

Page 19

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 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.

Organizational Structure

The Company’s management is structured geographically with regional vice-presidents who report to the President 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 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 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.

Summary of Quarterly Results

The Company generated revenues of $93.4 million for the quarter ended September 30, 2010, an increase of $11.0 million, or 13.3%, compared to revenues of $82.4 million for the quarter ended September 30, 2009. The increase in revenues was primarily due to an increase in patient management business from increase revenues of the Company’s TPA services. Network solutions revenue increased primarily due to an increase in the Company’s pharmacy and directed care revenues. As the Company has expanded the offer of its TPA services, it has found the directed care and TPA services to be synergistic as customers which buy one service can easily buy the other.

The Company’s cost of revenues increased by $8.5 million, from $61.6 million in the September 2009 quarter to $70.2 million in the September 2010 quarter, an increase of 13.9%. This increase was primarily due to the 13.3% increase in revenues noted above. More of the Company’s growth came from an increase in the revenues from TPA services, pharmacy and direct care services which generate a lower gross margin than the Company’s other services which caused a greater increase in cost of revenues as compared to revenues.

The Company’s general and administrative expense increased by $4.0 million, from $10.2 million in the September 2009 quarter to $14.2 million in the September 2010 quarter, an increase of 38.8%. This increase is primarily due to an increase in the Company’s legal costs. Legal costs increased due to a $2.8 million accrual of estimated cost to settle the litigation as discussed in below under Litigation in our Management Discussion and Analysis.

Page 20

Excluding the $2.8 million accrual, general and administrative costs would have increased 11.7%, and close to the growth in revenues.

The Company’s income tax expense decreased by $2.7 million, or 63.5%, from $4.2 million, in the September 2009 quarter to $1.5 million in the September 2010 quarter. The decrease in income tax expense was primarily due to the resolution of certain outstanding tax issues which resulted in a reduction to the income tax liability by $1.8 million along with a decrease in income before income taxes. The effective income tax rate was 39.6% in the September 2009 quarter and 16.9% in the September 2010 quarter. In future quarters, the Company’s effective tax rate is expected to return to the more historical range of 38% to 40%.

Weighted diluted shares decreased from 12.9 million shares in the September 2009 quarter to 12.1 million shares in the September 2010 quarter, a decrease of 0.8 million shares, or 6.3%. This decrease was due primarily to the repurchase of 798,931 shares in the four quarters ended September 2010. The decrease in shares resulting from the shares repurchased was offset by the exercise of stock options during the last four quarters.

Diluted earnings per share increased from $0.50 in the September 2009 quarter to $0.62 in the September 2010 quarter, an increase of $0.12 per share, or 24.0%. The increase in diluted earnings per share was due to the decrease in income tax expense along with the reduction in the number of shares outstanding due to the shares repurchased.

Results of Operations for the three months ended September 30, 2009 and 2010

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 percentage of total revenues attributable to patient management and network solutions services for the quarters ended September 30, 2009 and September 30, 2010 are as follows:


	September 30, 2009			September 30, 2010
Patient management services		45.2	%		47.4	%
Network solutions services		54.8	%		52.6	%

Page 21

The following table sets forth, for the periods indicated, the dollar amounts, dollar and percent changes, share changes and the percentage of revenues represented by items reflected in the Company’s consolidated income statements for the quarters ended September 30, 2009 and September 30, 2010. The Company’s past operating results are not necessarily indicative of future operating results.


	Three Months Ended			Three Months Ended						Percentage
	September 30, 2009			September 30, 2010			Change			Change

Revenue	$	82,416,000		$	93,392,000		$	10,976,000			13.3	%
Cost of revenues		61,609,000			70,153,000			8,544,000			13.9	%

Gross profit		20,807,000			23,239,000			2,432,000			11.7	%

Gross profit as percentage of revenue		25.2	%		24.9	%

General and administrative		10,206,000			14,171,000			3,965,000			38.8	%
General and administrative as percentage of revenue		12.4	%		15.2	%


Income before income tax provision		10,601,000			9,068,000			(1,533,000	)		(14.5	%)

Income before income tax provision as percentage of revenue		12.9	%		9.7	%

Income tax provision		4,201,000			1,535,000			(2,666,000	)		(63.5	%)

Net income	$	6,400,000		$	7,533,000		$	1,133,000			17.7	%


Weighted Shares
Basic		12,758,000			11,861,000			(897,000	)		(7.0	%)
Diluted		12,920,000			12,104,000			(816,000	)		(6.3	%)

Earnings Per Share
Basic	$	0.50		$	0.64		$	0.14			28.0	%
Diluted	$	0.50		$	0.62		$	0.12			24.0	%

Revenues

Change in revenue from the quarter ended September 2009 to the quarter ended September 2010

Revenues increased from $82.4 million for the three months ended September 30, 2009 to $93.4 million for the three months ended September 30, 2010, an increase of $11.0 million, or 13.3%. The increase was primarily due to an increase in the Company’s patient management revenues by $8.3 million or 23.1% from $35.8 million in the September 2009 quarter to $44.1 million in the September 2010 quarter. This increase was primarily due to improvements in customer utilization of the Company’s TPA services. This was complemented by an increase in network solutions revenue by $2.7 million, or 5.8%, from $46.6 million in the September 2009 quarter to $49.3 million in the September 2010 quarter. This increase was primarily due to an increase in revenues from the Company’s pharmacy and directed care services.

Page 22

The Company believes that referral volume in patient management services and bill review volume in network solutions services may decrease or reflect nominal growth until there is growth in the number of work related injuries and workers’ compensation related claims.

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 offices of the Company. Direct costs are primarily case manager salaries, bill review analysts, related payroll taxes and fringe benefits, and costs for independent medical examination (IME) and diagnostic imaging 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, prescription drug costs, PPO network developers, related payroll taxes and fringe benefits, office rent, and telephone expense. Approximately 39% of the costs incurred in the field are costs which support both the patient management services and network solutions operations of the Company’s field offices, such as district managers, account executives, rent, and telephone.

Change in cost of revenue from the quarter ended September 30, 2009 to the quarter ended September 30, 2010

The Company’s costs of revenue increased from $61.6 million in the quarter ended September 30, 2009 to $70.2 million in the quarter ended September 30, 2010, an increase of $8.5 million or 13.9%. This increase was primarily due to the costs associated with the increase in demand for the Company’s TPA services, and to a lesser extent, the Company’s pharmacy and directed care services, which are high-cost services. The increase in cost of revenues of 13.9% approximated the 13.3% increase in revenues.

General and Administrative Expense

For the quarter ended September 30, 2010, general and administrative expense consisted of approximately 44% of corporate systems costs which include corporate systems support, implementation and training, amortization of software development costs, depreciation of the hardware costs in the Company’s national systems, the Company’s national wide area network and other systems related costs. The remaining 56% of the general and administrative expense consisted of national marketing, national sales support, corporate legal, corporate insurance, human resources, accounting, product management, new business development and other general corporate matters. Legal costs increased due to an increase in litigation. Related to a number of small claims, we do not expect any material loss on these small claims. Exclusive of the $2.8 million legal accrual noted above, systems costs were 55% of total general and administrative costs. It is expected that systems costs will return to the more historical percentages of 55% to 60% of total general and administrative costs.

Change in general and administrative expense from the quarter ended September 30, 2009 to the quarter ended September 30, 2010

General and administrative expense increased from $10.2 million in the quarter ended September 30, 2009 to $14.2 million in the quarter ended September 30, 2010, an increase of $4.0 million, or 38.8%. This increase is primarily due to an increase in the Company’s legal costs. Legal costs increased due to the $2.8 million accrual of estimated costs to settle the litigation liability as discussed below under Litigation in our Management Discussion and Analysis.

Change in Income Tax Provision from the quarter ended September 30, 2009 to the quarter ended September 30, 2010

The Company’s income tax expense decreased by $2.7 million, or 63.5%, from $4.2 million for the quarter ended September 30, 2009 to $1.5 million for the quarter ended September 30, 2010 due to the decrease in income before income taxes from $10.6 million to $9.1 million combined with the resolution of certain outstanding tax issues which resulted in a reduction to the income tax liability by $1.8 million. The income tax expense as a percentage of income before income taxes (i.e. effective tax rate) was 39.6% for the three months ended September 30, 2009 and 16.9% for the three months ended September 30, 2010. 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

Page 23

tax rate differed from the statutory federal tax rate of 35.0% primarily due to state income taxes, the liability reduction and certain non-deductible expenses. In future quarters, the Company’s effective tax rate is expected to return to the more historical range of 38% to 40%.

Results of Operations for the six months ended September 30, 2009 and the six months ended September 30, 2010

The following table sets forth, for the periods indicated, the dollar amounts, dollar and percent changes, share changes, and the percentage of revenues represented by certain items reflected in the Company’s consolidated income statements for the six months ended September 30, 2009 and September 30, 2010. The Company’s past operating results are not necessarily indicative of future operating results.


	Six Months Ended			Six Months Ended						Percentage
	September 30, 2009			September 30, 2010			Change			Change

Revenue	$	163,728,000		$	184,895,000		$	21,167,000			12.9	%
Cost of revenues		121,779,000			137,853,000			16,074,000			13.2	%

Gross profit		41,949,000			47,042,000			5,093,000			12.1	%

Gross profit as percentage of revenue		25.6	%		25.4	%

General and administrative		20,656,000			25,657,000			5,001,000			24.2	%
General and administrative as percentage of revenue		12.6	%		13.9	%


Income before income tax provision		21,293,000			21,385,000			92,000			0.4	%

Income before income tax provision as percentage of revenue		13.0	%		11.6	%

Income tax provision		8,489,000			6,092,000			(2,397,000	)		(28.2	%)

Net income	$	12,804,000		$	15,293,000		$	2,489,000			19.4	%


Weighted Shares
Basic		12,842,000			11,909,000			(933,000	)		(7.3	%)
Diluted		12,988,000			12,145,000			(843,000	)		(6.5	%)

Earnings Per Share
Basic	$	1.00		$	1.28		$	0.28			28.0	%
Diluted	$	0.99		$	1.26		$	0.27			27.3	%

Revenues

Change in revenue from the six months ended September 30, 2009 to the six months ended September 30, 2010

Revenues increased from $163.7 million for the six months ended September 30, 2009 to $184.9 million for the six months ended September 30, 2010, an increase of $21.2 million or 12.9%. The Company’s patient management revenues increased $18.6 million or 27.0% from $68.8 million in the six months ended September 2009 to $87.4 million in the six months ended September 2010. This increase was primarily due to improvements in customer utilization of the Company’s TPA services. The Company’s network solutions revenues increased from $94.9 million in the six months ended September 2009 to $97.5 million in the six months ended September 2010, an increase of $2.6 million or 2.7%. This increase was primarily due to an increase in customer utilization of the Company’s pharmacy and directed care services.

