**Exhibit 10.7**

 

**FAVRILLE, INC.2001 EQUITY INCENTIVE PLAN**

** **

**STOCK OPTION AGREEMENT(INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)**

 

Pursuant to yourStock Option Grant Notice (***“GrantNotice”***) and this Stock Option Agreement, Favrille, Inc. (the ***“Company”***) hasgranted you an option under its 2001Equity Incentive Plan (the ***“Plan***”) to purchase the number of shares ofthe Company’s Common Stock indicated in your Grant Notice at the exercise priceindicated in your Grant Notice.  Capitalizedterms not explicitly defined in this Stock Option Agreement but defined in thePlan shall have the same definitions as in the Plan.

 

The details of youroption are as follows:

 

**1.             VESTING.**  Subject to the limitationscontained herein, your option will vest as provided in your Grant Notice,provided that vesting will cease upon the termination of your ContinuousService.

 

**(a)           Special Acceleration Provisions.**  Notwithstanding any otherprovisions 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 inControl and ending twenty-four (24) months after the effective date of suchChange in Control, your Continuous Service terminates due to an involuntarytermination (not including death or Disability) without Cause or due to aConstructive Termination, then, as of the date of termination of yourContinuous Service, the vesting and exercisability of your option shall beaccelerated in full (and any reacquisition or repurchase rights held by the Companywith respect to such option shall lapse in full, as appropriate).

 

For purposes of this subsection 1(a) only, Cause means the occurrenceof any of the following:  (i) yourconviction of any felony or any crime involving fraud or dishonesty which has amaterial adverse effect on the Company and/or its Affiliates; (ii) yourparticipation (whether by affirmative act or omission) in a fraud, act ofdishonesty or other act of misconduct against the Company and/or itsAffiliates; (iii) conduct by you which, based upon a good faith and reasonablefactual investigation by the Board, demonstrates your gross unfitness to serve;(iv) your violation of any fiduciary duty or duty of loyalty owed to theCompany and/or its Affiliates; (v) your breach of any material term of anymaterial contract between you and the Company and/or its Affiliates which has amaterial adverse effect on the Company and/or its Affiliates; (vi) yourrepeated violation of any material Company policy which has a material adverseeffect on the Company and/or its Affiliates; and (vii) your violation of stateor federal law in connection with the performance of your job which has a materialadverse effect on the Company and/or its Affiliates.  Notwithstanding the foregoing, your death orDisability shall not constitute Cause as set forth herein.  The determination that a termination is forCause 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 mergeror consolidation in which the Company is not the surviving entity and in whichthe holders of the Company’s outstanding voting stock immediately prior to suchtransaction own, immediately after such transaction, securities representingless than fifty percent (50%) of the voting power of the entity surviving suchtransaction or the surviving entity’s parent; (iii) a reverse merger in whichthe Company is the surviving entity but the shares of Common Stock outstandingimmediately preceding the merger are converted by virtue of the merger intoother property, whether in the form of securities of the surviving entity’sparent, cash or otherwise, and in which the holders of the Company’soutstanding voting stock immediately prior to such transaction own, immediatelyafter such transaction, securities representing less than fifty percent (50%)of the voting power of the Company or the Company’s parent entity immediatelyafter such transaction; or (iv) an acquisition by any person, entity or groupwithin the meaning of Section 13(d) or 14(d) of the Exchange Act, or anycomparable successor provisions (excluding any employee benefit plan, or relatedtrust, sponsored or maintained by the Company or subsidiary of the Company orother entity controlled by the Company) of the beneficial ownership (within themeaning of Rule 13d-3 promulgated under the Exchange Act, or comparablesuccessor rule) of securities of the Company representing at least fiftypercent (50%) of the combined voting power entitled to vote in the election ofDirectors; provided, however, that nothing in this Section 1(a) shall apply toa sale of assets, merger or other transaction effected exclusively for thepurpose of changing the domicile of the Company.

 

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

 

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

 

**(b)           Parachute Payments.**  If any payment or benefityou would receive pursuant to a Change in Control (as defined in subsection1(a) or the Plan) from the Company or otherwise (“Payment”) would (i)constitute a “parachute payment” within the meaning of Section 280G of theCode, and (ii) but for this sentence, be subject to the excise tax imposed bySection 4999 of the Code (the “Excise Tax”), then such Payment shall be reducedto the Reduced Amount.  The “ReducedAmount” shall be either (x) the largest portion of the Payment that would resultin no portion of the Payment being subject to the Excise Tax or (y) the largestportion, up to and including the total, of the Payment, whichever amount, aftertaking into account all applicable federal, state and local employment taxes,income taxes, and the Excise Tax (all computed at the highest applicablemarginal rate), results in your receipt, on an after-tax basis, of the greateramount of the Payment notwithstanding that all or some portion of the

 

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Payment may besubject to the Excise Tax.  If areduction in payments or benefits constituting “parachute payments” isnecessary so that the Payment equals the Reduced Amount, reduction shall occurin 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 orafter the effective date of the event that triggers the Payment): reduction ofcash payments; cancellation of accelerated vesting of Stock Awards; reductionof employee benefits.  In the event thatacceleration of vesting of Stock Award compensation is to be reduced, suchacceleration of vesting shall be cancelled in the reverse order of the date ofgrant of your Stock Awards unless the you elect in writing a different orderfor cancellation.

