Exhibit 10.1

 

Execution Version

 

CREDITOR PLAN

 

THIS CREDITOR PLAN (“Agreement”) is made and entered into as of November 8,
2008, by and among:  FAVRILLE, INC., a Delaware corporation (“Parent”);
MYMEDICALRECORDS.COM, INC., a Delaware corporation (the “Company”); and KERSHAW,
MACKIE & CO., as the Administrative Agent (defined below). Certain other
capitalized terms used in this Agreement are defined in that certain Agreement
and Plan of Merger and Reorganization of even date herewith (the “Merger
Agreement”), by and among Parent, MONTANA MERGER SUB, INC., a Delaware
corporation and a wholly owned subsidiary of Parent (“Merger Sub”) and the
Company.

 

RECITALS

 

WHEREAS, Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub with and into the Company (the “Merger”) pursuant to the Merger Agreement;

 

WHEREAS, in order to induce Parent to enter into the Merger Agreement,
concurrently with the execution and delivery of the Merger Agreement, the
Company has agreed to execute this Agreement, pursuant to which Parent intends
to arrange for the settlement of all of its outstanding known creditor claims
and obtain releases from Parent’s creditors, subject to the terms and conditions
set forth herein;

 

WHEREAS, Parent has engaged in, or intends to enter into, negotiations with
(a) the trade creditors of Parent (the “Trade Creditors”), (b) the former
employee creditors of Parent (the “Employee Creditors”) and (c) the former or
current executives and members of the board of director creditors of Parent (the
“Executive Creditors”), with each of the individual creditors  identified on
Exhibit A hereto (individually a “Creditor,” and collectively, the “Creditors”)
for the purpose of negotiating a resolution of the Creditor claims set forth
opposite the Creditors’ names on Exhibit A hereto (the “Claims”);

 

WHEREAS, Parent has offered each of the Trade Creditors settlement agreements in
the form of Exhibit B-1 hereto, has offered each of the Employee Creditors
settlement agreements in the form of Exhibit B-2 hereto and has offered each of
the Executive Creditors settlement agreements (including a separate form of
settlement agreement for John P. Longenecker) in the form of Exhibit B-3 hereto
(each, a “Settlement Agreement,” and collectively, the “Settlement Agreements”)
and Parent has entered into individual Settlement Agreements with Creditors
consistent with the form of Settlement Agreement offered to the Creditors; and

 

WHEREAS, it is a condition to the Closing of the Merger that Creditors holding
at least 85% of the dollar value of all known Claims against Parent shall have
entered into Settlement Agreements with Parent in accordance with this
Agreement.

 

AGREEMENT

 

NOW THEREFORE, the parties to this Agreement agree as follows:

 

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1.                                      RESOLUTION OF CREDITOR CLAIMS.

 

1.1          Negotiation of Settlement Agreements.  Promptly following the
execution of this Agreement, Parent and Administrative Agent agree to continue
to negotiate and/or initiate negotiations with all Creditors which have not
previously executed and delivered Settlement Agreements to Parent related to
their respective Claims.  Prior to the Effective Time, Parent, and following the
Effective Time, Administrative Agent, agrees to provide the Company from time to
time upon request updates regarding the status of the Claims and negotiations
with the Creditors and shall promptly deliver to the Company any Settlement
Agreements executed at any time after the execution of this Agreement.  The
Company hereby acknowledges that prior to the Effective Time, Parent, and
following the Effective Time, Administrative Agent, shall have authority, in
their discretion, to negotiate the terms and conditions of any Settlement
Agreement  and execute such Settlement Agreements provided that Parent and
Administrative Agent otherwise comply with the terms of this Agreement, the
Merger Agreement and the Escrow Agreement.  Each Settlement Agreement shall
explicitly provide that the amount of any Claim owed by Parent to a Creditor in
excess of (i) the amount of cash delivered pursuant to Section 1.2(a) below,
(ii) the face value of any promissory notes issued by Parent as installment
payments pursuant to Section 1.2(b) below and (iii) shares of Parent Common
Stock issued by Parent pursuant to Section 1.2(c) below, in each case shall be
forfeited by such Creditors either upon the earlier of (a) funding of the full
payment under the applicable Settlement Agreement or (b) upon the Closing of the
Merger.

 

1.2          Forms of Creditor Payments.  Parent and Administrative Agent agree
that the Settlement Agreements shall, in the aggregate, provide for no greater
than the following payments to the Creditors (which payments shall be the only
permissible forms of consideration available to Parent and Administrative Agent
for purposes of satisfying Claims pursuant to this Agreement) in exchange for
the execution and delivery of the Settlement Agreements and the release of all
Claims such Creditors may have against Parent:

 

(a)           Cash Payments at Closing; Escrow.  Parent may agree to deliver to
one or more Creditors between $1.47 million and $1.55 million in cash (which
amount depends upon the number of Creditors electing to accept Notes (defined
below) as full or partial settlement of their Claims) upon the earlier of
(i) such time as the Company has received fully executed and delivered
Settlement Agreements from Creditors holding an aggregate of at least 85% of the
face value of the Claims and (ii) the Closing (the “Cash Payments”), with any or
all of the $1.55 million not otherwise paid to Creditors on or prior to Closing
to be delivered at Closing to a third party escrow fund  as a reserve to fund
Settlement Agreements offered to Creditors by Parent prior to Closing who have
not otherwise executed Settlement Agreements on or prior to the Effective Time
(the “Escrow Fund”).  Parent and the Company agree to negotiate in good faith,
prior to the Closing, the terms of an escrow agreement which will govern
distributions from and the other terms and conditions applicable to the Escrow
Fund (the “Escrow Agreement”), including provisions for release of funds
remaining in the Escrow Fund to Company after completion of the Claims
settlement process.  The Escrow Agreement will provide for, among other things,
an escrow agent mutually agreeable to both parties, termination of the Escrow
Fund upon the earlier of distribution of all remaining cash in the Escrow Fund
or two years from the Effective Date, as well as the identification of Kershaw,
Mackie & Co. as the Administration Agent under the Escrow Agreement with
authority to direct and approve distributions from the Escrow Fund in
satisfaction of any Claims that may survive the Effective Time.

 

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(b)           Installment Payments.  Prior to the Effective Time, Parent, and
following the Effective Time, Administrative Agent, may agree to deliver to one
or more Creditors in the aggregate between $800,000 and $1.16 million in face
amounts of promissory notes issued by Parent (which amount depends upon the
number of Creditors electing to accept Cash Payments as full or partial
settlement of their Claims), the form of which notes is attached as Exhibit C
hereto (“Notes”), which Notes shall bear no interest and be repaid (i) in
eighteen (18) equal monthly installments beginning six (6) months following the
Closing with the Notes maturing on the two (2) year anniversary of Closing, and
(ii) in the case of the Executive Creditors, in one lump-sum payment on
August 31, 2009 pursuant to the Executive Creditors settlement agreement. Parent
may at any time on or after the Closing deposit into the Escrow Fund the maximum
amount of cash (up to $1.16 million, which maximum amount will be confirmed by
Parent to the Company on or before the Closing based upon the terms of the
Settlement Agreements executed on or prior to Closing) potentially payable in
satisfaction of the Notes and Parent and the Company agree that the Escrow
Agreement will include provision for any such deposit and the terms which will
govern distributions from the Escrow Fund as installment payments on the Notes
as well as provision for release of funds reserved for repayment of the Notes,
if any, after completion of the Claims settlement process. The Cash Payments,
together with the issuance of and obligations under the Notes are collectively
referred to as the “Creditor Payments”.