Page 24

Cost of Revenue

Change in cost of revenue from the six months ended September 30, 2009 to the six months ended September 30, 2010

The Company’s cost of revenue increased from $121.8 million in the six months ended September 30, 2009 to $137.9 million in the six months ended September 30, 2010, an increase of $16.1 million, or 13.2%. The increase in cost of revenues of 13.2% approximates the increase in revenues of 12.9%. This increase was primarily due to the costs associated with the increase in demand for the Company’s TPA services, directed care and pharmacy services, which are lower margin services. The Company’s TPA service costs increased $12.1 million, pharmacy costs increased $5.7 million and directed care costs increased $2.6 million in the six months ended September 30, 2010 from the comparable six month period in 2009.

General and Administrative Costs

Change in cost of general and administrative expense from the six months ended September 30, 2009 to the six months ended September 30, 2010

General and administrative expense increased from $20.7 million in the six months ended September 30, 2009 to $25.7 million in the six months ended September 30, 2010, an increase of $5.0 million, or 24.2%. This increase is primarily due to an increase in the Company’s legal costs related to a number of small claims. We do not expect any material loss on these small claims. Legal costs increased due to the $2.8 million accrual of estimated costs to settle the litigation as discussed below under litigation in our Management Discussion and Analysis. Systems cost increased from $11.8 million to $12.3 million due to an increase in non-capitalizable software development expenditures to further improve the Company’s TPA product. The Company expects software development expenditures to increase. Exclusive of the $2.8 million accrual noted above, general and administrative costs increased 10.6%, close to the 12.9% increase in revenues.

Change in Income Tax Provision from the six months ended September 30, 2009 to the six months ended September 30, 2010

The Company’s income tax expense decreased by $2.4 million, or 28.2%, from $8.5 million for the six months ended September 30, 2009 to $6.1 million for the six months ended September 30, 2010 due to the resolution of outstanding state tax issues which resulted in a reduction to the income tax liability by $1.8 million. This was slightly offset by an increase in income before income taxes from $21.3 million to $21.4 million. The income tax expense as a percentage of income before income taxes, also known as the effective tax rate, was 39.9% for the six months ended September 30, 2009 and 28.5% for the six months ended September 30, 2010. 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, the liability reduction and certain non-deductible expenses. It is expected that the future effective income tax rate will return to the 38% to 40% range.

Liquidity and Capital Resources

The Company has historically funded its operations and capital expenditures primarily from cash flow from operations, and, to a lesser extent, stock option exercises. Working capital increased $3.3 million, or 12%, from $27.2 million as of March 31, 2010 to $30.5 million as of September 30, 2010, primarily due to an increase in cash from $11.9 million as of March 31, 2010 to $18.7 million as of September 30, 2010. The increase in cash was primarily due to retention of the Company’s net income.

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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 businesses for at least the next twelve months. The Company regularly evaluates cash requirements for current operations and 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 September 30, 2010, including $2.3 million of customer deposits held in bank checking accounts, the Company had $18.7 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 federally regulated banks.

In June 2010, the Company renewed a credit agreement that had been in place throughout fiscal 2010. 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 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 at any time during fiscal 2010, or the six months ended September 30, 2010, but letters of credit in the aggregate amount of $6.3 million have been issued under a letter of credit sub-limit that does not reduce the amount of borrowings available under the revolving credit facility. The credit agreement expires in September 2011.

The Company has historically required substantial capital to fund the growth of its operations, particularly working capital to fund the growth in accounts receivable and capital expenditures. The Company believes, however, that the cash balance at September 30, 2010 along with anticipated internally generated funds, will be sufficient to meet the Company’s expected cash requirements for at least the next twelve months.

Operating Cash Flows

Six months ended September 30, 2009 compared to six months ended September 30, 2010

Net cash provided by operating activities increased from $18.6 million in the six months ended September 30, 2009 to $24.5 million in the six months ended September 30, 2010. The increase in cash flow from operating activities was primarily due to the increase in net income to $15.3 million for the six months ended September 30, 2010 from $12.8 million for the six months ended September 30, 2009, an increase of $2.5 million.

Investing Activities

Six months ended September 30, 2009 compared to six months ended September 30, 2010

Net cash flow used in investing activities increased from $5.6 million in the six months ended September 30, 2009 to $9.0 million in the six months ended September 30, 2010, an increase of $3.4 million. The increase in net cash used in investing activities is primarily due to an increase in office furniture, application software licenses, and the amount of software capitalized during the six months ended September 30, 2010 The Company had no acquisitions or acquisition related disbursements in the six months ended September 30, 2010.

Financing Activities

Six months ended September 30, 2009 compared to six months ended September 30, 2010

Net cash flow used in financing activities decreased from $15.6 million for the six months ended September 30, 2009 to $8.6 million for the six months ended September 30, 2010, a decrease of $7.0 million. The decrease in cash flow used in financing activities was primarily due to a decrease in purchases under the Company’s share repurchase program, partially offset by an increase in the number of options exercised. During the six months ended September 30, 2010, the Company spent $11.8 million to repurchase 317,485 shares of its common stock. During the six months ended September 30, 2009, the Company spent $17.4 million to repurchase 610,999 shares of its common stock. The Company has historically used cash provided by operating activities and from the

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exercise of stock options to repurchase stock. The Company expects it may use some of the $18.7 million of cash on its balance sheet at September 30, 2010 to repurchase additional shares of stock.

Contractual Obligations

The following table summarizes the Company’s contractual obligations outstanding as of September 30, 2010.


	Payments Due by Period
			Within One		Between One and		Between Three and		More than
	Total		Year		Three Years		Five Years		Five Years

Operating leases	$	48,246,000	$	13,555,000	$	19,038,000	$	11,306,000	$	4,347,000
Uncertain tax positions		1,370,000		1,370,000		—		—		—
Software licenses		1,700,000		850,000		850,000		—		—
Earn out obligation		500,000		500,000		—		—		—

Total	$	51,816,000	$	16,275,000	$	19,888,000	$	11,306,000	$	4,347,000

Operating leases are rents paid for the Company’s physical locations.

Litigation

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but there can be no assurance that the Company will be successful in doing so The Company is not able to estimate the amount of possible loss, if any, at this time.

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 rules of 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 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) cost of revenues, 3) allowance for uncollectible accounts, 4) goodwill and long-lived assets, 5) accrual for self-insured costs, 6) accounting for income taxes, and 7) share-based compensation.

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In accordance with ASC 605-25, the Company allocates revenue for transactions or collaborations that include multiple elements to each unit of accounting based on its relative fair value, and recognizes revenue for each unit of accounting when the revenue recognition criteria have been met. The price charged when the element is sold separately generally determines fair value. When our customers purchase several products from the Company, the pricing of the products sold is generally the same as if the product were sold on an individual basis. As a result, the fair value of each product sold in a multiple element arrangement is almost always determinable. In the absence of fair value of a delivered element, the Company would allocate revenue first to the fair value of the undelivered elements and the residual revenue to the delivered elements. The Company recognizes revenue for delivered elements when the delivered elements have standalone value and the Company has objective and reliable evidence of fair value for each undelivered element. If the fair value of any undelivered element included in a multiple element arrangement cannot be objectively determined, revenue is deferred until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining undelivered elements. Based upon the nature of the Company’s products, bundled products are generally delivered in the same accounting period.

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 support, administrative support and 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. Locally managed and incurred IT costs are charged to cost of revenues whereas the costs incurred and managed at the corporate offices are charged to general and administrative expense.

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, 2010 or September 30, 2010.

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 and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company’s impairment is conducted at a company-wide level. The measurement of fair value is based on an evaluation of market capitalization and is further tested

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using a multiple of earnings approach. In projecting the Company’s cash flows, management considers industry growth rates and trends and cost structure changes. No changes or events occurred which indicated a need to test impairment during the September 2010 quarter. 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 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.

Accounting for Income Taxes: The Company provides for income taxes in accordance with provisions specified in ASC 740, “Accounting for Income Taxes”, which is based upon management’s judgments and estimations of various tax rates. 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 provides for income tax issues not yet resolved with federal, state and local tax authorities.

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). Some of the stock options are performance based and the stock compensation expense is recorded based upon the actual results compared to the option targets. For the quarter ended September 30, 2010, the Company recorded share-based compensation expense of $673,000. Share-based compensation expense recognized in the first six months of fiscal 2011 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 2011. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

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Recent Accounting Standards Update

In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple Deliverable Revenue Arrangements—a consensus of FASB Emerging Issues Task Force (“ASU 2009-13”). ASU 2009-13 provides for less restrictive separation criteria that must be met for a deliverable to be considered a separate unit of accounting. Additionally, under ASU 2009-13, there is a hierarchy for determining the selling price of a unit of accounting and consideration must be allocated using a relative-selling price method. ASU 2009-13 will be effective for the Company on April 1, 2011; however, early adoption is permitted. The Company is currently reviewing the requirements of ASU 2009-13 and has not yet determined the impact on its financial position or results of operations.

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

As of September 30, 2010, 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. The Company had no debt outstanding as of September 30, 2010, and therefore, had no market risk related to debt.

Item 4 — Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of September 30, 2010, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission 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.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the three months ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1 — Legal Proceedings

In December 2006, Southwest Louisiana Hospital Association dba Lake Charles Memorial Hospital filed a class action arbitration with the American Arbitration Association against the Company (Southwest Louisiana Hospital Association d/b/a. Lake Charles Memorial Hospital, individually and on behalf of those similarly situated v. CorVel Corporation, AAA Case No. 11 193 2760 06). Lake Charles Memorial Hospital alleges that the Company violated Louisiana’s Any Willing Provider Act (the “AWPA”), which requires a payor accessing a preferred provider contract to give 30 days’ advance written notice or point of service notice in the form of a benefit card before the payor accesses the discounted rates in the contract to pay the provider for services rendered to a insured under that payor’s health benefit plan. In response, the Company filed a counter-suit on December 7, 2007 (CorVel Corporation v. Dr. Kevin Gorin, et. al, Docket No. 653896, 24^th Judicial District Court for the Parish of Jefferson, State of Louisiana) seeking a declaratory judgment challenging the constitutionality of the AWPA’s damage provision. In the first phase of the arbitration, the clause construction phase, which concluded in September 2010, the arbitration panel decided that the arbitration agreement between the Company and Lake Charles Memorial Hospital permits class actions. The three additional phases of the arbitration (the class certification, class notification and merits phases) have been stayed pending appeal to permit the Company to seek judicial review of the clause construction phase decision. The Company intends to pursue all available legal remedies, including seeking judicial review of the clause construction phase decision and vigorously defending the arbitration, but there can be no assurance that the Company will be successful in doing so The Company is not able to estimate the amount of possible loss, if any, at this time.

Item 1A. Risk Factors

A restated description of the risk factors associated with our business is set forth below. This description includes any and all changes (whether or not material) to, and supersedes, the description of the risk factors associated with our business previously disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2010.

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

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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.

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. One proposal which had been considered in the past, but not enacted by Congress or certain state legislatures, is 24-hour health coverage, in which the coverage of traditional employer-sponsored health plans is combined with workers’ compensation coverage to provide a single insurance plan for work-related and non-work-related health problems.

