Exhibit 10.7


 


FAVRILLE, INC.

2001 EQUITY INCENTIVE PLAN


 


STOCK OPTION AGREEMENT

(INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)


 


Pursuant to your
Stock Option Grant Notice (“Grant
Notice”) and this Stock Option Agreement, Favrille, Inc. (the “Company”) has
granted you an option under its 2001
Equity Incentive Plan (the “Plan”) to purchase the number of shares of
the Company’s Common Stock indicated in your Grant Notice at the exercise price
indicated in your Grant Notice.  Capitalized
terms not explicitly defined in this Stock Option Agreement but defined in the
Plan shall have the same definitions as in the Plan.


 


The details of your
option are as follows:


 


1.             VESTING.  Subject to the limitations
contained herein, your option will vest as provided in your Grant Notice,
provided that vesting will cease upon the termination of your Continuous
Service.


 


(a)           Special Acceleration Provisions.  Notwithstanding any other
provisions of the Plan to the contrary, if (i) a Change in Control occurs and
(ii) within the period beginning as of the effective date of such Change in
Control and ending twenty-four (24) months after the effective date of such
Change in Control, your Continuous Service terminates due to an involuntary
termination (not including death or Disability) without Cause or due to a
Constructive Termination, then, as of the date of termination of your
Continuous Service, the vesting and exercisability of your option shall be
accelerated in full (and any reacquisition or repurchase rights held by the Company
with respect to such option shall lapse in full, as appropriate).


 


For purposes of this subsection 1(a) only, Cause means the occurrence
of any of the following:  (i) your
conviction of any felony or any crime involving fraud or dishonesty which has a
material adverse effect on the Company and/or its Affiliates; (ii) your
participation (whether by affirmative act or omission) in a fraud, act of
dishonesty or other act of misconduct against the Company and/or its
Affiliates; (iii) conduct by you which, based upon a good faith and reasonable
factual investigation by the Board, demonstrates your gross unfitness to serve;
(iv) your violation of any fiduciary duty or duty of loyalty owed to the
Company and/or its Affiliates; (v) your breach of any material term of any
material contract between you and the Company and/or its Affiliates which has a
material adverse effect on the Company and/or its Affiliates; (vi) your
repeated violation of any material Company policy which has a material adverse
effect on the Company and/or its Affiliates; and (vii) your violation of state
or federal law in connection with the performance of your job which has a material
adverse effect on the Company and/or its Affiliates.  Notwithstanding the foregoing, your death or
Disability shall not constitute Cause as set forth herein.  The determination that a termination is for
Cause shall be by the Board in its sole and exclusive judgment and discretion.


 


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For purposes of this subsection 1(a) only, Change in Control means: (i)
a sale of all or substantially all of the assets of the Company; (ii) a merger
or consolidation in which the Company is not the surviving entity and in which
the holders of the Company’s outstanding voting stock immediately prior to such
transaction own, immediately after such transaction, securities representing
less than fifty percent (50%) of the voting power of the entity surviving such
transaction or the surviving entity’s parent; (iii) a reverse merger in which
the Company is the surviving entity but the shares of Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities of the surviving entity’s
parent, cash or otherwise, and in which the holders of the Company’s
outstanding voting stock immediately prior to such transaction own, immediately
after such transaction, securities representing less than fifty percent (50%)
of the voting power of the Company or the Company’s parent entity immediately
after such transaction; or (iv) an acquisition by any person, entity or group
within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or subsidiary of the Company or
other entity controlled by the Company) of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty
percent (50%) of the combined voting power entitled to vote in the election of
Directors; provided, however, that nothing in this Section 1(a) shall apply to
a sale of assets, merger or other transaction effected exclusively for the
purpose of changing the domicile of the Company.


 


For purposes of this subsection 1(a) only, Constructive Termination
means the occurrence of any of the following events, conditions or actions
taken by the Company without Cause and without your consent: (i) a change in
your employment responsibilities with the Company which represents a material
reduction in your level of responsibility other than a change in title, (ii) a
material reduction in your level of base salary, or (iii) a relocation of your
place of employment by more than fifty (50) miles.