 

(c)           Payments in Parent Stock.  At the Closing, Parent will deliver
either shares of Parent Common Stock or warrants to acquires shares of Parent
Common Stock that have been reserved under the Creditor Stock Pool to the
Executive Creditors and Trade Creditors who have executed Settlement Agreements
that require the issuance of shares of Parent Common Stock; provided that no
warrants to acquire Parent Common Stock or shares of Parent Common Stock will be
issued from the Creditor Stock Pool to any Creditor that is not an “accredited
investor” as defined under the Securities Act. Parent, Administrative Agent and
the Company agree to cooperate in good faith and use commercially reasonable
efforts to ensure that all Creditors who will receive shares from the Creditor
Stock Pool (i) if such shares are to be received at any time prior to the filing
of Parent’s first Annual Report on Form 10-K due following the Closing, receive
a copy of the Information Statement, (ii) have had an opportunity to discuss
Parent’s and the Company’s business, management and financial affairs with
directors, officers and management of Parent and the Company, (iii) have had an
opportunity to review Parent’s and the Company’s operations and facilities to
the extent reasonably requested, (iv) have had the opportunity to ask questions
of and receive answers from, Parent and the Company and their management
regarding the terms and conditions of the Merger and their proposed investment
in order to allow them to make an informed decision about whether to accept
Parent Common Stock in connection with their Settlement Agreement. Parent and
the Company shall cooperate to take such actions and perform such acts as each
may consider necessary or advisable to ensure that the issuance of shares from
the Creditor Stock Pool to any Creditor will comply with all applicable federal
and state securities laws.

 

1.3          Closing.  The initial Creditor Payments required under signed
Settlement Agreements shall be paid once the Company has received fully executed
and delivered Settlement Agreements from Creditors holding an aggregate of at
least 85% of the face value of the Claims.

 

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1.4          Issuance of Certificates for Parent Stock.  On the Closing Date, to
the extent Parent has received (i) all documentation reasonably necessary to
confirm that the Creditors who have agreed to receive shares of Parent Common
Stock from the Creditor Stock Pool pursuant to their respective Settlement
Agreements are “accredited investors” as defined under the Securities Act, and
(ii) such additional documentation as Parent or its transfer agent may
reasonably require, Parent shall instruct its transfer agent to issue
certificates representing shares of Parent Common Stock from the Creditor Stock
Pool to each Creditor entitled to receive such shares pursuant to
Section 1.2(c) in accordance with such Creditors’ Settlement Agreements.

 

1.5          Restructuring and Subordination.  On the Closing Date, the Company
shall enter into an allonge for the amended and restated promissory note and
security agreement with The RHL Group, Inc., a California corporation, in the
form of Exhibit D hereto.

 

1.6          Further Action.  If, at any time after the date of this Agreement
(including without limitation after the Effective Time), any further action is
reasonably determined by the Administrative Agent to be necessary or desirable
to carry out the purposes of this Agreement and any Settlement Agreement, or to
vest the Administrative Agent with full right and authority to settle or
otherwise resolve any Claims that may remain outstanding following the Effective
Time in accordance with the limitations set forth in Section 1.2 and the Escrow
Agreement, the Administrative Agent and its officers, directors and authorized
representatives shall be fully authorized (in the name of Parent, Merger Sub,
the Company, the Surviving Corporation and otherwise) to take such action.

 

2.                                      ADMINISTRATIVE AGENT.

 

2.1          Appointment of Administrative Agent.  In order to efficiently
administer the Escrow Fund and the resolution of any Claims that may remain
outstanding following the Effective Time, Parent and the Company, by the
adoption of this Agreement, shall be deemed to have designated Kershaw, Mackie &
Co., as the administrative agent under the Escrow Agreement (the “Administrative
Agent”).

 

2.2          Successor Representatives.  Following the Closing, in the event the
Administrative Agent dies, becomes unable to perform his or her responsibilities
hereunder or resigns from such position, the Board of Directors of Parent shall
be authorized to and shall select another representative to fill such vacancy
and such substituted representative shall be deemed to be the Administrative
Agent for all purposes of this Agreement and the Escrow Agreement.

 

2.3          Binding Effect.  Following the Closing, Administrative Agent is
hereby authorized to negotiate and obligate Parent to Settlement Agreements with
Creditors who have not otherwise executed Settlement Agreements prior to the
Closing, provided that the dollar value of the Cash Payments and the face amount
of the Notes included in such Settlement Agreements, together with the dollar
value of the Cash Payments and the face amount of the Notes included in
Settlement Agreements entered into prior to the Closing, shall not in the
aggregate exceed the maximum dollar value of Cash Payments identified in
Section 1.2(a) and maximum face amount of the Notes identified in
Section 1.2(b), and all decisions and actions by the Administrative Agent in
accordance with the terms of this Agreement shall be binding upon

 

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Parent and the Company, and neither Parent nor the Company shall have the right
to object, dissent, protest or otherwise contest any such decision or action;
provided, however, that the Administrative Agent shall not negotiate or obligate
Parent to any individual Settlement Agreement that provides for any recovery on
a Claim for any individual Creditor in excess of 110% of the average “percentage
recovery” for all Trade Creditors that have executed Settlement Agreements prior
to the Closing. The “percentage recovery” described in the preceding sentence
shall be calculated by dividing (i) the sum of the dollar value and face value
of Creditor Payments issued to a Trade Creditor pursuant to his, her or its
Settlement Agreement, by (ii) the amount of the Claim identified in the relevant
Settlement Agreement. Notwithstanding the foregoing, Parent shall not be
obligated to any Creditor under a Note until such Note is signed by Parent.

 

2.4          No Liability.  Following the Closing, as between Parent and the
Company on the one hand, and the Administrative Agent on the other, the
Administrative Agent shall not be liable for any act done or omitted pursuant to
the authority granted to it hereunder as Administrative Agent while acting in
good faith.

 

2.5          Reliance on Authority; Attorney-in-Fact; Waiver of Action.  By
their adoption of this Agreement, Parent and the Company shall be deemed to have
agreed, in addition to the foregoing, that, following the Closing:

 

(a)           all decisions and actions of the Administrative Agent shall be
final and binding upon Parent and the Company and their Affiliates once the Note
and/or the Settlement Agreement, as applicable, has been signed; and

 

(b)           Parent and the Company agree to undertake commercially reasonable
efforts, including all steps and efforts contemplated by this Agreement, that
are necessary or appropriate to effectuate or carry out the terms hereof and
agree to promptly execute any document and take any action necessary to fulfill
or abide by the terms of this Agreement, including without limitation promptly
executing any Settlement Agreement, Note or other instrument delivered to Parent
by the Administrative Agent as part of the resolution of a Claim as long as such
Settlement Agreement, Note or other instrument comports with the limitations set
forth in Section 2.3.

 

3.                                      TERMINATION.  This Agreement will
terminate automatically in the event of any termination of the Merger Agreement,
and in such event this Agreement shall be of no further force or effect;
provided, however, that this Section 3 and Section 4 shall survive the
termination of this Agreement and shall remain in full force and effect.

 

4.                                      MISCELLANEOUS PROVISIONS.

 

4.1          Further Assurances.  Each party hereto shall execute and cause to
be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.

 

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4.2          Expenses.  All fees and expenses incurred in connection with this
Agreement and the transactions contemplated by this Agreement shall be paid by
the party incurring such expenses, whether or not the Merger is consummated.

 

4.3          Attorneys’ Fees.  If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys’ fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).

 

4.4          Notices.  Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing and shall
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):

 

if to Parent:

 

FAVRILLE, INC.

4401 Eastgate Mall

San Diego, CA 92121

Attn:  Tamara A. Seymour

Fax: (858) 677-0800

 

with copy to (which copy shall not constitute notice):

 

COOLEY GODWARD KRONISH LLP

4401 Eastgate Mall

San Diego, CA 92121

Attn:  Barbara L. Borden, Esq.

Fax: (858) 550-6420

 

if to the Company:

 

MYMEDICALRECORDS.COM, INC.

2934½ Beverly Glen Circle, Suite 702

Los Angeles, CA 90077

Attn:   Robert H. Lorsch

Fax: (206) 374-6241

 

with a copy to (which copy shall not constitute notice):

 

REED SMITH LLP

2 Embarcadero Center, Suite 2000

San Francisco, CA  94111

Attn:   Robert M. Smith

Fax: (415) 391-8269

 

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and a copy to (which copy shall not constitute notice):

 

LAW OFFICES OF ROBERT M. YASPAN

21700 Oxnard Street, Suite 1750

Woodland Hills, California 91367

Attn:  Robert M Yaspan

Fax: (818) 501-7711

 

if to the Administrative Agent:

 

KERSHAW, MACKIE & CO.