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.

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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.

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.

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.

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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.

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.

Declines in workers’ compensation claims may 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 an adverse impact on our business, financial condition and results of operations.

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.

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.

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,

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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 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.

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.

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, Chairman, and Dan Starck, President, Chief Executive Officer, and Chief Operating Officer, or the inability to attract, qualified employees, could have a material unfavorable effect on our business and results of 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;

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• 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

• 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.

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 Web site operators for access to our Web site. All of these providers have experienced 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.

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.

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

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acquisitions to develop our software products and services. The cost of developing new healthcare information 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.

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 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.

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 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.

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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.

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.

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.

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.

If material weaknesses in our internal controls are identified by us or our independent registered public accountants, it could have a material adverse effect on our business and stock price.

Any material weaknesses identified in our internal controls as part of the ongoing evaluation being undertaken by us and our independent registered public accountants pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 could cause investors to lose confidence in our reported financial information and us, which could result in a decline in the market price of our common stock, and cause us to fail to meet our reporting obligations in the future, which in turn could impact our ability to raise equity financing if needed in the future. The effectiveness of our controls and procedures could be limited by errors or faulty judgments. In addition, if we expand, through either organic growth or through acquisitions (or both), the challenges involved in implementing appropriate controls will increase and may require that we evolve some or all of our internal control processes.

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Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

There were no sales of unregistered securities during the period covered by this report. The following table shows the repurchases of the Company’s common stock made by or on behalf of the Company in open-market transactions for the quarter ended September 30, 2010 pursuant to a publicly announced plan.


					Total Number of
					Shares Purchased		Maximum Number of
					as Part of Publicly		Shares that may
	Total Number of		Average Price		Announced		yet be Purchased
Period	Shares Purchased		Paid Per Share		Program		Under the Program

July 1 to July 31, 2010		55,685	$	36.85		55,685		1,015,840
August 1 to August 31, 2010		56,603		38.23		56,603		959,237
September 1 to September 30, 2010		51,910		40.23		51,910		907,327

Total		164,198	$	38.40		164,198		907,327

In 1996, the Company’s Board of Directors authorized a stock repurchase program 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 authorized for repurchase under the repurchase program. The most recent increase occurred in June 2010 and brought the number of shares authorized for repurchase over the life of the program to 15,000,000 shares. There is no expiration date for the repurchase program.

Item 3 — Defaults Upon Senior Securities — None.

Item 4 — (Removed and Reserved)

Item 5 — Other Information — None.

Item 6 — Exhibits

3.1 Amended and Restated Certificate of Incorporation of the Company. Incorporated herein by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007 filed on August 9, 2007.

3.2 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.

3.3 Certification 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.

10.1 Settlement Agreement and General Release between Corvel Corporation and Kathleen Roche, D.C., individually and on behalf of others similarly situated, dated October 29, 2010. Filed herewith.

10.2 CorVel Corporation 1991 Employee Stock Purchase Plan, as amended and restated on August 5, 2010. Incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K/A filed on August 12, 2010.

31.1 Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 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)

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32.2 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)


†		Confidential treatment previously 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 were omitted from this exhibit and filed separately with the Securities and Exchange Commission.

Page 41

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	CORVEL CORPORATION
	By:	Daniel J. Starck
		Daniel J. Starck, President,
		Chief Executive Officer, and Chief Operating Officer


	By:	Scott R. McCloud
		Scott R. McCloud,
		Chief Financial Officer

November 5, 2010

Page 42

EX-10.1 2 a57738exv10w1.htm EX-10.1 exv10w1

Exhibit 10.1

IN THE CIRCUIT COURT FOR THE TWENTIETH JUDICIAL CIRCUIT
ST. CLAIR COUNTY, ILLINOIS


KATHLEEN ROCHE, D.C., individually	)
and on behalf of others similarly situated,	)
	)
Plaintiff,	)	No. 05 L 101
	)
v.	)	Judge Lloyd A. Cueto
	)
CORVEL CORPORATION,	)
	)
Defendant.	)

SETTLEMENT AGREEMENT AND GENERAL RELEASE

This Settlement Agreement and General Release (“Settlement Agreement” or “Agreement” or “Settlement”) is entered into on this 29th day of October, 2010, between Plaintiff, Kathleen Roche (“Plaintiff” or “Class Plaintiff”) and CorVel Corporation (“CorVel”). The foregoing Plaintiff and CorVel shall be collectively referred to as the “Parties.”

WHEREAS, Plaintiff filed the above-captioned action (the “Litigation”) on February 15, 2005, in the Circuit Court for the Twentieth Judicial Circuit, St. Clair County, Illinois (the “Court”), alleging that CorVel improperly advised its payor clients that they could apply PPO discounts to the bills of medical providers who had signed preferred provider agreements, because CorVel and the payor clients allegedly did not adequately refer or channel patients to the providers as a condition of the PPO reduction taken; Plaintiff also alleges in the Litigation that CorVel used biased computer software in reviewing whether the medical bills were usual and customary and otherwise constituted proper charges; and

WHEREAS, Plaintiff’s motion for certification of a class of Illinois medical provider, excluding hospitals, on the breach of contract claims in Counts I and II was heard by the Court on October 29, 2007; and

WHEREAS, the Court granted Plaintiff’s motion for class certification on December 19, 2007, and CorVel’s petitions for leave to appeal the certification order to the Illinois Appellate Court, Fifth District and Illinois Supreme Court were denied; and

WHEREAS, Plaintiff and her counsel have conducted an extensive examination of the facts and documents relating to the Litigation, including thousands of pages of documents produced by CorVel, deposition testimony, and responses to written discovery requests; and

WHEREAS, CorVel denies the claims and allegations made in the Litigation and denies any wrongdoing and any liability in connection with the claims asserted in the Litigation; and

WHEREAS, the Litigation, if it continued, would likely result in expensive and protracted litigation and appeals, and continued uncertainty as to outcome; and

WHEREAS, Plaintiff and her counsel have concluded that this Settlement Agreement provides substantial benefits to Plaintiff and to members of the Settlement Class (as defined below), and resolves all issues that were or could have been raised in the Litigation without prolonged litigation and the risks and uncertainties inherent in litigation; and

WHEREAS, Plaintiff and her counsel have concluded that this Settlement Agreement is fair, reasonable, adequate and in the best interest of the Settlement Class; and

WHEREAS, this Settlement Agreement was reached after several months of protracted, arm’s-length negotiations; and

WHEREAS, after negotiating the relief for the Settlement Class, the Parties then engaged in arm’s-length negotiations and reached agreement regarding incentive payments along with attorneys’ fees and expenses; and

WHEREAS, CorVel consents to the Settlement to avoid the expense, inconvenience and inherent risk of litigation, as well as the concomitant disruption of its business operations; and

WHEREAS, nothing in this Settlement Agreement shall be construed as an admission or concession by CorVel of the truth of any allegations raised in the Litigation, or of any fault, wrongdoing, or liability of any kind.

NOW, THEREFORE, in consideration of the foregoing, and the mutual covenants, promises, and general release set forth below, the Parties agree as follows:

Definitions

1. In addition to the terms defined above, the following terms have the meaning set forth below:

a. “Claims” means claims, causes of action, allegations, demands, disputes, suits, debts, liens, liabilities, interest, costs, expenses, losses, or counterclaims, whether arising under law or equity, whether asserted or unasserted, known or unknown, suspected or unsuspected, foreseen or unforeseen, actual or contingent, liquidated or unliquidated.

b. “Class Counsel” means Freed & Weiss LLC, and Becker, Paulson, Hoerner & Thompson, P.C.

c. “CorVel” means CorVel Corporation and its present, former, and future parent, subsidiary and affiliate entities, and all of the aforementioned entities’ present, former, and future respective partners, predecessors, successors, assigns, divisions, officers, directors, shareholders, employees, attorneys, and agents.

d. “Effective Final Judgment Date” shall mean the fifth business day after the date when the time to appeal the Final Judgment and Order and the dismissal of this action has expired, and no document has been filed within that time seeking appeal, review, rehearing, reconsideration or any other action regarding the Final Judgment and Order. If any such document is filed seeking an appeal, review, rehearing, reconsideration or any other action, then the Effective Final Judgment Date shall mean the fifth business day after the date upon which (i) all appellate and/or other proceedings resulting from such document have been finally terminated in such a manner as to permit no further judicial action, and (ii) the Settlement, Preliminary Approval Order, and Final Judgment and Order have been affirmed and approved in all material respects.

e. “Final Judgment and Order” means the order finally approving the Settlement.

f. “Notice” means the class notice described in paragraph 14 of this Agreement.

g. “PPO Reduction” means a reduction or discount taken under CorVel’s preferred provider agreements, CorVel’s PPO network, and/or any PPO network utilized or leased by CorVel.

h. “Preliminary Approval Order” means the Court order granting preliminary approval to the Settlement.

i. “Provider Agreement” means any contract between a healthcare provider (or association of healthcare providers) and CorVel pursuant to which the healthcare provider agrees to participate in any preferred provider network operated by CorVel, including but not limited to the Corcare Preferred Provider Organization Agreement.

j. “Released Claims” means all those Claims described in paragraphs 11 and 12 of this Agreement.

k. “Released Persons” means CorVel and its present, former, and future agents, assigns, employees, attorneys, partners, predecessors, successors, parents, subsidiaries, affiliates, divisions, officers, directors, and shareholders. Released Persons do not include any payor who took a PPO Reduction or Usual and Customary Reduction.

l. “Releasing Parties” means Plaintiff and each member of the Settlement Class (except a person who has obtained proper and timely exclusion from the Settlement Class pursuant to paragraph 16 of this Settlement Agreement), on their own behalf and on behalf of their spouses and former spouses, as well as their present, former, and future administrators, agents, assigns, employees, attorneys, executors, heirs, partners, predecessors-in-interest, successors, parents, subsidiaries, affiliates, divisions, officers, directors, and shareholders.

m. “Settlement Class” means all Illinois licensed medical providers, excluding hospitals, that between February 15, 1995 and September 24, 2008 (i) were members of CorVel’s CorCare PPO Network pursuant to a pre-2006 CorCare provider contract and (ii) had their medical bills reduced by application of a PPO Reduction and/or a Usual and Customary Reduction. Each member of the Settlement Class that submitted bills under a single Tax Identification Number (“TIN”) shall be considered a single member of the Settlement Class for purposes of this Agreement, including the notice provisions in paragraph 14 and the provisions regarding the one-time payment of $100, $300, or $500 payment to each TIN pursuant to paragraph 7 of this Agreement.

n. “Settlement Payments” means the payments made to members of the Settlement Class according to the terms of paragraph 7 of this Agreement.

o. “Usual and Customary Reduction” means any reduction applied to a medical bill or other request for payment based on a review of that bill or request to determine whether it reflects usual and customary charges and otherwise reflects appropriate and correct charges and complies with billing standards and procedures, whether performed by CorVel or by a payor using CorVel software or data.