 

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

 

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

 

**2.             NUMBER OF SHARES AND EXERCISEPRICE.** The number of shares of Common Stock subject to your option and yourexercise price per share referenced in your Grant Notice may be adjusted fromtime to time for Capitalization Adjustments.

 

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

 

**(a)          **Inthe Company’s sole discretion at the time your option is exercised and providedthat at the time of exercise the Common Stock is publicly traded and quotedregularly in *The Wall Street Journal*, pursuantto a program developed under Regulation T as promulgated by the Federal ReserveBoard that, prior to the issuance of Common Stock, results in either thereceipt of cash (or check) by the Company or the receipt of irrevocableinstructions to pay the aggregate exercise price to the Company from the salesproceeds.

 

**(b)          **Providedthat at the time of exercise the Common Stock is publicly traded and quotedregularly in *The Wall Street Journal*, bydelivery of already-owned shares of Common Stock either that you have held forthe period required to avoid a charge to the

 

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

 

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

 

**4.****                                      WHOLE SHARES.**  You may exercise your option only for wholeshares of Common Stock.

 

**5.             SECURITIES LAW COMPLIANCE.**  Notwithstanding anything tothe contrary contained herein, you may not exercise your option unless theshares of Common Stock issuable upon such exercise are then registered underthe Securities Act or, if such shares of Common Stock are not then soregistered, the Company has determined that such exercise and issuance would beexempt from the registration requirements of the Securities Act.  The exercise of your option also must complywith other applicable laws and regulations governing your option, and you maynot exercise your option if the Company determines that such exercise would notbe in material compliance with such laws and regulations.

 

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

 

**(a)          **three(3) months after the termination of your Continuous Service for any reasonother than Cause, Disability or death, provided that if during any part of suchthree- (3-) month period you may not exercise your option solely because of thecondition set forth in the preceding paragraph relating to “Securities LawCompliance,” your option shall not expire until the earlier of the ExpirationDate 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 Servicedue to your Disability;

 

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

 

**(d)****                                 **immediately upon the termination of your Continuous Service if forCause (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 anIncentive Stock Option, note that to obtain the federal income tax advantagesassociated with an Incentive Stock Option, the Code requires that at all timesbeginning 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 ofthe Company or an Affiliate, except in the event of your death or yourpermanent and total disability, as defined in Section 22(e) of the Code.  (The definition of disability in Section22(e) of the Code is different from the definition of the Disability under thePlan).  The Company has provided forextended exercisability of your option under certain circumstances for yourbenefit but cannot guarantee that your option will necessarily be treated as anIncentive Stock Option if you continue to provide services to the Company or anAffiliate as a Consultant or Director after your employment terminates or ifyou otherwise exercise your option more than three (3) months after the dateyour employment with the Company or an Affiliate terminates.

 

**7.****                                      EXERCISE.**

 

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

 

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

 

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

 

**8.****                                      TRANSFERABILITY.**

 

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

 

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

 

**(b)          **Ifyour 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 theprior written approval of the Company, by instrument to an inter vivos ortestamentary trust, in a form accepted by the Company, in which the option isto 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 bythe Company, to a permitted transferee under Rule 701 of the Securities Act.

 

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

 

**10.****                               WITHHOLDING OBLIGATIONS.**

 

**(a)          **Atthe time you exercise your option, in whole or in part, or at any timethereafter as requested by the Company, you hereby authorize withholding frompayroll and any other amounts payable to you, and otherwise agree to makeadequate provision as instructed by the Company (including by means of a “cashlessexercise” pursuant to a program developed under Regulation T as promulgated bythe Federal Reserve Board to the extent instructed by the Company), for anysums required to satisfy the federal, state, local and foreign tax withholdingobligations of the Company or an Affiliate, if any, which arise in connectionwith the exercise of your option.

 

**(b)          **TheCompany may, in its sole discretion, and in compliance with any applicablelegal conditions or restrictions, withhold from fully vested shares of CommonStock otherwise issuable to you upon the exercise of your option a number ofwhole shares of Common Stock having a Fair Market Value, determined by theCompany as of the date of exercise, not in excess of the minimum amount of taxrequired to be withheld by law (or such lower amount as may be necessary toavoid variable award accounting).  Anyadverse consequences to you arising in connection with such share withholdingprocedure shall be your sole responsibility.

 

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

 

**11.          NOTICES.**  Any notices provided for inyour option or the Plan shall be given in writing and shall be deemedeffectively given upon receipt or, in the case of notices delivered by mail bythe 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 theCompany.

 

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

 

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