P.O. Box 5592

San Clemente, CA 92674

Attn:  David Kershaw

Fax: (949) 709-1842

 

4.5          Time of the Essence.  Time is of the essence of this Agreement.

 

4.6          Headings.  The headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.

 

4.7          Counterparts.  This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.

 

4.8          Governing Law; Jurisdiction and Venue.

 

(a)           This Agreement shall be construed in accordance with, and governed
in all respects by, the internal laws of the State of Delaware (without giving
effect to principles of conflicts of laws).

 

(b)           Any legal action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this Agreement shall be brought
or otherwise commenced exclusively in any state or federal court located in
Delaware. The parties hereto each:

 

(i)            expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in Delaware (and each
appellate court located in the State of Delaware), in connection with any legal
proceeding;

 

(ii)           agrees that service of any process, summons, notice or document
by U.S. mail addressed to it at the address set forth in Section 4.4 shall
constitute effective service of such process, summons, notice or document for
purposes of any such legal proceeding;

 

(iii)         agrees that each state and federal court located in Delaware,
shall be deemed to be a convenient forum; and

 

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(iv)          agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any state or federal court
located in Delaware, any claim by either the Company or Parent that it is not
subject personally to the jurisdiction of such court, that such legal proceeding
has been brought in an inconvenient forum, that the venue of such proceeding is
improper or that this Agreement or the subject matter of this Agreement may not
be enforced in or by such court.

 

4.9          Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their successors and assigns (if
any). Prior to the Effective Time, no party may assign this Agreement or any
rights or obligations hereunder (by operation of law or otherwise) to any
Person. After the Effective Time, Parent and the Company may freely assign any
or all of their rights or obligations under this Agreement, in whole or in part,
to any other Person without obtaining the consent or approval of any other party
hereto or of any other Person, but no such assignment shall relieve such party
of its obligations hereunder.

 

4.10        Remedies Cumulative; Specific Performance.  The rights and remedies
of the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the observance and performance of such covenant, obligation or other
provision, and (b) an injunction restraining such breach or threatened breach.

 

4.11        Waiver.  Except as expressly set forth in this Agreement, no failure
on the part of any Person to exercise any power, right, privilege or remedy
under this Agreement, and no delay on the part of any Person in exercising any
power, right, privilege or remedy under this Agreement, shall operate as a
waiver of such power, right, privilege or remedy and no single or partial
exercise of any such power, right, privilege or remedy shall preclude any other
or further exercise thereof or of any other power, right, privilege or remedy.
No Person shall be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.

 

4.12        Amendments.  This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.

 

4.13        Severability.  In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.

 

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4.14        Parties in Interest.  Except for Section 1.6, none of the provisions
of this Agreement is intended to provide any rights or remedies to any Person
other than the parties hereto and their respective successors and assigns (if
any).

 

4.15        Entire Agreement.  This Agreement, the Merger Agreement and the
Related Agreements set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof; provided, however, that the
Confidentiality Agreement shall not be superseded by this Agreement and shall
remain in effect in accordance with its terms.

 

[SIGNATURE PAGE FOLLOWS]

 

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The parties hereto have caused this Agreement to be executed and delivered as of
the date first set forth above.

 

 

FAVRILLE, INC.,

 

 a Delaware corporation

 

 

 

 

By:

/s/ John P. Longenecker

 

Name:

John P. Longenecker

 

Title:

President and CEO

 

 

 

 

 

 

 

MYMEDICALRECORDS.COM, INC.,

 

 a Delaware corporation

 

 

 

 

By:

/s/ Robert H. Lorsch

 

Name:

Robert H. Lorsch

 

Title:

CEO

 

 

 

 

 

 

 

KERSHAW, MACKIE & CO.,

 

 as Administrative Agent

 

 

 

 

By:

/s/ David Kershaw

 

Name:

David Kershaw

 

[SIGNATURE PAGE TO CREDITOR PLAN]

 

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EXHIBIT A

 

CREDITOR CLAIMS

 

[SEE ATTACHED]

 

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EXHIBIT B-1

 

FORM OF TRADE CREDITOR SETTLEMENT AGREEMENT

 

NOTICE TO CREDITORS

OF FAVRILLE, INC.

10/20/08

 

Our firm, Kershaw, Mackie & Co., has been retained by Favrille, Inc. to settle
its creditor claims.  Favrille has projected total liabilities at October 31,
2008 of approximately $ 6.0 million.  Favrille has ceased all of its active
business operations as a biotechnology company and has liquidated all of its
fixed assets.  As of October 31, 2008, Favrille has projected cash of
approximately $2.9 million to $3.1 million and no other assets that are expected
to generate cash available to pay creditors.

 

Favrille remains a non-operating public company with common stock listed and
traded on the OTC Bulletin Board under the symbol (FVRL OB).  Favrille has
entered into a non-binding term sheet with MyMedicalRecords.com, Inc. (“MMR”), a
private company provider of personal health care records, pursuant to which
Favrille would acquire MMR and the existing equity holders of MMR would own
approximately 64% of the equity of Favrille on a fully diluted basis. The
existing equity holders of Favrille would own approximately 29% of Favrille. 
Approximately 7% of Favrille’s equity would be newly issued to certain creditors
who have agreed to accept Favrille equity in lieu of cash payments, assuming an
MMR merger.  Under the terms of the proposed merger with MMR, Favrille is
required to make progress in settling claims with creditors consistent with the
creditor plan outlined in the term sheet, which requires that Favrille have a
minimum of $1.5 million in cash after payment of the initial payments to
creditors.  Please contact Kershaw/Mackie for additional information on MMR or
the proposed merger via email at KershawK@aol.com.  There can be no assurance
that the Favrille and MMR will be able to reach a definitive agreement or
consummate the proposed merger on the terms set forth in the non-binding term
sheet.

 

If Favrille cannot settle creditor claims as proposed in this notice and,
therefore, cannot proceed with the proposed merger with MMR merger or if
Favrille cannot consummate the MMR merger for any reason, Favrille’s alternative
would be to file Chapter 7 Bankruptcy to liquidate and distribute its remaining
assets.  Based on the outstanding creditor claims, Favrille projects that its
general unsecured creditors would receive approximately 36 to 44 cents for each
dollar of claims within 12 to 18 months after the filing of a Chapter 7
bankruptcy. There is no guarantee of this amount would be realized by
creditors.  All costs of bankruptcy, including legal fees, court costs, and
trustee fees would be deducted before any distribution was made to creditors. 
Favrille estimates that the bankruptcy costs would range from $300,000 to
$700,000.  Once a bankruptcy has commenced, the court-appointed trustee would
have complete control and Favrille would not be able to control the expenses
incurred or the timing of recovery settlements.

 

Therefore, Favrille is proposing two settlement options that Favrille can fund
within 15 days after creditors representing 85% of the aggregate dollar value of
unsecured creditor claims have

 

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agreed and return signed agreements or upon closing of the merger, whichever is
later.. Favrille believes either of these options is preferable to a lengthy
Chapter 7 bankruptcy process because creditors will receive payments within a
relatively short period rather than waiting 12 to 18 months for a bankruptcy and
creditors will have with greater certainty of the outcome than they would
through a bankruptcy.  Also, if creditors accept option 2, creditors may
ultimately recover more than the creditors would recover through a bankruptcy.

 

The Following are the Settlement Plan Options:

 

Option # 1 Cash Settlement of 30 cents for each dollar of Unsecured Creditor
Claim. Paid at completion of settlement agreement by creditors.

 

Option # 2 Cash settlement of 55 cents for each dollar of Unsecured Creditor
Claim payable as follows:

 

20 cents on the dollar payable at completion of settlement agreement by
creditors and 35 cents payable by Favrille in 18 monthly installments starting
six months after the initial payment of 20 cents.  The installment plan assumes
that Favrille completes its merger with MMR and that the business continues to
operate.  As part of the installment plan, an entity affiliated with the CEO and
founder of MMR will subordinate MMR’s existing debt to the obligations to pay
these installments payments to Favrille unsecured creditors who accept option
#2.