Proposed Class for Settlement Purposes

2. Settlement Class. For settlement purposes only, the Parties agree to the certification of the Settlement Class.

3. Settlement Purposes Only. CorVel does not agree to certification of the Settlement Class for any purpose other than to effectuate the Settlement Agreement.

4. No Admission of Liability. By entering into this Agreement, the Parties agree that CorVel and the Released Persons are not admitting any liability to the Class Plaintiff, the Settlement Class, or any other person or entity, and CorVel and the Released Persons expressly deny all such liability. CorVel’s sole motivation for entering into this Agreement is to dispose expeditiously of the claims that have been asserted against it in the Litigation by settlement and compromise rather than incur the expense and uncertainty of protracted litigation. The Settlement Agreement, its terms, the documents related to it, and the negotiations or proceedings connected with it shall not be offered or received into evidence in the Litigation or any other action or proceeding to establish any liability or admission by CorVel.

5. Vacating Settlement Certification. The certification of the Settlement Class shall be binding only with respect to the settlement of the Litigation. In the event that the Settlement Agreement is terminated pursuant to its terms, or is not approved in all material respects by the Court, or such approval is reversed, vacated or modified in any material respect by the Court or any other court, the certification of the Settlement Class shall be deemed vacated, the Litigation shall proceed as if the Settlement Class had not been certified, and no reference to the Settlement Class, this Settlement Agreement, or any documents, communications or negotiations related in any way hereto shall be made for any purpose in the Litigation, or in any other action or proceeding.

Benefit to the Class

6. Benefits to Class. Class Plaintiff and Class Counsel have concluded, under the circumstances and considering the pertinent facts and applicable law, that it is in Class Plaintiff’s best interests and in the best interests of the Settlement Class to enter

into this Settlement Agreement to avoid the uncertainties of litigation and to ensure a benefit to Class Plaintiff and all members of the Settlement Class. Class Plaintiff and Class Counsel consider this Settlement Agreement to be fair, reasonable, and adequate and in the best interests of the members of the Settlement Class.

7. Settlement Payments. CorVel agrees to make Settlement Payments totaling up to Two Million One Hundred Thousand Dollars ($2,100,000) to members of the Settlement Class. Members of the Settlement Class who submitted bills under a single TIN shall be considered a single member of the Settlement Class entitled to a one-time payment of $500, $300 or $100 for each TIN as follows: (i) the approximately 7,000 members of the Settlement Class will be ranked in order of the total dollar amount of combined PPO and Usual and Customary Reductions from February 15, 1995, to September 24, 2008, and then divided into three groups; (ii) the first group with the largest total dollar amounts of PPO and Usual and Customary Reductions during this period (consisting of approximately one-third of the members of the Settlement Class) will be sent by U.S. Postal Service first class mail a one-time payment of Five Hundred Dollars ($500); (iii) the second group with the next largest total dollar amounts of PPO and Usual and Customary Reductions during this period (consisting of approximately one-third of the members of the Settlement Class) will be sent by U.S. Postal Service first class mail a one-time payment of Three Hundred Dollars ($300); and (iv) the third group with the lowest total dollar amounts of PPO and Usual and Customary Reductions during this period (consisting of approximately one-third of the members of the Settlement Class) will be sent by U.S. Postal Service first class mail a one-time payment of One Hundred Dollars ($100).

a. Remaining Funds: Undistributed Settlement Payments. Any undistributed funds remaining after Settlement Payments are sent out first class mail by U.S. Postal Service to the members of the Settlement Class pursuant to this paragraph will be defined as Remaining Funds and deposited by CorVel with the Clerk of the Court pending further order of this Court. From the Remaining Funds, Corvel will first be reimbursed for the costs of Notice and settlement and administrative expenses. Any Remaining Funds remaining after reimbursement to Corvel of the costs of Notice, will then be subject to distribution by the Court pursuant to the provisions of 735 ILCS 5/2-807.

b. Distribution of Funds: Checks Not Cashed Within Three Months. If a member of the Settlement Class receives a Settlement Payment and the check is not cashed within three (3) months, then it shall be null and void. A second check for Settlement Payment will then be mailed to these Settlement Class members within thirty (30) days after the expiration of the three (3) month period. If a member of the Settlement Class receives a second Settlement Payment and the second check is not cashed within three (3) months after mailing, then it shall be null and void. All funds remaining un-cashed after a second distribution as herein provided shall be considered Remaining Funds under Paragraph 7.a. and distributed according to the terms of that subparagraph, and CorVel shall have no further obligation to make Settlement Payment to that Settlement Class member.

c. Distribution of Funds: Settlement Payments Returned Undeliverable. In the event a Settlement Payment is returned as undeliverable to

CorVel, then, within thirty (30) days after receipt by CorVel of the undeliverable Settlement Payment, CorVel will attempt to re-mail such Settlement Payment by the U.S. Postal Service. In the event a Settlement Payment cannot be re-mailed, or it is returned a second time by the U.S. Postal Service, then such Settlement Payment shall be considered Remaining Funds under Paragraph 7.a. and distributed according to the terms of that subparagraph and Corvel shall have no further obligation to make Settlement Payment to that Settlement Class member.

8. Incentive Award, Attorneys’ Fees and Expenses. CorVel agrees to pay Five Thousand Dollars ($5,000) in total incentive payments to Plaintiff along with Seven Hundred Thousand Dollars ($700,000) in attorneys’ fees and expenses to Class Counsel, and, therefore, CorVel will not oppose Class Counsels’ application for an incentive payment up to a total of $5,000 for Plaintiff, along with an award of attorneys’ fees and expenses of up to $700,000. Subject to Court approval, CorVel will pay or cause to be paid to Class Counsel, for distribution as appropriate thereafter, all amounts awarded by the Court, up to the maximum of $5,000 as the total incentive payment to Plaintiff and $700,000 in attorneys’ fees and expenses. All amounts awarded by the Court shall be paid separately, without reducing the amount available for Settlement Payments.

9. Notice and Administration Costs. CorVel agrees to pay up to Fifty Thousand Dollars ($50,000) for reasonable notice and administration costs of the Settlement.

10. Total Financial Commitment. CorVel’s total financial commitment under this Settlement Agreement, including, but not limited to the amounts set forth in

paragraphs 7, 8, and 9, shall not exceed a total of Two Million Eight Hundred Fifty Five Thousand Dollars ($2,855,000) under any circumstances.

Release

11. Release by Plaintiff and the Settlement Class. Upon the Effective Final Judgment Date, the Releasing Parties hereby release, relinquish and discharge the Released Parties of and from the following Released Claims: any and all Claims alleged, or which could have been alleged, in the Litigation; and any and all Claims by members of the Settlement Class, whether legal, equitable, statutory or any other type or form, which were brought or potentially could have been brought, in an individual, representative or any other capacity based on, that arise out of, or are related in any way to any or all of the acts, omissions, facts, matters, transactions, or occurrences that were directly or indirectly alleged, asserted, described, set forth, or referred to in the Litigation. Released Claims include Claims of members of the Settlement Class relating to reductions or discounts taken under CorVel’s provider agreements, CorVel’s PPO network, any PPO network utilized or leased by CorVel, a bill review performed by CorVel, and/or a bill review performed by a Payor using CorVel software or data on medical bills or other requests for payment. Released Claims include all of the above Claims whether known or unknown, suspected or unsuspected, asserted or unasserted, foreseen or unforeseen, actual or contingent, or liquidated or unliquidated. The parties acknowledge that the Released Claims do not include, nor were they intended to include Claims unrelated to PPO Reductions and Usual and Customary Reductions. Released Claims do not include any Claims that the members of the Settlement Class may have against any payor who took a PPO Reduction or a Usual and Customary Reduction as

Claims against payors are expressly excluded from Released Claims, and no payor shall be considered as a Released Person under this Settlement Agreement.

12. Release of Unknown Claims. The Releasing Parties acknowledge that they may have Claims that are currently unknown, and that the release in this Agreement is intended to and will fully, finally and forever discharge all Released Claims that now exist, or heretofore existed or may hereafter exist, which, if known, might have affected the decision of the Releasing Parties to enter into this Agreement. Each Releasing Party shall be deemed to waive any and all provisions, rights, and benefits conferred by any law of the United States, any state or territory of the United States, or any state or territory of any other country, or principle of common law or equity, which governs or limits a person’s release of unknown Claims. In making this waiver, the Releasing Parties understand and acknowledge that they may hereafter discover facts in addition to or different from those that are currently known or believe to be true with respect to the subject matter of this release, but agree that they have taken that possibility into account in reaching this Settlement Agreement, and that, notwithstanding the discovery or existence of any such additional or different facts, as to which the Releasing Parties expressly assume the risk, they fully, finally and forever settle and release any and all Released Claims, asserted or unasserted, known or unknown, suspected or unsuspected, foreseen or unforeseen, actual or contingent, and liquidated or unliquidated, which now exist, or heretofore exited, or may hereafter exist, and without regard to the subsequent discovery or existence of such additional or different facts.

Settlement Notice and Administration

13. Settlement Administrator. Class Counsel and CorVel agree that Epiq Systems will be hired to serve as the Settlement Administrator to perform services to effectuate the terms of this Settlement Agreement. If Epiq Systems cannot serve as the Settlement Administrator, Class Counsel and CorVel shall agree on another firm that shall serve as Settlement Administrator. CorVel shall be responsible for all payments owed to the Settlement Administrator.

14. Class Notice. Plaintiff and CorVel agree that, if the Court authorizes the Long-Form Notice to be disseminated to the members of the Settlement Class as provided for in this Agreement, the Settlement Administrator will mail the Long-Form Notice substantially in form of Exhibit A hereto, via first class mail to the one address for the unique TIN for the members of the Settlement Class. Prior to the mailing, CorVel or the Settlement Administrator, as applicable, will create a list of all such members of the Settlement Class (and provide a copy to Class Counsel), which will, as necessary, utilize an address refreshing service to obtain the most current available address for each such member of the Settlement Class. It is agreed, subject to approval of the Court, that there shall be a single mailing to each such member of the Settlement Class as set forth herein. CorVel shall pay all costs of providing and mailing of the Long-Form Notice, as provided herein. The Long-Form Notice will contain an email address where members of the Settlement Class can request copies of the complaint in the Litigation, the Long-Form notice, and the Settlement Agreement, which shall be provided to them by CorVel or the Settlement Administrator as attachments in an email responding to the request within seven business days.

