Document:

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:

 

 

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.

 

2

 

(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.

 

3

 

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

 

4

 

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.

 

5

 

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.

29341⁄2 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

 

6

 

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

 

7

 

(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.

 

8

 

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]

 

9

 

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]

 

 

EXHIBIT A

 

CREDITOR CLAIMS

 

[SEE ATTACHED]

 

 

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

 

 

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.

 

2

 

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.

 

7

 

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

 

8

 

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.

 

 

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:

  	
   

  

 

2

 

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:

 

 

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

 

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:

  	
   

  	
   

  

 

3Exhibit 10.2

 

PROMISSORY NOTE

 

	
  $100,000

  	
  San Diego, California

  
	
   

  	
  September 30, 2008

  

 

FOR VALUE RECEIVED, the undersigned (“Borrower”)
hereby unconditionally promises to pay to the order of FAVRILLE, INC., a Delaware corporation (the
“Company”), in lawful money of the United States of America and in immediately
available funds, the principal sum of One Hundred Thousand Dollars ($100,000)
together with interest accrued from the date hereof on the unpaid principal at
the applicable federal rate of interest per annum, or the maximum rate
permissible by law (which under the laws of the State of California shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less, on the basis of a three hundred sixty-five (365) day
year.  Interest shall be compounded
annually and shall be payable in arrears on the Maturity Date (as defined
below).

 

The
outstanding principal amount hereunder and all accrued interest thereon shall
be due and payable in full on March 31, 2009 (“Maturity Date”), provided that if, prior to the Maturity
Date, Borrower and Company have consummated the merger (the “Merger”)
contemplated by the non-binding term sheet between Borrower and Company dated September 29,
2008, the principal and interest shall automatically be treated as a
contribution of capital from Company to Borrower and this Note will be fully
discharged.  Prior to the Maturity Date,
if, other than due to a material breach by Company of a definitive written
agreement between Borrower and Company to effect the Merger, the parties
terminate the definitive agreement without closing or fail to enter into a
definitive agreement, then this Note shall be accelerated in full and all
unpaid principal and accrued interest hereunder shall become due and payable
effective as of the date of the termination of the definitive agreement or the
parties’ mutual agreement to end negotiations or pursuit of a definitive
agreement.

 

This
Note may be prepaid at any time without penalty.  All money paid toward the satisfaction of
this Note shall be applied first to the payment of interest as required
hereunder and then to the retirement of the principal.

 

Borrower
hereby represents and agrees that the amounts due under this Note are not
consumer debt, and are not incurred primarily for personal, family or household
purposes, but are for business and commercial purposes only.

 

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.

 

1

 

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.

 

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:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MY
  MEDICAL RECORDS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Robert H. Lorsch

  
	
   

  	
  Name: 

  	
  Robert H. Lorsch

  
	
   

  	
  Title:

  	
  CEO

  
					

 

2

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