 

Settlements will be funded once creditors representing 85% of the aggregate
dollar value of unsecured creditor claims have agreed and return signed
agreements (Agreements are enclosed in this document).

 

If you have any questions about these documents, please do not hesitate to
contact David Kershaw via email or by telephone at the offices of Kershaw,
Mackie & Co at 866-920-1040.

 

Otherwise, please send the signed Consent to Compromise Agreement and return via
fax to 866-988-9977 and mail original to Kershaw/Mackie, PO Box 5592, San
Clemente, Ca, 92674.

 

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CONSENT TO COMPROMISE AGREEMENT and RELEASE

(Option 1)

 

Before signing this form consent, please make sure that you have received, read
and understand the documents that make up this offer, including the Notice to
Creditors dated October 20, 2008  and this form of Consent to Compromise
Agreement and Release (Option 1), the form of Consent to Compromise Agreement
and Release (Option 2) and the form of Promissory Note.  The offer is subject to
the terms of these documents and will not be binding on Favrille unless and
until accepted by Favrille.  This offer expires at          on             
unless extended by Favrille.

 

In consideration of and conditioned solely upon the timely and full payment of $
XXXXX (the “Settlement Amount”/ 30% of original claim), the undersigned, a
creditor of Favrille, Inc. (the “Company”) expressly hereby fully and finally
releases, remits, acquits and forever discharges the Company, its directors,
officers, employees, affiliates, successors and assigns or any of them from any
and all claims, whether known or unknown, fixed or contingent, matured or
unmatured, liquidated or disputed, secured or unsecured, or otherwise it holds
or asserts relating to the Claims or any other payment due or alleged to be due
to creditor from the Company. The undersigned hereby represents and warrants
that the Claims are in the gross dollar amount of $XXXXX.

 

The undersigned acknowledges that it has been advised by legal counsel and is
familiar with the provisions of California Civil Code section 1542, which
follows:

 

“A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor.”

 

The undersigned, being aware of such code section, hereby expressly waives any
rights it may have thereunder, as well as under any other statutes or common law
principles of similar effect.

 

The undersigned represents and warrants that it has all requisite legal right,
power, authority and capacity to enter into this consent and that this has been
duly executed and constitutes a legal, valid and binding obligation of creditor
and shall be binding on its successors and assigns. The undersigned hereby
represents and warrants that it has not assigned any or all of the claims to any
third party.

 

Date:                   

 

Compromise Amount  - $ XXXXXXX

 

This payment option will be funded once creditors representing 85% of the
aggregate dollar value of unsecured creditor claims have agreed and returned
signed agreements or upon closing of the merger, whichever is later.

 

3

--------------------------------------------------------------------------------

 

Name of Creditor:

 

 

 

 

Authorized By:

 

 

 

 

Signature:

 

Title:

 

 

 

 

 

 

 

ADDRESS:

 

 

 

 

 

 

City:

 

State:

 

Zip:

 

 

 

 

 

Phone:

 

 

 

 

 

Fax:

 

 

 

 

 

Please complete and send original to:

Kershaw, Mackie & Company.

PO  Box 5592

San Clemente, CA   92674

KershawK@aol.com

 

Telephone  866-920-1040

Facsimile 866-988-9977

 

4

--------------------------------------------------------------------------------

 

CONSENT TO COMPROMISE AGREEMENT and RELEASE

 

(Option 2)

 

Before signing this form consent, please make sure that you have received, read
and understand the documents that make up this offer, including the Notice to
Creditors dated October 20, 2008, the form of Consent to Compromise Agreement
and Release (Option 1) ,  this form of Consent to Compromise Agreement and
Release (Option 2) and the form of Promissory Note.  The offer is subject to the
terms of these documents and will not be binding on Favrille unless and until
accepted by Favrille.  This offer expires at          on              unless
extended by Favrille.

 

In consideration of and conditioned solely upon the timely and full payment of $
XXXXX (the “Initial Settlement Amount”/ 20% of original claim) and the execution
and delivery of a promissory note in the form of Exhibit A hereto for $XXXX (35%
of original claim),  expressly hereby fully and finally releases, remits,
acquits and forever discharges the Company, its directors, officers, employees,
affiliates, successors and assigns or any of them from any and all claims,
whether known or unknown, fixed or contingent, matured or unmatured, liquidated
or disputed, secured or unsecured, or otherwise it holds or asserts relating to
the Claims or any other payment due or alleged to be due to creditor from the
Company. The undersigned hereby represents and warrants that the Claims are in
the gross dollar amount of $XXXXX.

 

The undersigned acknowledges that it has been advised by legal counsel and is
familiar with the provisions of California Civil Code section 1542, which
follows:

 

“A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor.”

 

The undersigned, being aware of such code section, hereby expressly waives any
rights it may have thereunder, as well as under any other statutes or common law
principles of similar effect.

 

The undersigned represents and warrants that it has all requisite legal right,
power, authority and capacity to enter into this consent and that this has been
duly executed and constitutes a legal, valid and binding obligation of creditor
and shall be binding on its successors and assigns. The undersigned hereby
represents and warrants that it has not assigned any or all of the claims to any
third party.

 

Date: 10/20/08

 

Compromise Amount  - $ XXXXXXX  -  $ XXXXXX intial payment and $ XXXX

 

5

--------------------------------------------------------------------------------

 

Payable in 18 monthly installments of $ XXXXX starting six months after initial
payment.

 

This payment option will be funded once creditors representing 85% of the
aggregate dollar value of unsecured creditor claims have agreed and return
signed agreements.

 

 

Name of Creditor:

 

 

 

 

Authorized By:

 

 

 

 

Signature:

 

Title:

 

 

 

 

 

 

 

ADDRESS:

 

 

 

 

 

 

City:

 

State:

 

Zip:

 

 

 

 

 

Phone:

 

 

 

 

 

Fax:

 

 

 

 

 

Please complete and send original to:

Kershaw, Mackie & Company.

PO  Box 5592

San Clemente, CA   92674

KershawK@aol.com

 

Telephone  866-920-1040

Facsimile 866-988-9977

 

6

--------------------------------------------------------------------------------

 

EXHIBIT B-2

 

FORM OF EMPLOYEE CREDITOR SETTLEMENT AGREEMENT

 

NOTICE TO FORMER EMPLOYEES
OF FAVRILLE, INC.
10/28/08

 

Favrille, Inc. is seeking to settle its employee and creditor claims.  Favrille
has projected total liabilities at October 31, 2008 of approximately $ 6.0
million.  Favrille has ceased all of its active business operations as a
biotechnology company and has liquidated all of its fixed assets.  As of
October 31, 2008, Favrille has projected cash of approximately $2.9 million to
$3.1 million and has no other assets that are expected to generate cash
available to pay creditors.

 

Favrille remains a non-operating public company with common stock listed and
traded on the OTC Bulletin Board under the symbol (FVRL OB).  Favrille has
entered into a non-binding term sheet with MyMedicalRecords.com, Inc. (“MMR”), a
private company provider of personal health care records, pursuant to which
Favrille would acquire MMR and the existing equity holders of MMR would own
approximately 64% of the equity of Favrille on a fully diluted basis. The
existing equity holders of Favrille would own approximately 29% of Favrille. 
Approximately 7% of Favrille’s equity would be newly issued to certain creditors
who have agreed to accept Favrille equity in lieu of cash payments, assuming an
MMR merger.  Under the terms of the proposed merger with MMR, Favrille is
required to make progress in settling claims with creditors consistent with the
creditor plan outlined in the term sheet, which requires that Favrille have a
minimum of $1.5 million in cash after payment of the initial payments to
creditors.  Please contact Tamara Seymour for additional information on MMR or
the proposed merger via email at tseymour@favrille.com.  There can be no
assurance that Favrille and MMR will be able to reach a definitive agreement or
consummate the proposed merger on the terms set forth in the non-binding term
sheet.