Settlement Approval Process

15. Preliminary Approval Order. The Parties agree to petition the Court after execution of this Settlement Agreement for a Preliminary Approval Order. A copy of the form of order agreed to by the Parties is attached as Exhibit B hereto. That order shall provide, inter alia, that:

a. There is probable cause to believe that the Settlement has been negotiated at arm’s length and is preliminarily determined to be fair, reasonable, adequate and in the best interests of the Settlement Class for settlement purposes;

b. Subject to the Court’s consideration of additional evidence regarding Notice at the fairness hearing, and based on the documents submitted to the Court in connection with preliminary approval, the Notice and the proposed plan for giving notice fully complies with the requirements of 735 ILCS 5/2-803 and due process, constitutes the best notice practicable under the circumstances, and is due and sufficient notice to all persons entitled to notice of this Settlement;

c. The Settlement Class is conditionally certified, with Plaintiff serving as class representative and the attorneys and law firms identified in paragraph 1(b) serving as Class Counsel, on the condition that the certification and designations shall be automatically vacated if the Settlement is terminated or is disapproved in whole or in part by the Court, any appellate court, or any of the Parties pursuant to paragraph 21;

d. A final hearing on the settlement proposed in this Agreement shall be held before the Court to determine whether the proposed settlement is fair, reasonable, and adequate, and whether it should be approved by the Court;

e. In further aid of the Court’s jurisdiction to implement and enforce the proposed settlement, Plaintiff and members of the Settlement Class shall be preliminarily enjoined and barred from commencing or prosecuting any action asserting any of the Released Claims, either directly, representatively, derivatively or in any other capacity, whether by a complaint, counterclaim, defense, or otherwise, in any local, state, or federal court, or in any agency or other authority or forum wherever located. Any person or entity that knowingly violates such injunction shall pay the attorneys’ fees and costs incurred by CorVel or any other Released Party as a result of the violation.

16. Right of Exclusion. All members of the Settlement Class who properly file a timely written Request for Exclusion from the Settlement shall be excluded from the Settlement Class, shall have no rights as members of the Settlement Class pursuant to this Settlement Agreement, and shall receive no payments as provided herein. A Request for Exclusion from the Settlement Class must be made according to the terms of the Preliminary Approval Order. A Request for Exclusion must be in writing and state the name of the Class Member, and any former name if applicable, a current address and former address if applicable and the applicable Tax Identification Number(s) (TIN) used by the provider in connection with any CorVel preferred provider network. The Request for Exclusion must be signed by the Class Member. Each Request must state that: “I hereby request to be excluded from the Settlement Class and I understand that by excluding myself I will not receive any benefits from the Settlement.” The Request for Exclusion must be mailed to the address provided and by the post marked date specified by the Court. Any Request for Exclusion not complying with these requirements will be

invalid. No Class Member may assert a right of exclusion for any other Class Member, nor for any group of Class Members, nor may an agent or representative for any Class Member, or group of Class Members file a Request for Exclusion.

CorVel or the Settlement Administrator shall promptly forward copies of all Requests for Exclusion to Settlement Class Counsel.

17. Right to Object or Comment. Any member of the Settlement Class may comment in support of or in opposition to the settlement according to the terms of the Preliminary Approval Order. Any such comment or objection shall meet all the requirements specified by the Preliminary Approval Order. Corvel or the Settlement Administrator shall promptly forward copies of all comments and objections to Settlement Class Counsel.

18. Final Judgment and Order. If the Settlement Agreement is preliminarily approved by the Court following a hearing, the Parties shall jointly request at the fairness hearing that the Court enter the Final Judgment and Order. The fairness hearing shall be held no earlier than fourteen (14) days after the deadline for all members of the Settlement Class to opt out or object under paragraphs 16 and 17 of this Agreement. A copy of the form of the proposed Final Judgment and Order agreed to by the Parties is attached hereto as Exhibit C. That order shall provide, inter alia, that:

a. The Settlement Agreement is fair, reasonable, adequate, and in the best interests of the Settlement Class;

b. The Notice fully complied with the requirements of 735 ILCS 5/2-803 and due process, constituted the best notice practicable under the

circumstances, and was due and sufficient notice to all persons entitled to notice of this Settlement;

c. The Released Claims and the Litigation are dismissed with prejudice as to all Released Parties, without fees or costs except as provided in this Settlement Agreement;

d. Plaintiff and members of the Settlement Class are permanently enjoined and barred from commencing or prosecuting any action asserting any of the Related Claims, either directly, representatively, derivatively, or in any other capacity, whether by a complaint, counterclaim, defense, or otherwise, in any local, state, or federal court, or in any agency or other authority or forum wherever located. Any person or entity who knowingly violates such injunction shall pay the attorneys’ fees and costs incurred by CorVel or any other Released Party as a result of the violation; and

e. The Court shall retain exclusive jurisdiction over this Litigation, the Parties, and all members of the Settlement Class to determine all matters relating in any way to the Final Judgment and Order, the Preliminary Approval Order, or the Settlement Agreement, including but not limited to the administration, implementation, interpretation, or enforcement of such orders or Agreement.

19. Finality of Judgment. The Final Judgment and Order shall be deemed final on the Effective Final Judgment Date.

20. Dates of Payment Obligations. CorVel shall have no obligation to make any payments under this Settlement Agreement unless and until the Court enters the

Preliminary Approval Order. Once the Preliminary Approval Order is entered and before the Effective Final Judgment Date, and subject to the limits set forth in paragraph 9, CorVel shall pay reasonable notice costs and any administrative costs that must be incurred prior to the Effective Final Judgment Date. CorVel shall have no obligation to make any Settlement Payments until at least 90 days after the Effective Final Judgment Date and shall have a total of 180 days from the Effective Final Judgment Date to complete the initial Settlement Payments to members of the Settlement Class. Any fees and expenses awarded to Settlement Class Counsel shall be paid within ten (10) days after the Effective Final Judgment Date, or in the event the Court has not yet awarded attorneys’ fees as of the Effective Final Judgment Date, within ten (10) days of the date such attorneys’ fee award is made and the time to appeal such award expires. CorVel shall pay any incentive awards and attorneys’ fees and expenses awarded by the Court in accordance with written instructions from Class Counsel.

21. Option to Withdraw. CorVel and Class Counsel, on behalf of the Settlement Class, shall have the option to withdraw from the Settlement Agreement, and thereby render this Settlement null and void, if (i) Plaintiff or CorVel breaches any material provision of the Settlement Agreement or the Preliminary Approval Order, or fails to fulfill any material obligation thereunder; (ii) if 700 or more members of the Settlement Class file timely Requests for Exclusion from the Settlement Class; (iii) if members of the Settlement Class having $5 million or more in PPO and Usual and Customary Reductions during the period from February 5, 1995, and September 24, 2008, file timely Requests for Exclusion; (iv) the Court fails to give final approval to any portion of the Settlement Agreement or any material aspect of the settlement; (v) the

attorney general or other authorized officer of the United States or any state, or any representative of any local, state, or federal agency or branch of government, intervenes in the Litigation or advises the Court in writing of opposition to the terms of the Settlement Agreement; or (vi) upon such other grounds as may be agreed by the Parties or permitted by the Court.

22. Effect of Withdrawal/Rejection. In the event that (i) CorVel or Class Counsel withdraws from the Settlement Agreement pursuant to paragraph 21; (ii) the Settlement Agreement, Preliminary Approval Order, and Final Judgment and Order are not approved in all material respects by the Court; or (iii) the Settlement Agreement, Preliminary Approval Order, or Final Judgment and Order are reversed, vacated, or modified in any material respect by this or any other court; then (a) the Settlement Agreement shall become null and avoid; (b) CorVel shall cease to have any payment obligations, except for reasonable notice and administrative costs properly incurred as of the date that CorVel or the Settlement Administrator is notified that the Settlement Agreement has become null and void; (c) the Litigation may continue; and (d) any and all orders entered pursuant to the Settlement Agreement shall be deemed vacated, including, without limitation, any order certifying or approving certification of the Settlement Class; provided, however, that if the Parties hereto agree to appeal jointly such ruling and the Settlement Agreement and Final Judgment and Order are upheld on appeal, then the Settlement Agreement and Final Judgment and Order shall be given full force and effect according to their terms.

Additional Provisions

23. Interpretation. This Settlement Agreement contains the entire agreement among the Parties hereto and supersedes any prior agreements or understandings among them. All terms are contractual and not mere recitals. In the event of an alleged ambiguity, there will be no presumption or construction against either side as the drafter.

24. Binding Effect. The terms are and shall be binding upon each of the Parties hereto, their administrators, agents, assigns, attorneys, executors, heirs, partners, representatives, predecessors-in-interest, and successors, and upon all other persons claiming any interest in the subject matter hereto through any of the Parties hereto including any members of the Settlement Class.

25. Headings. The headings contained in this Settlement Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Settlement Agreement.

26. No Rescission on Grounds of Mistake. The Parties acknowledge that they have made their own investigation of the matters covered by this Settlement Agreement to the extent they have deemed it necessary to do so. Therefore, the Parties agree that they will not seek to set aside any part of the Settlement Agreement on the grounds of mistake. Moreover, the Parties understand, agree, and expressly assume the risk that any fact not recited, contained, or embodied in the Settlement Agreement may turn out hereinafter to be other than, different from, or contrary to the facts now known to them or believed by them to be true, and further agree that the Settlement Agreement shall be effective in all respects notwithstanding and shall not be subject to termination, modification, or rescission by reason of any such difference in facts.

27. Amendment. This Settlement Agreement may be amended or modified only by a written instrument signed by the Parties or their counsel. Amendments and modifications may be made without notice to the Settlement Class unless notice is required by law or by the Court.

28. Construction. For the purpose of construing or interpreting this Settlement Agreement, the Parties agree that it is to be deemed to have been drafted equally by all Parties hereto and shall not be construed strictly for or against any Party.

29. Integration of Exhibits. The exhibits to this Settlement Agreement are an integral and material part of the settlement and are hereby incorporated and made a part of the Settlement Agreement.

30. Jurisdiction. The Circuit Court of the Twentieth Judicial Circuit, St. Clair County, Illinois, has jurisdiction over the Parties to this Settlement Agreement and Settlement Class.

31. No Admission. Neither this Settlement Agreement, nor any of its provisions, nor any of the documents (including, but not limited to, drafts of the Settlement Agreement, the Preliminary Approval Order, or the Final Judgment and Order), negotiations, or proceedings relating in any way to the Settlement, shall be construed as or deemed to be evidence of an admission or concession by any person, including CorVel, and shall not be offered or received into evidence, or subject to discovery, in this or any other action or proceeding except in an action brought to enforce its terms or except as may be required by law or court order. The provisions of this paragraph shall become effective when the Settlement Agreement has been signed by the Parties and shall be binding on the Parties and their counsel regardless of whether the

Settlement Agreement is approved by this Court or any other court and regardless of whether the Settlement Agreement is otherwise rendered null and void pursuant to paragraphs 21 or 22.

32. Governing Law. This Settlement Agreement shall be governed by and construed in accordance with the internal laws (as opposed to the conflicts of law provisions) of the State of Illinois.

33. Notices. Any notice required under the Settlement Agreement, other than the Notice described in paragraph 14, shall be sent by overnight delivery to Paul M. Weiss, Freed & Weiss LLC, 111 W. Washington Street, Suite 1331, Chicago, Illinois 60602, on behalf of Plaintiff and the Settlement Class, and to James H. Bowhay, Figliulo & Silverman, P.C., 10 South LaSalle Street, Suite 3600, Chicago, Illinois 60603, on behalf of CorVel.