 


Notwithstanding anything to the contrary in this subsection 1(a), if
your Continuous Service terminates due to an involuntary termination that is
for “Cause”, as such term is defined in the Plan, the vesting and
exercisability of your option shall not accelerate as would otherwise occur
pursuant to this subsection 1(a), and your option shall immediately terminate
as provided in subsection 6(d) below.


 


(b)           Parachute Payments.  If any payment or benefit
you would receive pursuant to a Change in Control (as defined in subsection
1(a) or the Plan) from the Company or otherwise (“Payment”) would (i)
constitute a “parachute payment” within the meaning of Section 280G of the
Code, and (ii) but for this sentence, be subject to the excise tax imposed by
Section 4999 of the Code (the “Excise Tax”), then such Payment shall be reduced
to the Reduced Amount.  The “Reduced
Amount” shall be either (x) the largest portion of the Payment that would result
in no portion of the Payment being subject to the Excise Tax or (y) the largest
portion, up to and including the total, of the Payment, whichever amount, after
taking into account all applicable federal, state and local employment taxes,
income taxes, and the Excise Tax (all computed at the highest applicable
marginal rate), results in your receipt, on an after-tax basis, of the greater
amount of the Payment notwithstanding that all or some portion of the


 


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Payment may be
subject to the Excise Tax.  If a
reduction in payments or benefits constituting “parachute payments” is
necessary so that the Payment equals the Reduced Amount, reduction shall occur
in the following order unless you elect in writing a different order (provided,
however, that such election shall be subject to Company approval if made on or
after the effective date of the event that triggers the Payment): reduction of
cash payments; cancellation of accelerated vesting of Stock Awards; reduction
of employee benefits.  In the event that
acceleration of vesting of Stock Award compensation is to be reduced, such
acceleration of vesting shall be cancelled in the reverse order of the date of
grant of your Stock Awards unless the you elect in writing a different order
for cancellation.


 


The accounting firm engaged by the Company for general audit purposes
as of the day prior to the effective date of the Change in Control shall
perform the foregoing calculations.  If
the accounting firm so engaged by the Company is serving as accountant or
auditor for the individual, entity or group effecting the Change in Control,
the Company shall appoint a nationally recognized accounting firm to make the
determinations required hereunder.  The
Company shall bear all expenses with respect to the determinations by such
accounting firm required to be made hereunder.


 


The accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting documentation, to
you and the Company within fifteen (15) calendar days after the date on which
your right to a Payment is triggered (if requested at that time by you or the
Company) or such other time as requested by you or the Company.  If the accounting firm determines that no
Excise Tax is payable with respect to a Payment, either before or after the
application of the Reduced Amount, it shall furnish the Company and you with an
opinion reasonably acceptable to you that no Excise Tax will be imposed with
respect to such Payment.  Any good faith
determinations of the accounting firm made hereunder shall be final, binding
and conclusive upon you and the Company.


 


2.             NUMBER OF SHARES AND EXERCISE
PRICE. 
The number of shares of Common Stock subject to your option and your
exercise price per share referenced in your Grant Notice may be adjusted from
time to time for Capitalization Adjustments.


 


3.             METHOD OF PAYMENT.  Payment of the exercise
price is due in full upon exercise of all or any part of your option.  You may elect to make payment of the exercise
price in cash or by check or in any other manner permitted
by your Grant Notice, which may include one or more of the
following:


 


(a)           In
the Company’s sole discretion at the time your option is exercised and provided
that at the time of exercise the Common Stock is publicly traded and quoted
regularly in The Wall Street Journal, pursuant
to a program developed under Regulation T as promulgated by the Federal Reserve
Board that, prior to the issuance of Common Stock, results in either the
receipt of cash (or check) by the Company or the receipt of irrevocable
instructions to pay the aggregate exercise price to the Company from the sales
proceeds.