 

If Favrille cannot settle employees and creditor claims as proposed in this
notice and, therefore, cannot proceed with the proposed merger with MMR or if
Favrille cannot consummate the MMR merger for any reason, Favrille’s alternative
would be to file Chapter 7 Bankruptcy to liquidate and distribute its remaining
assets.  Based on the outstanding creditor claims, Favrille projects that its
general unsecured creditors would receive approximately 36 to 44 cents for each
dollar of claims within 12 to 18 months after the filing of a Chapter 7
bankruptcy. There is no guarantee of this amount would be realized by employees
or creditors.  All costs of bankruptcy, including legal fees, court costs, and
trustee fees would be deducted before any distribution was made to employees or
creditors.  Favrille estimates that the bankruptcy costs would range from
$300,000 to $700,000.  Once a bankruptcy has commenced, the court-appointed
trustee would have complete control and Favrille would not be able to control
the expenses incurred or the timing of recovery settlements.

 

Therefore, Favrille is proposing settlement options for employees and creditors
that Favrille can fund within 15 days after creditors representing 85% of the
aggregate dollar value of unsecured

 

--------------------------------------------------------------------------------

 

creditor claims have agreed and returned signed agreements or upon closing of
the merger, whichever is later.

 

Settlement Offer to Non-executive Employees:

 

In addition to the priority payment of up to $10,950 received at date of
termination, we are offering cash settlement of 65 cents for each dollar of
severance / FTO claim payable as follows:

 

A.           25 cents on the dollar payable at completion of settlement
agreement by creditors.

 

B.             40 cents payable by Favrille in 18 monthly installments starting
six months after the initial payment of 25 cents.  The installment plan assumes
that Favrille completes its merger with MMR and that the business continues to
operate.  As part of the installment plan, an entity affiliated with the CEO and
founder of MMR will subordinate MMR’s existing debt to the obligations to pay
these installments payments to Favrille’s unsecured creditors.

 

All payments to employees will be processed through payroll using the
information and W-4 for tax withholding currently on file with Favrille. The
initial settlements will be funded once creditors representing 85% of the
aggregate dollar value of unsecured creditor claims have agreed and returned
signed agreements or upon closing of the merger, whichever is later. (Agreements
are enclosed in this document).

 

Favrille believes the offer for employees is preferable to a lengthy Chapter 7
bankruptcy process because employees will receive payments within a relatively
short period rather than waiting 12 to 18 months for a bankruptcy and will have
with greater certainty of the outcome than they would through a bankruptcy. 
Also, employees may ultimately recover more than they would recover through a
bankruptcy.

 

If you have any questions about these documents, please do not hesitate to
contact Tamara Seymour via email or by telephone at 619-992-6111 or
tseymour@favrille.com.

 

Otherwise, please sign the Consent to Compromise Agreement and return via fax to
858-677-0800 and mail original to Favrille, Inc., 4401 Eastgate Mall, San Diego,
CA 92121.

 

2

--------------------------------------------------------------------------------

 

CONSENT TO COMPROMISE AGREEMENT and RELEASE

 

Before signing this form consent, please make sure that you have received, read
and understand the documents that make up this offer, including the Notice to
Former Employees dated October 28, 2008, this form of Consent to Compromise
Agreement and Release and the form of Promissory Note.  The offer is subject to
the terms of these documents and will not be binding on Favrille unless and
until accepted by Favrille.  This offer expires at 12:00 a.m. on November 5,
2008 unless extended by Favrille.

 

In consideration of and conditioned solely upon the timely and full payment of
$XXXXXXX (the “Initial Settlement Amount”/ 25% of original claim) and the
execution and delivery of a promissory note in the form of Exhibit A hereto for
$XXXXXXX (40% of original claim),  expressly hereby fully and finally releases,
remits, acquits and forever discharges the Company, its directors, officers,
employees, affiliates, successors and assigns or any of them from any and all
claims, whether known or unknown, fixed or contingent, matured or unmatured,
liquidated or disputed, secured or unsecured, or otherwise it holds or asserts
relating to the Claims or any other payment due or alleged to be due to creditor
from the Company. The undersigned hereby represents and warrants that the Claims
are in the gross dollar amount of $XXXXXXX.

 

The undersigned acknowledges that it has been advised by legal counsel and is
familiar with the provisions of California Civil Code section 1542, which
follows:

 

“A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor.”

 

The undersigned, being aware of such code section, hereby expressly waives any
rights it may have thereunder, as well as under any other statutes or common law
principles of similar effect.

 

The undersigned represents and warrants that it has all requisite legal right,
power, authority and capacity to enter into this consent and that this has been
duly executed and constitutes a legal, valid and binding obligation of creditor
and shall be binding on its successors and assigns. The undersigned hereby
represents and warrants that it has not assigned any or all of the claims to any
third party.

 

Date: 10/28/08

 

Compromise Amount $XXXXXXX - $XXXXXXX initial payment and $XXXXXXX payable in 18
monthly installments of $XXXXXXX starting six months after initial payment.

 

This payment option will be funded once creditors representing 85% of the
aggregate dollar value of unsecured creditor claims have agreed and returned
signed agreements or upon closing of the merger, whichever is later.

 

3

--------------------------------------------------------------------------------

 

Name of Former Employee:

«Employeefirst» «Employeelast»

 

 

 

 

 

 

 

 

Signature:

 

 

 

 

 

 

 

ADDRESS:

 

 

 

 

 

 

 

 

 

 

City:

 

State:

 

Zip:

 

 

 

 

 

 

 

 

 

Phone:

 

 

 

 

 

Fax:

 

 

 

 

Please complete and send original to:
Favrille, Inc.
4401 Eastgate Mall
San Diego, CA 92121
tseymour@favrille.com

 

Telephone 619-992-6111
Facsimile 858-677-0800

 

4

--------------------------------------------------------------------------------

 

EXHIBIT B-3

 

FORM OF EXECUTIVE CREDITOR SETTLEMENT AGREEMENT

 

NOTICE TO FORMER EMPLOYEES
OF FAVRILLE, INC.
10/28/08

 

Favrille, Inc. is seeking to settle its employee and creditor claims.  Favrille
has projected total liabilities at October 31, 2008 of approximately $6.0
million.  Favrille has ceased all of its active business operations as a
biotechnology company and has liquidated all of its fixed assets.  As of
October 31, 2008, Favrille has projected cash of approximately $2.9 million to
$3.1 million and has no other assets that are expected to generate cash
available to pay creditors.

 

Favrille remains a non-operating public company with common stock listed and
traded on the OTC Bulletin Board under the symbol (FVRL OB).  Favrille has
entered into a non-binding term sheet with MyMedicalRecords.com, Inc. (“MMR”), a
private company provider of personal health care records, pursuant to which
Favrille would acquire MMR and the existing equity holders of MMR would own
approximately 64% of the equity of Favrille on a fully diluted basis. The
existing equity holders of Favrille would own approximately 29% of Favrille. 
Approximately 7% of Favrille’s equity would be newly issued to certain creditors
who have agreed to accept Favrille equity in lieu of cash payments, assuming an
MMR merger.  Under the terms of the proposed merger with MMR, Favrille is
required to make progress in settling claims with creditors consistent with the
creditor plan outlined in the term sheet, which requires that Favrille have a
minimum of $1.5 million in cash after payment of the initial payments to
creditors.  Please contact Tamara Seymour for additional information on MMR or
the proposed merger via email at tseymour@favrille.com.  There can be no
assurance that Favrille and MMR will be able to reach a definitive agreement or
consummate the proposed merger on the terms set forth in the non-binding term
sheet.

 

If Favrille cannot settle employees and creditor claims as proposed in this
notice and, therefore, cannot proceed with the proposed merger with MMR or if
Favrille cannot consummate the MMR merger for any reason, Favrille’s alternative
would be to file Chapter 7 Bankruptcy to liquidate and distribute its remaining
assets.  Based on the outstanding creditor claims, Favrille projects that its
general unsecured creditors would receive approximately 36 to 44 cents for each
dollar of claims within 12 to 18 months after the filing of a Chapter 7
bankruptcy. There is no guarantee of this amount would be realized by employees
or creditors.  All costs of bankruptcy, including legal fees, court costs, and
trustee fees would be deducted before any distribution was made to employees or
creditors.  Favrille estimates that the bankruptcy costs would range from
$300,000 to $700,000.  Once a bankruptcy has commenced, the court-appointed
trustee would have complete control and Favrille would not be able to control
the expenses incurred or the timing of recovery settlements.