34. Counterparts. This Settlement Agreement may be executed in counterparts, and may be executed by facsimile, and as so executed shall constitute one agreement.


Class Representative and				CorVel Corporation
Settlement Class Counsel
By:				By:

Paul M. Weiss				James H. Bowhay
Freed & Weiss LLC				Figliulo & Silverman, P.C.
111 W. Washington Street				10 S. LaSalle Street
Suite 1331				Suite 3600
Chicago, Illinois 60602				Chicago, Illinois 60603

Richard J. Burke
Freed & Weiss LLC
1010 Market Street
Suite 660
St. Louis, Missouri 63101

Kevin T. Hoerner

Becker, Paulson, Hoerner & Thompson, P.C.

511 West Main Street

Belleville, Illinois 62226

EXHIBIT A

IN THE CIRCUIT COURT FOR THE TWENTIETH JUDICIAL CIRCUIT
ST. CLAIR COUNTY, ILLINOIS

If You Are an Illinois Medical Provider (Excluding Hospitals) Who Was a Member of CorVel
Corporation’s Preferred Provider Organization (“PPO”) That Treated a Patient and Had Your Bill
Reduced by the Application of a PPO Reduction or a Usual and Customary Reduction, You May Be
Entitled to Benefits Under This Settlement. Please Read This Notice Carefully,
As It Affects Your Legal Rights

The Circuit Court of the Twentieth Judicial Circuit, St. Clair County, Illinois, authorized this
notice. This is not a solicitation from a lawyer.

•		The lawsuit (Kathleen Roche, D.C. v. CorVel Corporation, Case No. 05 L 101, Circuit Court for the Twentieth Judicial Circuit, St. Clair County, Illinois), was filed on February 15, 2005, and concerns PPO discounts taken pursuant to CorVel’s PPO (or PPOs leased by CorVel) and bill reviews performed by CorVel or utilizing CorVel’s software. The lawsuit alleges that CorVel Corporation (Defendant) improperly advised its insurance company/payor clients that they could apply PPO discounts to the bills of medical providers who had signed preferred provider agreements, because Defendant and the payor clients allegedly did not adequately refer or channel patients to the providers. The lawsuit also alleges that Defendant used biased computer software in reviewing whether the medical bills were usual and customary and otherwise reflected proper charges. Defendant denies the claims and allegations made in the lawsuit.

•		Under the terms of the Settlement, class members will receive a cash payment as compensation for any PPO or Usual and Customary reductions taken by Defendant. The proposed Settlement will not release any claims you may have against Defendant’s insurance company/payor clients.

•		Your legal rights are affected whether you act or don’t act. Please read this Notice carefully.

YOUR LEGAL RIGHTS AND OPTIONS IN THIS SETTLMENT


Do Nothing And You Automatically Participate in the Settlement		If you do nothing and the Court grants final approval of the Settlement, you will automatically be included in the Settlement Class and will automatically be sent a check without having to fill out any claim forms. It also means

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		you are bound by the Court’s orders in the case and give up your right to be part of any other lawsuit concerning the claims in this case. You will receive monetary relief even if you do nothing, unless you exclude yourself from the Settlement, as described below.

Exclude Yourself		You can ask the Court to exclude you from the settlement. If you do so, you will not be entitled to participate in the Settlement, you will not receive any money, and you will not release you right to sue the Defendant. Instructions for filing a Request for Exclusion are provided below.

Object or Comment While Remaining
in the Class		You may comment on the Settlement or you may object to the Settlement, but you may not also file a request for exclusion from the Settlement. If you comment or object, you will still receive the Settlement payments, if they are approved by the Court, and your claims against the Defendant will be released. Instructions for filing a comment or objection are provided below.

Attend the Hearing		You can attend the Final Approval Hearing and ask to speak to the Court about the fairness of the Settlement.

•		These rights and obligations — and the deadlines to exercise them — are explained in this Notice.

•		The Court in charge of this case still has to decide whether or not to approve the Settlement at the Final Approval Hearing. The payment of the Settlement Benefits must be approved by the Court and may be delayed if an appeal is taken. Please be patient.

1. The Litigation. The lawsuit (Kathleen Roche, D.C. v. CorVel Corporation, Case No. 05 L 101, Circuit Court for the Twentieth Judicial Circuit, St. Clair County, Illinois), was filed on February 15, 2005, and concerns PPO discounts taken pursuant to Defendant’s PPO (or PPOs leased by Defendant) and bill reviews performed by Defendant or utilizing Defendant’s software, including Usual and Customary Reductions.

The lawsuit alleges that Defendant improperly advised its insurance company/payor clients that they could apply PPO discounts to the amounts of medical bills paid to healthcare providers who had signed preferred provider agreements with CorVel, when those insurance company/payor clients allegedly did not adequately refer or channel patients to the providers. The lawsuit also alleges that Defendant used biased computer

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software in reviewing whether the medical bills were usual and customary and otherwise reflected proper charges.

2. Defendant’s Position. Defendant has denied and continues to deny these claims asserted in the lawsuit. Defendant contends that the PPO discounts and Usual and Customary Reductions taken by its payor clients fully complied with its preferred provider agreements and applicable law and that its bill review services were proper.

3. Purpose of This Notice. This notice is designed to inform members of the class defined below of the pendency of this litigation and of the proposed Settlement, and to describe class members’ rights and options.

4. Settlement Class. The Court has certified for settlement purposes a class (hereinafter, the “Class”) consisting of:

All Illinois licensed medical providers, excluding hospitals, that between February 15, 1995 and September 24, 2008 (i) were members of Defendant’s PPO network pursuant to a pre-2006 provider contract and (ii) who had their medical bills reduced by application of one or more PPO reductions and/or usual and customary reductions.

To represent the above Class for purposes of the Settlement, the Court has appointed the named plaintiff in this lawsuit as the class representative and has appointed the following attorneys to serve as Class Counsel: Freed & Weiss LLC, and Becker, Paulson, Hoerner & Thompson, P.C.

5. Settlement Benefits. The Settlement Benefits to be paid in this case are more fully described in the Class Action Settlement Agreement, a copy of which is on file with the Court, and will be available on line at www.freedweiss.com. Under the Settlement, Defendant will mail checks to each member of the Settlement Class described above based on the Tax Identification Number used by the member. Members of the Settlement Class who submitted bills under a single Tax Identification Number (“TIN”) shall be considered a single member of the Settlement Class entitled to a one-time payment of $500, $300 or $100 for each TIN as follows: (i) the approximately 7,000 members of the Settlement Class will be ranked in order of the total dollar amount of PPO and usual and customary reductions taken from February 15, 1995 to September 24, 2008 and then divided into three groups; (ii) the first group with the largest total dollar amounts of PPO and usual and customary reductions during this period (consisting of approximately one-third of the members of the Settlement Class) will receive a one-time payment of $500; (iii) the second group with the next largest total dollar amounts of PPO and usual and customary reductions during this period (consisting of approximately one-third of the members of the Settlement Class) will receive a one-time payment of $300; and (iv) the third group with the lowest total dollar amounts of PPO and usual and customary reductions during this period (consisting of approximately one-third of the members of the Settlement Class) will receive a one-time payment of $100. Total Settlement Payments by CorVel under this Settlement will be approximately $2,100,000.00. This

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amount is in addition to other payments to be made by CorVel, including all the attorneys’ fees and costs.

6. Attorneys’ Fees and Expenses. From the filing of the litigation in 2005 to the present, Class Counsel has not received any payment for their services in prosecuting the case, nor have they been reimbursed for any out-of-pocket costs. If the Court approves the proposed Settlement, Class Counsel will apply to the Court for an award of attorneys’ fees and reimbursement of expenses in the total amount of $700,000 based upon the monetary benefit of approximately $2,100,000 the Class will receive. Class Counsel will also ask the Court to have Corvel pay Kathleen Roche, the Class Representative an incentive award of $5,000 for the work she has devoted in pursing the litigation on behalf of the class. Any award of attorneys’ fees and expense and any incentive award will be paid by Defendant, and will not come out of Class Settlement Benefits but be in addtion to them Under no circumstances will you be personally liable for Class Counsel’s attorneys’ fees or expenses or any incentive award.

7. Result If Court Approves Settlement. If the Court approves the Settlement the Court will enter a judgment ordering the Defendant to make the payments to the Class, dismiss the lawsuit , and releasing any and all claims that you may have against Defendant for matters raised in the litigation concerning the PPO and usual and customary reductions taken from the payment of your medical bills.

8. Your Options. If you are a member of the Class, you have the following options:

a. Participate in the Settlement — Receive a Payment of $100, $300 or $500. If you wish to participate in the proposed Settlement, you do not have to do anything. You will receive the Settlement Payments ordered by the Court.

b. Request to be Excluded from the Settlement. If you do not want to participate in the Settlement, then you must send a written Request for Exclusion postmarked no later than _________________, 2010, to CorVel Corporation, [address]. Your Request for Exclusion request must include (i) your full name, address, and telephone number; (ii) your Taxpayer Identification Number; (iii) a statement “I hereby request to be excluded from the Settlement Class and I understand that by excluding myself I will not receive any benefits from the Settlement.”; and (iv) your signature. If you properly and timely file your Request for Exclusion :from the Class: (1) you will be excluded from the Class; (2) you will not be bound by the terms of the Settlement, the judgment dismissing the lawsuit, or the release of claims provided by the Settlement; and (4) you will not be entitled to comment on or object to the Settlement, or be heard at the fairness hearing described in paragraph 9 below.

c. Object or Comment. If you are a member of the Settlement Class and you do not request to be excluded, you may still object to or comment on the terms of the Settlement including objections or comments regarding Class Counsel’s request for attorneys’ fees and expenses or the incentive award. You

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may, but need not, enter an appearance through counsel of your choice. If you do, you will be responsible for your own attorneys’ fees and costs.

If you object to the Settlement, you must, on or before ________________, 2010: (1) file your objection with the Clerk of the Circuit Court, Twentieth Judicial Circuit, St. Clair County, Illinois, located at the St. Clair County Building, 10 Public Square, Belleville, Illinois 62220, and (2) serve on Paul M. Weiss, Freed & Weiss LLC, 111 W. Washington St., Suite 1331, Chicago, Illinois 60602 (Class Counsel) and James H. Bowhay, Figliulo & Silverman, P.C., 10 S. LaSalle St., Suite 3600, Chicago, Illinois 60603 (Defendant’s Counsel), a written objection, including (i) your full name, address, and telephone number; (ii) your Taxpayer Identification Number; (iii) a statement confirming that you are a member of the Settlement Class; (iv) a written statement of all grounds for your objection, accompanied by any legal support for your objection; (v) copies of any papers, briefs, or other documents on which the objection is based; (vi) a list of all person who will be called to testify in support of your objection (if any); (vii) a statement of whether you intend to appear at the fairness hearing; and (viii) your signature or your counsel’s signature. Also, in your objection please include a reference to Roche v. CorVel Corporation, Case No. 05-L-101. If you intend to appear at the fairness hearing through counsel, your objection must also state the identity of all attorneys representing you who will appear at the fairness hearing and they must enter their appearance no later than _____, 2010. Class members who do not timely make their objections in this manner will be deemed to have waived all objections and shall not be heard at the fairness hearing or have the right to appeal from approval of the Settlement.