 


(b)           Provided
that at the time of exercise the Common Stock is publicly traded and quoted
regularly in The Wall Street Journal, by
delivery of already-owned shares of Common Stock either that you have held for
the period required to avoid a charge to the


 


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Company’s
reported earnings (generally six (6) months) or that you did not acquire,
directly or indirectly from the Company, that are owned free and clear of any
liens, claims, encumbrances or security interests, and that are valued at Fair
Market Value on the date of exercise.  “Delivery”
for these purposes, in the sole discretion of the Company at the time you
exercise your option, shall include delivery to the Company of your attestation
of ownership of such shares of Common Stock in a form approved by the Company.  Notwithstanding the foregoing, you may not
exercise your option by tender to the Company of Common Stock to the extent
such tender would violate the provisions of any law, regulation or agreement
restricting the redemption of the Company’s stock.


 


(c)           Provided
that at the time of exercise the Company has adopted FAS 123, as revised, by a “net
exercise” arrangement pursuant to which the Company will reduce the number of
shares of Common Stock issued upon exercise of your option by the largest whole
number of shares with a Fair Market Value that does not exceed the aggregate
exercise price; provided, however, the Company shall accept a cash or other
payment from you to the extent of any remaining balance of the aggregate
exercise price not satisfied by such holding back of whole shares; provided,
however, shares of Common Stock will no longer be outstanding under your option
and will not be exercisable thereafter to the extent that (1) shares are used
to pay the exercise price pursuant to the “net exercise,” (2) shares are
delivered to you as a result of such exercise, and (3) shares are withheld to
satisfy tax withholding obligations.


 


4.                                      WHOLE SHARES.  You may exercise your option only for whole
shares of Common Stock.


 


5.             SECURITIES LAW COMPLIANCE.  Notwithstanding anything to
the contrary contained herein, you may not exercise your option unless the
shares of Common Stock issuable upon such exercise are then registered under
the Securities Act or, if such shares of Common Stock are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act.  The exercise of your option also must comply
with other applicable laws and regulations governing your option, and you may
not exercise your option if the Company determines that such exercise would not
be in material compliance with such laws and regulations.


 


6.             TERM.  You may not exercise your
option before the commencement of its term or after its term expires.  The term of your option commences on the Date
of Grant and expires upon the earliest of the following:


 


(a)           three
(3) months after the termination of your Continuous Service for any reason
other than Cause, Disability or death, provided that if during any part of such
three- (3-) month period you may not exercise your option solely because of the
condition set forth in the preceding paragraph relating to “Securities Law
Compliance,” your option shall not expire until the earlier of the Expiration
Date or until it shall have been exercisable for an aggregate period of three
(3) months after the termination of your Continuous Service;


 


(b)                                  twelve (12) months after the termination of your Continuous Service
due to your Disability;


 


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(c)           eighteen
(18) months after your death if you die either during your Continuous Service
or within three (3) months after your Continuous Service terminates;


 


(d)                                  immediately upon the termination of your Continuous Service if for
Cause (as defined in the Plan);


 


(e)                                  the Expiration Date indicated in your Grant Notice; or


 


(f)                                    the day before the tenth (10th) anniversary of the Date of Grant.


 


If your option is an
Incentive Stock Option, note that to obtain the federal income tax advantages
associated with an Incentive Stock Option, the Code requires that at all times
beginning on the date of grant of your option and ending on the day three (3)
months before the date of your option’s exercise, you must be an employee of
the Company or an Affiliate, except in the event of your death or your
permanent and total disability, as defined in Section 22(e) of the Code.  (The definition of disability in Section
22(e) of the Code is different from the definition of the Disability under the
Plan).  The Company has provided for
extended exercisability of your option under certain circumstances for your
benefit but cannot guarantee that your option will necessarily be treated as an
Incentive Stock Option if you continue to provide services to the Company or an
Affiliate as a Consultant or Director after your employment terminates or if
you otherwise exercise your option more than three (3) months after the date
your employment with the Company or an Affiliate terminates.


 


7.                                      EXERCISE.


 


(a)           You
may exercise the vested portion of your option during its term by delivering a
Notice of Exercise (in a form designated by the Company) together with the
exercise price to the Secretary of the Company, or to such other person as the
Company may designate, during regular business hours, together with such
additional documents as the Company may then require.