 

Therefore, Favrille is proposing settlement options for employees and creditors
that Favrille can fund within 15 days after creditors representing 85% of the
aggregate dollar value of unsecured

 

--------------------------------------------------------------------------------

 

creditor claims have agreed and returned signed agreements or upon closing of
the merger, whichever is later.

 

Settlement Offer to Executive Employees:

 

In addition to the priority payment $10,950 received at date of termination, we
are offering settlement of severance / FTO claim as follows:

 

C.            Cash settlement of 83% of 2 months severance / FTO (after
deduction of the priority payment) payable at completion of settlement agreement
by creditors. (Note: %’s are dependent upon trade creditors’ selection of
settlement option. 83% in initial settlement represents worst case.)

 

D.           Cash settlement of remaining 17% of 2 months severance / FTO (after
deduction of the priority payment) including 17% interest on that amount payable
August 31, 2009.

 

E.             The remaining 7 months of severance to be settled with a warrant
to purchase Favrille stock with an exercise price equal to stock price on date
of issuance which will be the date of closing of the merger. Conversion of
severance into equity will be at approximately $0.20 per share and will be
determined based on total creditor debt ultimately allocated stock in the
creditor stock pool. If no trade creditors elect to take shares as part of their
settlement, more shares will be available to be distributed among the Board and
SMG creditors.

 

F.             The August 2009 payment assumes that Favrille completes its
merger with MMR and that the business continues to operate.  As part of the
installment plan, an entity affiliated with the CEO and founder of MMR will
subordinate MMR’s existing debt to the obligations to pay these installments
payments to Favrille’s unsecured creditors.

 

All payments to executives will be processed through payroll using the
information and W-4 for tax withholding currently on file with Favrille. The
initial settlements will be funded once creditors representing 85% of the
aggregate dollar value of unsecured creditor claims have agreed and returned
signed agreements or upon closing of the merger, whichever is later.

 

Favrille believes the offer for executives is preferable to a lengthy Chapter 7
bankruptcy process because employees will receive payments within a relatively
short period rather than waiting 12 to 18 months for a bankruptcy and will have
with greater certainty of the outcome than they would through a bankruptcy.

 

If you have any questions about these documents, please do not hesitate to
contact Tamara Seymour via email or by telephone at 619-992-6111 or
tseymour@favrille.com.

 

Otherwise, please sign the Consent to Compromise Agreement and return via fax to
858-677-0800 and mail original to Favrille, Inc., 4401 Eastgate Mall, San Diego,
CA 92121.

 

2

--------------------------------------------------------------------------------

 

CONSENT TO COMPROMISE AGREEMENT and RELEASE

 

Before signing this form consent, please make sure that you have received, read
and understand the documents that make up this offer, including the Notice to
Former Employees dated October 28, 2008, this form of Consent to Compromise
Agreement and Release.  The offer is subject to the terms of these documents and
will not be binding on Favrille unless and until accepted by Favrille.  This
offer expires at 12:00 a.m. on November 5, 2008 unless extended by Favrille.

 

In consideration of and conditioned solely upon the timely and full payment of
$XXXXXXX (the “Initial Settlement Amount”), the execution and delivery of a
promissory note in the form of Exhibit A hereto for $XXXXXXX (deferred payment)
and the execution and delivery of a warrant to purchase common stock as
settlement for $XXXXXXX, expressly hereby fully and finally releases, remits,
acquits and forever discharges the Company, its directors, officers, employees,
affiliates, successors and assigns or any of them from any and all claims,
whether known or unknown, fixed or contingent, matured or unmatured, liquidated
or disputed, secured or unsecured, or otherwise it holds or asserts relating to
the Claims or any other payment due or alleged to be due to creditor from the
Company. The undersigned hereby represents and warrants that the Claims are in
the gross dollar amount of $XXXXXXX, including interest earned on the deferred
payment.

 

The undersigned acknowledges that it has been advised by legal counsel and is
familiar with the provisions of California Civil Code section 1542, which
follows:

 

“A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor.”

 

The undersigned, being aware of such code section, hereby expressly waives any
rights it may have thereunder, as well as under any other statutes or common law
principles of similar effect.

 

The undersigned represents and warrants that it has all requisite legal right,
power, authority and capacity to enter into this consent and that this has been
duly executed and constitutes a legal, valid and binding obligation of creditor
and shall be binding on its successors and assigns. The undersigned hereby
represents and warrants that it has not assigned any or all of the claims to any
third party.

 

Date: 10/28/08

 

Compromise Amount - $XXXXXXX - $XXXXXXX initial payment and $XXXXXXX payable on
August 31, 2009. $XXXXXXX to be settled with issuance of a warrant to purchase
Favrille stock; exercise price equal to stock price on date of issuance.
Conversion price of severance into equity is approximately $XXXX per share and
is to be determined based on total creditor pool ultimately allocated stock in
the creditor stock pool.

 

3

--------------------------------------------------------------------------------

 

All compromise amounts will be finalized and final settlement agreements,
promissory note and warrant will be distributed when 85% of creditor settlements
have been completed.

 

The payment option will be finalized and funded once creditors representing 85%
of the aggregate dollar value of unsecured creditor claims have agreed and
returned signed agreements or upon closing of the merger, whichever is later.

 

Name of Former Employee:

XXXXXXXXXXXXX

 

 

 

 

 

 

 

Signature:

 

 

 

 

 

 

ADDRESS:

 

 

 

 

 

 

 

 

 

 

City:

 

State:

 

Zip:

 

 

 

 

 

 

 

 

 

Phone:

 

 

 

 

 

Fax:

 

 

 

Please complete and send original to:
Favrille, Inc.
4401 Eastgate Mall
San Diego, CA 92121
tseymour@favrille.com

 

Telephone 619-992-6111
Facsimile 858-677-0800

 

4

--------------------------------------------------------------------------------

 

NOTICE TO FORMER EMPLOYEES
OF FAVRILLE, INC.
10/28/08

 

Favrille, Inc. is seeking to settle its employee and creditor claims.  Favrille
has projected total liabilities at October 31, 2008 of approximately $6.0
million.  Favrille has ceased all of its active business operations as a
biotechnology company and has liquidated all of its fixed assets.  As of
October 31, 2008, Favrille has projected cash of approximately $2.9 million to
$3.1 million and has no other assets that are expected to generate cash
available to pay creditors.

 

Favrille remains a non-operating public company with common stock listed and
traded on the OTC Bulletin Board under the symbol (FVRL OB).  Favrille has
entered into a non-binding term sheet with MyMedicalRecords.com, Inc. (“MMR”), a
private company provider of personal health care records, pursuant to which
Favrille would acquire MMR and the existing equity holders of MMR would own
approximately 64% of the equity of Favrille on a fully diluted basis. The
existing equity holders of Favrille would own approximately 29% of Favrille. 
Approximately 7% of Favrille’s equity would be newly issued to certain creditors
who have agreed to accept Favrille equity in lieu of cash payments, assuming an
MMR merger.  Under the terms of the proposed merger with MMR, Favrille is
required to make progress in settling claims with creditors consistent with the
creditor plan outlined in the term sheet, which requires that Favrille have a
minimum of $1.5 million in cash after payment of the initial payments to
creditors.  Please contact Tamara Seymour for additional information on MMR or
the proposed merger via email at tseymour@favrille.com.  There can be no
assurance that Favrille and MMR will be able to reach a definitive agreement or
consummate the proposed merger on the terms set forth in the non-binding term
sheet.