9. Fairness Hearing. On _____________, 2010, at _________ .m., in the courtroom of the Honorable Lloyd A. Cueto, or any judge sitting in his stead, Twentieth Judicial Circuit, St. Clair County, Illinois, located at the St. Clair County Building, 10 Public Square, Belleville, Illinois 62220, the Judge will hold a fairness hearing for the purpose of deciding (a) whether the Settlement should be approved as fair, reasonable, and adequate for the class; (b) whether a judgment granting approval of the Settlement and dismissing the lawsuit with prejudice should be entered; and (c) whether Class Counsel’s application for attorneys’ fees and expenses and the incentive award should be granted. The hearing may be postponed, adjourned, or rescheduled by the Court without further notice to the class. You do not need to attend this hearing to remain a class member or participate in the Settlement.

10. Examination of Papers Filed in the Case. This Notice is a summary and does not describe all details of the Settlement. For full details of the matters discussed in this Notice, you may wish to review the Class Action Settlement Agreement dated ________________, 2010, available upon request made to [insert email address]. A complete copy of the Class Action Settlement Agreement and all other pleadings and papers filed in the lawsuit are also available for inspection and copying during regular business hours at the Office of the Clerk of the Circuit Court, Twentieth Judicial Circuit,

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St. Clair County, Illinois, located at the St. Clair County Building, 10 Public Square, Belleville, Illinois 62220.

11. Additional Information. You can obtain a copy of the Complaint, the Class Action Settlement Agreement, and this Notice at www.freedweiss.com; copies of the requested document(s) will be sent to you as attachments to an email responding to the address from which the request was made. You can also direct inquiries to Class Counsel at Info@FreedWeiss.com or by mail at Paul M. Weiss, Freed & Weiss LLC, 111 West Washington Street, Suite 1331, Chicago, Illinois 60602. Please include the reference Roche v. CorVel Corporation, Case No. 05-L-101.

PLEASE DO NOT CONTACT THE COURT WITH QUESTIONS ABOUT THIS NOTICE


DATED:	BY ORDER OF THE CIRCUIT COURT FOR THE TWENTIETH JUDICIAL CIRCUIT, ST. CLAIR COUNTY, ILLINOIS

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EXHIBIT B

IN THE CIRCUIT COURT FOR THE TWENTIETH JUDICIAL CIRCUIT
ST. CLAIR COUNTY, ILLINOIS


KATHLEEN ROCHE, D.C., individually	)
and on behalf of others similarly situated,	)
	)
Plaintiff,	)	No. 05 L 101
	)
v.	)	Judge Lloyd A. Cueto
	)
CORVEL CORPORATION,	)
	)
Defendant.	)

PRELIMINARY APPROVAL ORDER

This matter having come before the Court on Plaintiff’s motion for preliminary approval of a proposed class action Settlement Agreement and General Release, dated October __, 2010 (“Settlement Agreement”), between plaintiff, Kathleen M. Roche, D.C. (“Plaintiff”), on the one hand, and defendant, CorVel Corporation (“CorVel”), on the other hand, the Court, having duly considered the papers and arguments of counsel, hereby finds and orders as follows:

1. Unless defined herein, all defined terms in this Order shall have the same meanings that the same terms have in the Settlement Agreement.

2. The Court has conducted a preliminary evaluation of the settlement by reviewing the Settlement Agreement, the arguments of counsel, and the record in this action. Based on that evaluation, the Court finds that there is probable cause to believe that the settlement is fair, adequate, and reasonable, and has been negotiated at arm’s-length. The Court, therefore, grants preliminary approval of the settlement.

3. The Court preliminarily finds that, for settlement purposes, the requirements of 735 ILCS 5/2-801, et seq., have been satisfied. The Settlement Class is

so numerous that joinder of all members is impracticable; there are questions of fact or law common to the Settlement Class, which common questions predominate over any questions affecting only individual members; the Plaintiff will fairly and adequately protect the interests of the Settlement Class; and a class action settlement is an appropriate method for the fair and efficient resolution of the controversy.

4. For settlement purposes only, the Court conditionally certifies the proposed Settlement Class, consisting of all Illinois licensed medical providers, excluding hospitals, that between February 15, 1995 and September 24, 2008 (i) were members of CorVel’s CorCare PPO Network pursuant to a pre-2006 CorCare provider contract and (ii) had their medical bills reduced by application of a PPO Reduction and/or a Usual and Customary Reduction. Each member of the Settlement Class that submitted bills under a single Tax Identification Number (“TIN”) shall be considered a single member of the Settlement Class for purposes of this settlement. Excluded from the Settlement Class are all persons who submitted valid requests for exclusion from the Settlement Class.

5. For settlement purposes only, the Court hereby appoints Plaintiff Kathleen Roche, D.C. as representative of the Settlement Class and preliminarily appoints Freed & Weiss LLC and Becker, Paulson, Hoerner & Thompson, P.C. as settlement class counsel.

6. On , 2010, at a.m./p.m., this Court will hold a fairness hearing on the fairness, adequacy, and reasonableness of the Settlement Agreement and proposed settlement, and to determine whether (a) final approval of the Settlement should be granted; (b) settlement class counsel’s application for attorney’s fees and expenses should be granted, and in what amount; and (c) whether the request for incentive awards for Plaintiff should be granted, and in what amount. No later than seven

(7) calendar days before the fairness hearing, Plaintiff must file her papers in support of final settlement approval and in response to any objections filed to date. Defendant may (but is not required to) file papers in support of final settlement approval, so long as it does so no later than seven (7) calendar days before the fairness hearing.

7. Subject to the Court’s consideration of additional evidence regarding the issue of notice at the fairness hearing, and based on the documents subjected and information provided to the Court in connection with preliminary approval, the Court approves the proposed plan for giving notice to the Settlement Class. The plan for giving notice, in form, method, and content, fully complies with the requirements of circumstances, and is due and sufficient notice to all persons entitled to notice of the settlement. The Court hereby directed the parties and Settlement Administrator to carry out the notice plan in accordance with the Settlement Agreement.

8. All persons who meet the definition of the Settlement Class and who wish to exclude themselves from the Settlement Class and the settlement must submit an exclusion request postmarked by , 2011. The request for exclusion in writing and state the name of the class member, and any former name if applicable, a current address and former address, if applicable, and the applicable Tax Identification Number(s) used by the provider in connection with any CorVel preferred provider network. The request for exclusion must be signed by the class member. Each request must state that: “I hereby request to be excluded from the Settlement Class and I understand that by excluding myself I will not receive any benefits from the Settlement.” The request for exclusion must be mailed to the address provided and must be postmarked no later than , 2011. Any request for exclusion not complying

with these requirements will be invalid. No member of the Settlement Class may assert a right of exclusion for any other member of the Settlement Class, nor for any group of Settlement Class members, nor may an agent or representative for any Settlement Class member, or group of Settlement Class members, file a request for exclusion.

9. Any member of the Settlement Class may comment in support of or in opposition to the settlement. A Settlement Class member who objects to the settlement need not appear at the fairness hearing for his or her comments to be considered by the Court; however, all arguments, papers, briefs, and any evidence that any objector would like the Court to consider must be filed with the Court, with a copy mailed to counsel for the Settlement Class and CorVel, by , 2011. Written objections must include: (i) the objector’s name, address, telephone number, and Tax Identification Number; (ii) the name of this Litigation and case number; (iii) a statement of each objection; (iv) a written brief detailing the specific reasons, if any, for each objection; and (v) any factual support that the objector wishes to bring to the Court’s attention and any evidence the objector wishes to introduce in support of the objection(s). Objecting members of the Settlement Class who appear by counsel or who intend to testify in support of their objection either in person or by affidavit must also make themselves available for deposition by counsel for the Settlement Class or CorVel in their county of residence, between the time the objection is filed and fourteen (14) days before the date of the fairness hearing. Any objecting member of the Settlement Class who files and serves a written objection, as described in this paragraph, may appear at the fairness hearing, either in person or through personal counsel hired at the Settlement Class

member’s expense, to object to the fairness, reasonableness, or adequacy of the settlement.

10. Any Settlement Class member who fails to object in the manner prescribed in paragraph 9 shall be deemed to have waived his or her objections and forever be barred from making any such objections in this Litigation or in any other action or proceeding. If a Settlement Class member does not submit a written comment on the proposed settlement or the application of Plaintiff’s counsel for incentive awards, attorney’s fees and expenses in accordance with the deadline and procedure set forth in the Notice, and the Settlement Class member is not granted relief by the Court, the Settlement Class member will waive his or her right to be heard at the fairness hearing.

11. In further aid of the Court’s jurisdiction to implement and enforce the settlement, Plaintiffs and members of the Settlement Class are preliminarily enjoined and barred from commencing or prosecuting any action or proceeding asserting any of the Released Claims either directly, derivatively, or in any other capacity, whether by a complaint, counterclaim, defense, or otherwise, in any local, state or federal court, or in any agency or other authority or forum wherever located. Any person or entity that knowingly violates such injunction shall pay the costs and attorneys’ fees incurred by any Released Party as a result of such violation.

12. The Settlement Agreement and the proceedings taken and statements made pursuant to the Settlement Agreement or papers filed seeking approval of the Settlement Agreement, and this Order, are not and shall not in any event be construed as, offered in evidence as, received in evidence as, and/or deemed to be evidence of a presumption, concession, or admission of any kind by any of the parties of (i) the truth of

any fact alleged or the validity of any claim or defense that has been, could have been, or in the future might be asserted in the Litigation, or any other litigation, court of law or equity, proceeding, arbitration, tribunal, investigation, government action, administrative proceeding, or other forum, or (ii) any liability, responsibility, fault, wrongdoing, or other allegedly wrongful act or omission of CorVel. CorVel has denied and continues to deny the claims asserted by Plaintiff. Nothing contained herein shall be construed to prevent a party from offering the Settlement Agreement into evidence for purposes of enforcement of the Settlement Agreement.

13. The preliminary certification of the Settlement Class shall be binding only with respect to the settlement of this Litigation. In the event that the Settlement Agreement is terminated pursuant to its terms or is not approved in all material respects by the Court, or such approval is reversed, vacated, or modified in any material respect by this or any other court, the certification of the Settlement Class shall be deemed vacated, the Litigation shall proceed as if the Settlement Class has never been certified, and no reference to the Settlement Class, the Settlement Agreement, or any documents, communications, or negotiations related in any way thereto shall be made for any purpose in this Litigation or any other action or proceeding.