 


(b)           By
exercising your option you agree that, as a condition to any exercise of your
option, the Company may require you to enter into an arrangement providing for
the payment by you to the Company of any tax withholding obligation of the
Company arising by reason of (1) the exercise of your option, or (2) the
disposition of shares of Common Stock acquired upon such exercise.


 


(c)           If
your option is an Incentive Stock Option, by exercising your option you agree
that you will notify the Company in writing within fifteen (15) days after the
date of any disposition of any of the shares of the Common Stock issued upon
exercise of your option that occurs within two (2) years after the date of your
option grant or within one (1) year after such shares of Common Stock are
transferred upon exercise of your option.


 


8.                                      TRANSFERABILITY.


 


(a)           If
your option is an Incentive Stock Option, your option is not transferable,
except by will or by the laws of descent and distribution, and is exercisable
during your life only by you. 
Notwithstanding the foregoing, by delivering written notice to the
Company, in a form


 


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satisfactory
to the Company, you may designate a third party who, in the event of your
death, shall thereafter be entitled to exercise your option.


 


(b)           If
your option is a Nonstatutory Stock Option, your option is not transferable,
except (i) by will or by the laws of descent and distribution, (ii) with the
prior written approval of the Company, by instrument to an inter vivos or
testamentary trust, in a form accepted by the Company, in which the option is
to be passed to beneficiaries upon the death of the trustor (settlor) and (iii)
with the prior written approval of the Company, by gift, in a form accepted by
the Company, to a permitted transferee under Rule 701 of the Securities Act.


 


9.             OPTION NOT A SERVICE CONTRACT.  Your option is not an
employment or service contract, and nothing in your option shall be deemed to
create in any way whatsoever any obligation on your part to continue in the
employ of the Company or an Affiliate, or of the Company or an Affiliate to
continue your employment.  In addition,
nothing in your option shall obligate the Company or an Affiliate, their
respective stockholders, Boards of Directors, Officers or Employees to continue
any relationship that you might have as a Director or Consultant for the
Company or an Affiliate.


 


10.                               WITHHOLDING OBLIGATIONS.


 


(a)           At
the time you exercise your option, in whole or in part, or at any time
thereafter as requested by the Company, you hereby authorize withholding from
payroll and any other amounts payable to you, and otherwise agree to make
adequate provision as instructed by the Company (including by means of a “cashless
exercise” pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent instructed by the Company), for any
sums required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with the exercise of your option.


 


(b)           The
Company may, in its sole discretion, and in compliance with any applicable
legal conditions or restrictions, withhold from fully vested shares of Common
Stock otherwise issuable to you upon the exercise of your option a number of
whole shares of Common Stock having a Fair Market Value, determined by the
Company as of the date of exercise, not in excess of the minimum amount of tax
required to be withheld by law (or such lower amount as may be necessary to
avoid variable award accounting).  Any
adverse consequences to you arising in connection with such share withholding
procedure shall be your sole responsibility.


 


(c)           You
may not exercise your option unless the tax withholding obligations of the
Company and/or any Affiliate are satisfied. 
Accordingly, you may not be able to exercise your option when desired
even though your option is vested, and the Company shall have no obligation to
issue a certificate for such shares of Common Stock or release such shares of
Common Stock from any escrow provided for herein unless such obligations are
satisfied.


 


11.          NOTICES.  Any notices provided for in
your option or the Plan shall be given in writing and shall be deemed
effectively given upon receipt or, in the case of notices delivered by mail by
the Company to you, five (5) days after deposit in the United States mail,
postage prepaid, addressed to you at the last address you provided to the
Company.


 


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12.          GOVERNING PLAN DOCUMENT.  Your option is subject to
all the provisions of the Plan, the provisions of which are hereby made a part
of your option, and is further subject to all interpretations, amendments,
rules and regulations, which may from time to time be promulgated and adopted
pursuant to the Plan.  In the event of
any conflict between the provisions of your option and those of the Plan, the
provisions of the Plan shall control, except as expressly provided herein.


 


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