 

If Favrille cannot settle employees and creditor claims as proposed in this
notice and, therefore, cannot proceed with the proposed merger with MMR or if
Favrille cannot consummate the MMR merger for any reason, Favrille’s alternative
would be to file Chapter 7 Bankruptcy to liquidate and distribute its remaining
assets.  Based on the outstanding creditor claims, Favrille projects that its
general unsecured creditors would receive approximately 36 to 44 cents for each
dollar of claims within 12 to 18 months after the filing of a Chapter 7
bankruptcy. There is no guarantee of this amount would be realized by employees
or creditors.  All costs of bankruptcy, including legal fees, court costs, and
trustee fees would be deducted before any distribution was made to employees or
creditors.  Favrille estimates that the bankruptcy costs would range from
$300,000 to $700,000.  Once a bankruptcy has commenced, the court-appointed
trustee would have complete control and Favrille would not be able to control
the expenses incurred or the timing of recovery settlements.

 

Therefore, Favrille is proposing settlement options for employees and creditors
that Favrille can fund within 15 days after creditors representing 85% of the
aggregate dollar value of unsecured creditor claims have agreed and returned
signed agreements or upon closing of the merger, whichever is later.

 

5

--------------------------------------------------------------------------------

 

Settlement Offer to President and CEO:

 

In addition to the priority payment $10,950 received at date of termination, we
are offering settlement of FTO claim as follows:

 

G.            Cash settlement of 83% of FTO (after deduction of the priority
payment) payable at completion of settlement agreement by creditors. (Note: %’s
are dependent upon trade creditors’ selection of settlement option. 83% in
initial settlement represents worst case.)

 

H.           Cash settlement of remaining 17% of FTO (after deduction of the
priority payment) including 17% interest on that amount payable August 31, 2009.

 

I.                Your 12 months of severance is to be settled with a warrant to
purchase Favrille stock with an exercise price equal to stock price on date of
issuance which will be the date of closing of the merger. Conversion of
severance into equity will be at approximately $0.20 per share and will be
determined based on total creditor debt ultimately allocated stock in the
creditor stock pool. If no trade creditors elect to take shares as part of their
settlement, more shares will be available to be distributed among the Board and
SMG creditors.

 

J.               The August 2009 payment assumes that Favrille completes its
merger with MMR and that the business continues to operate.  As part of the
installment plan, an entity affiliated with the CEO and founder of MMR will
subordinate MMR’s existing debt to the obligations to pay these installments
payments to Favrille’s unsecured creditors.

 

All payments to executives will be processed through payroll using the
information and W-4 for tax withholding currently on file with Favrille.
Following creditors representing 85% of the aggregate dollar value of unsecured
creditor claims returning signed agreements, the initial settlements will be
funded upon the earlier of termination or closing of the merger.

 

Favrille believes the offer for executives is preferable to a lengthy Chapter 7
bankruptcy process because employees will receive payments within a relatively
short period rather than waiting 12 to 18 months for a bankruptcy and will have
with greater certainty of the outcome than they would through a bankruptcy.

 

If you have any questions about these documents, please do not hesitate to
contact Tamara Seymour via email or by telephone at 619-992-6111 or
tseymour@favrille.com.

 

Otherwise, please sign the Consent to Compromise Agreement and return via fax to
858-677-0800 and mail original to Favrille, Inc., 4401 Eastgate Mall, San Diego,
CA 92121.

 

6

--------------------------------------------------------------------------------

 

CONSENT TO COMPROMISE AGREEMENT and RELEASE

 

Before signing this form consent, please make sure that you have received, read
and understand the documents that make up this offer, including the Notice to
Former Employees dated October 28, 2008, this form of Consent to Compromise
Agreement and Release.  The offer is subject to the terms of these documents and
will not be binding on Favrille unless and until accepted by Favrille.  This
offer expires at 12:00 a.m. on November 5, 2008 unless extended by Favrille.

 

In consideration of and conditioned solely upon the timely and full payment of
$44,622.08 (the “Initial Settlement Amount”), the execution and delivery of a
promissory note in the form of Exhibit A hereto for $10,851.86 (deferred
payment) and the execution and delivery of a warrant to purchase common stock as
settlement for $395,704.22,  expressly hereby fully and finally releases,
remits, acquits and forever discharges the Company, its directors, officers,
employees, affiliates, successors and assigns or any of them from any and all
claims, whether known or unknown, fixed or contingent, matured or unmatured,
liquidated or disputed, secured or unsecured, or otherwise it holds or asserts
relating to the Claims or any other payment due or alleged to be due to creditor
from the Company. The undersigned hereby represents and warrants that the Claims
are in the gross dollar amount of $451,178.16, including interest earned on the
deferred payment.

 

The undersigned acknowledges that it has been advised by legal counsel and is
familiar with the provisions of California Civil Code section 1542, which
follows:

 

“A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor.”

 

The undersigned, being aware of such code section, hereby expressly waives any
rights it may have thereunder, as well as under any other statutes or common law
principles of similar effect.

 

The undersigned represents and warrants that it has all requisite legal right,
power, authority and capacity to enter into this consent and that this has been
duly executed and constitutes a legal, valid and binding obligation of creditor
and shall be binding on its successors and assigns. The undersigned hereby
represents and warrants that it has not assigned any or all of the claims to any
third party.

 

Date: 10/28/08

 

Compromise Amount - $451,178.16 -  $44,622.08 initial payment and $10,851.86
payable on August 31, 2009. $395,704.22 to be settled with issuance of a warrant
to purchase Favrille stock; exercise price equal to stock price on date of
issuance. Conversion price of severance into equity is approximately $0.20 per
share and is to be determined based on total creditor pool ultimately allocated
stock in the creditor stock pool.

 

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All compromise amounts will be finalized and final settlement agreements,
promissory note and warrant will be distributed when 85% of creditor settlements
have been completed.

 

The payment option will be finalized and funded once creditors representing 85%
of the aggregate dollar value of unsecured creditor claims have agreed and
returned signed agreements or upon closing of the merger, whichever is later.

 

Name of Former Employee:

John Longenecker

 

 

 

 

 

 

 

Signature:

 

 

 

 

 

 

ADDRESS:

 

 

 

 

 

 

 

 

 

 

City:

 

State:

 

Zip:

 

 

 

 

 

 

 

 

 

Phone:

 

 

 

 

 

Fax:

 

 

 

 

Please complete and send original to:
Favrille, Inc.
4401 Eastgate Mall
San Diego, CA 92121
tseymour@favrille.com

 

Telephone 619-992-6111
Facsimile 858-677-0800

 

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EXHIBIT C

 

FORM OF PROMISSORY NOTE

 

PROMISSORY NOTE

 

$

 

San Diego, California

 

 

November       , 2008

 

FOR VALUE RECEIVED, the undersigned  FAVRILLE, INC., a Delaware corporation
(“Borrower”) hereby unconditionally promises to pay to the order of
                    in lawful money of the United States of America and in
immediately available funds, the principal sum of
                      ($            ) without interest. Principal shall be
payable in 18 even monthly installments, commencing on the sixth month
anniversary of the closing (the “Closing”) of the merger between a subsidiary of
Borrower with and into MyMedicalRecords.com, Inc. (“MMR”) with MMR becoming a
wholly owned subsidiary of Borrower.  The outstanding principal amount hereunder
shall be due and payable in full on the 24 month anniversary of the Closing.

 

This Note is issued pursuant to a Settlement Agreement and is contingent on the
Closing occurring and the settlement becoming effective.   The Note may be
prepaid at any time without penalty.

 

Borrower hereby waives presentment, protest and notice of protest, demand for
payment, notice of dishonor and all other notices or demands in connection with
the delivery, acceptance, performance, default or endorsement of this Note.

 

The holder hereof shall be entitled to recover, and Borrower agrees to pay when
incurred, all costs and expenses of collection of this Note, including without
limitation, reasonable attorneys’ fees.

 

This Note shall be governed by, and construed, enforced and interpreted in
accordance with, the laws of the State of California, as applied to agreements
among California residents, made and to be performed entirely within the State
of California, without giving effect to conflicts of laws principles.

 

The terms and conditions of this Note shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties hereto.
Nothing in this Note, expressed or implied, is intended to confer upon any third
party any rights, remedies, obligations, or liabilities under or by reason of
this Note, except as expressly provided in this Note.