EXHIBIT C

IN THE CIRCUIT COURT FOR THE TWENTIETH JUDICIAL CIRCUIT
ST. CLAIR COUNTY, ILLINOIS


KATHLEEN ROCHE, D.C., individually	)
and on behalf of others similarly situated,	)
	)
Plaintiff,	)	No. 05 L 101
	)
v.	)	Judge Lloyd A. Cueto
	)
CORVEL CORPORATION,	)
	)
Defendant.	)

FINAL JUDGMENT AND ORDER

This matter having come before the Court on Plaintiff’s motion for final approval of a proposed class action Settlement Agreement and General Release, dated October __, 2010 (“Settlement Agreement”), between plaintiff, Kathleen M. Roche, D.C. (“Plaintiff”), on the one hand, and defendant, CorVel Corporation (“CorVel”), on the other hand, and the Court, having held a farness hearing on the fairness, adequacy, and reasonableness of the settlement and considered all of the written submissions and oral arguments made in connection with final settlement approval, the Court hereby finds and orders as follows:

1. Unless defined herein, all defined terms in this Final Judgment and Order shall have the same meanings that the same terms have in the Settlement Agreement.

2. Notice to the Settlement Class has been provided in accordance with the Court’s Preliminary Approval Order. The notice, in form, method, and content, fully complies with the requirements of 735 ILCS 5/2-803 and due process, constituted the best notice practicable under the circumstances, and constituted due and sufficient notice to all persons entitled to notice of the settlement.

3. The settlement consideration provided under the Settlement Agreement constitutes fair value given in exchange for the releases. The Court finds that the consideration to be paid to members of the Settlement Class is reasonable, considering the facts and circumstances of the claims and affirmative defenses asserted in the Litigation, and the potential risks and likelihood of success of alternatively pursing a trial on the merits.

4. The Settlement Agreement was arrived at through good-faith bargaining at arm’s-length, without collusion, conducted by counsel with substantial experience in prosecuting and resolving class actions.

5. Accordingly, the Court finds that the Settlement Agreement is fair, adequate, and reasonable, and in the best interests of the Settlement Class in light of the complexity, expense, and duration of litigation and the risks involved in establishing liability and damages and in maintaining the class action through trial and appeal.

6. The persons listed on Exhibit A hereto are found to have validly excluded themselves from the Settlement Class and the settlement in accordance with the provisions of the Preliminary Approval Order.

7. All Settlement Class members who failed to submit an objection to the Settlement in accordance with the deadline and procedure set forth in the Preliminary Approval Order are deemed to have waived and are forever foreclosed from raising the objection.

8. The parties, the Released Parties, and each Settlement Class member who did not timely exclude himself or herself from the Settlement Class have irrevocably submitted to the exclusive jurisdiction of this Court for any suit, action, proceeding, or

dispute relating in any way to, or arising out of, the Released Claims, the Settlement Agreement, the Preliminary Approval Order, or this Final Judgment and Order.

9. The parties are directed to consummate the Settlement Agreement in accordance with its terms. The parties and any and all Settlement Class members who did not timely exclude themselves from the Settlement Class are bound by the terms and conditions of the Settlement Agreement and this Order.

10. The Court makes final its previous conditional certification of the Settlement Class, defined as all Illinois licensed medical providers, excluding hospitals, that between February 15, 1995 and September 24, 2008 (i) were members of CorVel’s CorCare PPO Network pursuant to a pre-2006 CorCare provider contract and (ii) had their medical bills reduced by application of a PPO Reduction and/or a Usual and Customary Reduction. Each member of the Settlement Class that submitted bills under a single Tax Identification Number (“TIN”) shall be considered a single member of the Settlement Class for purposes of this settlement.

11. The Court finds that, for settlement purposes, the requirements of 735 ILCS 5/2-801, et seq., and due process have been satisfied. The Settlement Class is so numerous that joinder of all members is impracticable; there are questions of fact or law common to the Settlement Class, which common questions predominate over any questions affecting only individual members; the Plaintiff will fairly and adequately protect the interests of the Settlement Class; and a class action settlement is an appropriate method for the fair and efficient resolution of the controversy.

12. The preliminary appointment of Plaintiff Kathleen Roche, D.C. as representative of the Settlement Class and preliminarily appointment of Freed & Weiss

LLC and Becker, Paulson, Hoerner & Thompson, P.C. as settlement class counsel is hereby made final. Settlement class counsel are experienced in class litigation, including litigation of similar claims in other cases, and have fairly and adequately protected the interests of the Settlement Class.

13. The Litigation is hereby dismissed with prejudice and without costs, except as provided in the Settlement Agreement.

14. By operation of this Final Judgment and Order, the Releasing Parties hereby release the Released Parties from all Released Claims; provided, however, that the release of the Released Parties does not include any Claims that the members of the Settlement Class may have against any payor who took a PPO Reduction or a Usual and Customary Reduction.

a. As used in this Order, the “Releasing Parties” mean Plaintiff and each member of the Settlement Class (except a person who has obtained proper and timely exclusion from the Settlement Class pursuant to the terms of the Preliminary Approval Order), on their own behalf and on behalf of their spouses and former spouses, as well as their present, former, and future administrators, agents, assigns, employees, attorneys, executors, heirs, partners, predecessors-in-interest, successors, parents, subsidiaries, affiliates, divisions, officers, directors, and shareholders.

b. As used in this Order, the “Released Parties” means CorVel and its present, former, and future agents, assigns, employees, attorneys, executors, heirs, partners, predecessors-in-interest, successors, parents, subsidiaries, affiliates, divisions, officers, directors, and shareholders. “Released Persons do

not include any payor that took a PPO Reduction or Usual and Customary Reduction.

c. As used in this Order, “Released Claims means all those Claims described in paragraphs 11 and 12 of the Settlement Agreement.

15. The releases in this Order and Settlement Agreement include Claims that are currently unknown, and the releases are intended to and will fully, finally and forever discharge all Released Claims that now exist, or heretofore existed or may hereafter exist, which, if known, might have affected the decision of the Releasing Parties to enter into this Agreement. Each Releasing Party is deemed to waive any and all provisions, rights, and benefits conferred by any law of the United States, any state or territory of the United States, or any state or territory of any other country, or principle of common law or equity, which governs or limits a person’s release of unknown claims. In making this waiver, the Releasing Parties understand and acknowledge that they may hereafter discover facts in addition to or different from those that are currently known or believe to be true with respect to the subject matter of this release, but agree that they have taken that possibility into account in reaching this Settlement Agreement, and that, notwithstanding the discovery or existence of any such additional or different facts, as to which the Releasing Parties expressly assume the risk, they fully, finally and forever settle and release any and all Released Claims, asserted or unasserted, known or unknown, suspected or unsuspected, foreseen or unforeseen, actual or contingent, and liquidated or unliquidated, which now exist, or heretofore exited, or may hereafter exist, and without regard to the subsequent discovery or existence of such additional or different facts.

16. The Releasing Parties are permanently enjoined and barred from commencing or prosecuting any action or proceeding asserting any of the Released Claims, either directly, representatively, derivatively, or in any other capacity, whether by a complaint, counterclaim, defense, or otherwise, in any local, state or federal court, or in any agency or other authority or forum wherever located. Any person or entity that knowingly violates such injunction shall pay the costs and attorneys’ fees incurred by any Released Party as a result of such violation.

17. The Court makes the following awards to Plaintiff and Settlement Class Counsel:

	a.		$ as attorney’s fees and costs to Settlement Class Counsel, an award that the Court finds reasonable after considering all relevant factors (including the time and labor expended by counsel, their skill in handling the questions raised in the case, and the amount in controversy and results obtained), to be distributed in their discretion; and

	b.		$ as an incentive award to Plaintiff.

18. Without affecting the finality of this Final Judgment and Order, the Court retains exclusive jurisdiction over this Litigation, the parties, and all Settlement Class members to determine all matters relating in any way to the Released Claims, Final Judgment and Order, the Preliminary Approval Order, or the Settlement Agreement, including but not limited to the administration, implementation, interpretation, or enforcement of such Settlement Agreement or Orders.

19. The Settlement Agreement and the proceedings taken and statements made pursuant to the Settlement Agreement or papers filed seeking approval of the Settlement Agreement, and this Order, are not and shall not in any event be construed as, offered in evidence as, received in evidence as, and/or deemed to be evidence of a presumption, concession, or admission of any kind by any of the parties of (i) the truth of any fact alleged or the validity of any claim or defense that has been, could have been, or in the future might be asserted in the Litigation, or any other litigation, court of law or equity, proceeding, arbitration, tribunal, investigation, government action, administrative proceeding, or other forum, or (ii) any liability, responsibility, fault, wrongdoing, or other allegedly wrongful act or omission of CorVel. CorVel has denied and continues to deny the claims asserted by Plaintiff. Nothing contained herein shall be construed to prevent a party from offering the Settlement Agreement into evidence for purposes of enforcement of the Settlement Agreement.

20. The certification of the Settlement Class shall be binding only with respect to the settlement of this Litigation. In the event that the Settlement Agreement is terminated pursuant to its terms or is not approved in all material respects by the Court, or such approval is reversed, vacated, or modified in any material respect by this or any other court, the certification of the Settlement Class shall be deemed vacated, the Litigation shall proceed as if the Settlement Class has never been certified, and no reference to the Settlement Class, the Settlement Agreement, or any documents, communications, or negotiations related in any way thereto shall be made for any purpose in this Litigation or any other action or proceeding.

21. Neither Settlement Class Counsel’s application for incentive awards, attorney’s fees and expenses, nor any order or proceedings relating to such application, nor any appeal from any order relating thereto or reversal or modification thereof, shall in any way affect or delay the finality of this Judgment, and all such matters shall be considered separate from this Final Judgment and Order.

22. The Court directs the Clerk to enter final judgment.

EX-31.1 3 a57738exv31w1.htm EX-31.1 exv31w1

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel J. Starck, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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: November 5, 2010



	/s/ DANIEL J. STARCK
	Daniel J. Starck
	Chief Executive Officer (Principal Executive Officer)

EX-31.2 4 a57738exv31w2.htm EX-31.2 exv31w2

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott R. McCloud, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CorVel Corporation;

(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: November 5, 2010



	/s/ SCOTT R. MCCLOUD
	Scott R. McCloud
	Chief Financial Officer (Principal Financial Officer)

EX-32.1 5 a57738exv32w1.htm EX-32.1 exv32w1

Exhibit 32.1

This certification accompanies this 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 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 to the extent that the Registrant specifically incorporates it by reference into such a filing.

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CorVel Corporation (the “Registrant”) on Form 10-Q for the period ended September 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), I, Daniel J. Starck, 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 best knowledge:

(1) the Quarterly 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 Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: November 5, 2010



	/s/ DANIEL J. STARCK
	Daniel J. Starck
	Chief Executive Officer

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.

EX-32.2 6 a57738exv32w2.htm EX-32.2 exv32w2

Exhibit 32.2

This certification accompanies this 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 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 to the extent that the Registrant specifically incorporates it by reference into such a filing.

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CorVel Corporation (the “Registrant”) on Form 10-Q for the period ended September 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), I, Scott R. McCloud, 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 Quarterly 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 Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: November 5, 2010



	/s/ SCOTT R. MCCLOUD
	Scott R. McCloud
	Chief Financial Officer

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