 

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If one or more provisions of this Note are held to be unenforceable under
applicable law, such provision(s) shall be excluded from this Note and the
balance of this Note shall be interpreted as if such provision(s) were so
excluded and shall be enforceable in accordance with its terms.

 

 

BORROWER:

 

 

 

 

 

FAVRILLE, INC.

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

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EXHIBIT D

 

FORM OF ALLONGE TO RHL GROUP PROMISSORY NOTE AND SECURITY AGREEMENT

 

ALLONGE

 

This Allonge, dated                     , 2008 (this “Allonge”), is to be
physically attached to that certain Promissory Note entitled as “Second Amended
and Restated Promissory Note” in the stated amount of “$1,000,000 or more”,
dated August 1, 2008 by and between My MedicalRecords.com, Inc., a Delaware
corporation (“Borrower”) and The RHL Group, Inc., a California corporation
(“Lender”) (as amended and modified hereby, the “NOTE”). Reference is also made
to that certain Security Agreement, dated July 31, 2007 by and between Borrower
and Lender which secured Borrower’s obligations under the NOTE (as amended and
modified hereby, the “Security Agreement”).

 

The purpose of this Allonge is to suspend certain rights (the “SUSPENDED
RIGHTS”) held by the Lender from the Closing Date, as that term is defined in
that certain Agreement and Plan of Merger and Reorganization dated November 8,
2008 (the “Merger Agreement”), by and among Favrille, Inc., a Delaware
corporation (“Favrille”), Montana Merger Sub, Inc., a Delaware corporation and a
wholly owned subsidiary of Parent and Borrower, until the earlier of: either
(1) the date that Favrille or Borrower repays all amounts outstanding under the
“Notes” issued pursuant to the Creditor Plan (as defined in the Merger
Agreement) in the maximum aggregate amount of up to $1,160,000, (2) the date
that Favrille or Borrower deposits into the Escrow Fund (as defined in the
Creditor Plan) the maximum amount of cash (up to $1.16 million, which maximum
amount will be confirmed by Favrille to the Company on or before the Closing
based upon the terms of the Settlement Agreements (as defined in the Creditor
Plan) executed on or prior to Closing) payable in satisfaction of the “Notes”
issued pursuant to the Creditor Plan; or (3) ten days after the two year
anniversary of the Closing Date (the “NEW DUE DATE”). In addition the purpose of
the Allonge is to temporarily affect certain terms of the NOTE and the Security
Agreement as more fully set forth herein  (the “MODIFICATION”). Capitalized
terms not otherwise defined herein shall have the meaning ascribed to such terms
in the NOTE.

 

Other than as stated herein the NOTE and Security Agreement remain unaltered,
and in full force and effect.  Only this Allonge shall expressly or impliedly
alter the terms of the NOTE and Security Agreement; no other writing, or
document, whether now or in the future signed, shall alter or modify the terms
of the NOTE or the Security Agreement, or the NOTE or Security Agreement itself,
except a document entitled as “Amended Allonge” executed by both the Borrower
and the Lender (and no one else), which document, if it exists, shall also be
attached to the NOTE.  A condition precedent to the effectiveness of this
Allonge is the passage of a resolution by the Board of Directors of Borrower to
the effect that the NOTE is: (a) in full force and effect; (b) is fully
enforceable; (c) no defenses exist as to the NOTE; and (d) the amount due under
the NOTE as of the date of this Allonge is $                        .

 

The SUSPENDED RIGHTS are as follows:

 

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1.                                       Any right of the Lender to declare a
Default or an Event of Default (as defined in the NOTE and the Security
Agreement) or deliver any notice thereof to Borrower.

 

2.                                       Any right of the Lender to accelerate
the maturity date of the NOTE (whether the Final Maturity Date or the NEW DUE
DATE).

 

3.                                       Any right of the Lender to exercise any
of the remedies referenced in Section 6.3 of the Security Agreement.

 

4.                                       Any right of the Lender to assign the
NOTE, or the proceeds of the NOTE, or otherwise negotiate the NOTE.

 

5.                                       Any right of the Lender to receive
payment of the Unpaid Balance of the NOTE as that term is defined in the NOTE,
including without limitation payments for monthly interest and CREDIT CARD
ADVANCES under the NOTE.

 

The MODIFICATIONS are as follows:

 

1.                                       The Final Maturity Date shall now be
the NEW DUE DATE.

 

2.                                       Notwithstanding any other provisions of
the NOTE and the Security Agreement Lender hereby agrees and acknowledges that
the Unpaid Balance under the NOTE is expressly subordinated in right of payment
to the prior payment of the Indebtedness.  The Indebtedness shall be deemed paid
when the entire amount due to retire the Indebtedness is deposited into the
Escrow Fund. “Indebtedness” shall mean the principal amount due under the Notes
(an amount that shall range from $800,000 to $1,160,000, as defined in the
Creditor Plan) to be issued to the Creditors (as defined in the Creditor Plan)
pursuant to the Creditor Plan and any costs and expenses payable under the
Notes.

 

3.                                       Lender hereby subordinates to the
holders of Indebtedness any security interest or lien that Lender may have in
all Collateral (as defined in the Security Agreement). Notwithstanding the
respective dates of attachment or perfection of the security interest of Lender
and the security interest of the holders of Indebtedness, the security interest
of the holders of Indebtedness in the Collateral, shall be prior to the security
interest, if any, of Lender until the Company shall have paid the Indebtedness
in full to the Escrow Agent.

 

4.                                       Lender hereby expressly waives, both
now and in the future, any Default or Event of Default under the NOTE and the
Security Agreement that arises from or is related to the Closing (as that term
is defined in the Merger Agreement) and the consummation of the transactions
described in the Merger Agreement.

 

5.                                       Each of the representations, warranties
and covenants included in the NOTE and Security Agreement are hereby qualified
and/or waived as necessary to address the purpose and effect of the SUSPENDED
RIGHTS and the MODIFICATIONS set forth in this Allonge to the extent it is
readily apparent that such qualification and/or waiver is necessary to give
effect to the terms and provisions of this Allonge.

 

6.                                       This Allonge is being executed in
connection with the consummation of the transactions described in the Merger
Agreement and the documents signed on the Effective Time as that term is defined
in the Merger Agreement, but shall not be attached to the NOTE or

 

2

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effective unless and until the Closing Date (as that term is defined in the
Merger Agreement) has successfully passed.

 

7.                                       Upon the Closing Date having
successfully passed the Lender shall deliver the NOTE (with this Allonge
affixed) and the Security Agreement to the Escrow Agent.  Said Escrow Agent
shall hold said documents until the Company shall have paid the Indebtedness in
full to the Escrow Agent, including if applicable through deposit of the funds
into the Escrow Fund.  Upon the payment of the Indebtedness in full to the
Escrow Agent: (a) the Escrow Agent will be instructed by both the Company and
the Lender to return the NOTE, Allonge and Security Agreement to the Lender, who
shall then have the power to detach the Allonge from the NOTE; (b) the Allonge
shall have no further power and effect;  (c) any security interest, if any,
shall be deemed unenforceable; and (d) Lender shall be deemed to be, and is,
restored to the position that it held immediately prior to the execution of this
Allonge.  The Escrow Agent, in returning the NOTE, the Allonge affixed, and the
Security Agreement only needs to determine whether or not the Borrower or
Favrille have deposited funds into the Escrow Fund sufficient to pay the
Indebtedness in full; it is not required to get any other, or further, assurance
or understanding from any Party whatsoever.

 

If the Indebtedness has not otherwise been fully paid by the NEW DUE DATE (as
provided just above), then upon the passage of the NEW DUE DATE this Allonge
shall become ineffective, and the Security Agreement, NOTE, and Allonge shall be
returned to the Borrower; who may then detach the Allonge from the NOTE.

 

“BORROWER”

 

MyMedicalRecords.com, Inc.,

 

a Delaware corporation (“Debtor”)

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

 

Signature:

 

 

 

 

 

 

 

 

“LENDER”

 

The RHL Group, Inc.,

 

a California corporation (“Secured Party”)

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

 

Signature:

 

 

 

3

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