calibruspre14a.htm




SCHEDULE 14A INFORMATION
 
PROXY STATEMENT PURSUANT TO SECTION 14(a)
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
Filed by the Registrant  [X]
Filed by a party other than the Registrant [  ]
 
Check the appropriate box:
 
[X] 
Preliminary Proxy Statement
[  ]
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[  ]
Definitive Proxy Statement
[  ]
Definitive Additional Materials
[  ] Soliciting material pursuant to Rule 14a-11(c) or 14a-12
 
CALIBRUS, INC.
(Name of Registrant as Specified in Its Charter)
 
(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)
 
Payment of Filing Fee (Check the appropriate box):
 
[  ]
No fee required.
[X]
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
1.
Title of each class of securities to which transaction applies:
    N/A
 
 
2.
Aggregate number of securities to which transaction applies:
    N/A
 
 
3.
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):  The filing fee was determined based on $3,000,000 total consideration to be paid to Calibrus, Inc. in the proposed transaction.
 
4.
Proposed maximum aggregate value of transaction:  $3,000,000, composed of cash payments, subject to adjustment as provided for in the Asset Purchase Agreement.
 
Total fee paid: $85.95
                  
[X]
Fee paid previously with preliminary materials.
 
[  ]
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously.  Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
1. Amount Previously Paid:  
 
2. Form, Schedule or Registration Statement No.:  
 
3. Filing Party:  
 
4.  Date Filed:  

 
 

 
 
 
Calibrus, Inc.
1225 West Washington, Suite 213
Tempe, Arizona 85281
 
Notice of Special Meeting of Stockholders
To Be Held August 22, 2012
 
To Our Stockholders:
 
A Special Meeting of Stockholders of Calibrus, Inc., a Nevada corporation ("Calibrus" or the "Company"), will be held on Friday, August 22, 2012 at 10:00 a.m. local time at our offices at 1225 West Washington, Suite 213, Tempe, Arizona 85281, for the following purposes:
 
 
1.
To consider and vote upon a resolution for the sale of substantially all of the assets of the third party verification business of Calibrus Inc., which may be deemed a sale of substantially all of our assets for purposes of Nevada law;
 
 
2.
To consider and vote upon a resolution to change the name of the Company from "Calibrus, Inc." to "Fanatic Fans, Inc.";
 
 
3.
To consider and vote upon the adoption of the 2012 Stock Option and Restricted Stock Plan of the Company; and
 
 
4.
To transact such other business as may properly come before the Special Meeting or any adjournment thereof.
 
The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.
 
Stockholders of record at the close of business on July 13, 2012 are entitled to vote at the meeting and at any adjournment or postponement thereof.  Shares can be voted at the meeting only if the holder is present or represented by proxy.  A list of stockholders entitled to vote at the meeting will be open for inspection at our corporate headquarters for any purpose germane to the meeting during ordinary business hours for ten days prior to the meeting.  If you choose to attend the special meeting, you may still vote your shares in person even though you have previously returned your proxy by mail.  If your shares are held in a bank or brokerage account, please refer to the materials provided by your bank or broker for voting instructions. The proxy is revocable at any time prior to its use.
 
By order of the Board of Directors,
 
 
Jeff W. Holmes
Chairman and Chief Executive Officer
 
Tempe, Arizona
July __, 2012
 
IMPORTANT:  It is important that your stockholdings be represented at this special meeting.  Whether or not you expect to attend the special meeting, please complete, date and sign the enclosed proxy and mail it promptly in the enclosed envelope to assure representation of your shares.  No postage need be affixed if mailed in the United States.

 
 

 

Calibrus, Inc.
 
Proxy Statement for the
Special Meeting of Stockholders
to be held August 22, 2012
 
Table of Contents
 
 SOLICITATION, EXECUTION AND REVOCATION OF PROXIES  1
 SUMMARY OF PROPOSED ASSET SALE TERMS  3
 QUESTIONS AND ANSWERS ABOUT THE PROPOSAL  6
 RISK FACTORS  12
     Risks if Sale of the TPV Business is not Approved  12
     Risks if Sale of the TPV Business is Approved  12
 FORWARD-LOOKING STATEMENTS  13
 PROPOSAL ONE: TO APPROVE THE SALE OF THE THIRD PARTY VERIFICATION BUSINESS  14
     Description of the TPV Business Sale  17
     Other Material Terms of the Asset Purchase Agreement  19
     Reasons for Engaging in the Sale of the TPV Business  20
     Background, Past Contacts, and Negotiations  22
     Vote Required for the Approval of the TPV Business Sale  23
     Recommendation of the Board of Directors to Stockholders  24
 CONFLICTS OF INTEREST; INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON  24
 ACCOUNTING TREATMENT OF THE TPV BUSINESS SALE  24
 CERTAIN UNITED STATES TAX CONSEQUENCES OF THE TPV BUSINESS SALE  25
 REGULATORY APPROVALS  25
 PROPOSAL TWO: TO CHANGE THE NAME OF THE CORPORATION TO "FANATIC FANS, INC."  25
     Vote Required  25
     Recommendation of the Board of Directors to Stockholders  25
 PROPOSAL THREE: TO APPROVE THE 2012 STOCK OPTION AND RESTRICTED STOCK PLAN 31  25
     Vote Required  31
     Recommendation of the Board of Directors to Stockholders  31
 EXECUTIVE COMPENSATION  36
 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS  36
 VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF  44
     Security Ownership of Certain Beneficial Owners and Management  44
 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE  46
 STOCKHOLDER PROPOSALS  46
 OTHER MATTERS  47
 INDEX TO UNAUDITED FINANCIAL STATEMENTS OF THE THIRD PARTY VERIFICATION BUSINESS F-  F-1
 EXHIBIT A - ASSET PURCHASE AGREEMENT  
 EXHIBIT B - 2012 STOCK OPTION AND RESTRICTED STOCK AGREEMENT  
 

 
 

 

 
Calibrus, Inc.
 
1225 West Washington, Suite 213
Tempe, Arizona 85281
 
Proxy Statement
Special Meeting of Stockholders
To Be Held August 22, 2012
 
When used in this proxy statement, the terms "Calibrus," the "Company," "we," "our," or "us" refer to Calibrus, Inc. or Calibrus, Inc. and its subsidiaries, as appropriate in the context.
 
Solicitation, Execution and Revocation of Proxies
 
Proxies in the accompanying form are solicited on behalf, and at the direction, of the Board of Directors of Calibrus, Inc. for use at the Special Meeting of Stockholders to be held on August 22, 2012 or any adjournment thereof at our offices located at 1225 West Washington, Suite 213, Tempe, Arizona 85281.
 
You are receiving this communication because you hold shares in Calibrus.  We have elected to provide access to our proxy materials by:  (i) sending you this full set of proxy materials, including the proxy statement and a proxy card; and (ii) notifying you of the availability of these proxy materials on the internet that you may download and print at www.colonialstock.com/Calibrus2012. We encourage you to review all of the important information contained in the proxy materials contained herein or accessed on website www.colonialstock.com/Calibrus2012 before voting.
 
All shares represented by properly executed proxies, unless such proxies have previously been revoked, will be voted in accordance with the direction on the proxies. If no direction is indicated on a proxy returned to us, the shares will be voted FOR approval of the proposal to sell substantially all assets of our TPV Business, FOR approval of the amendment of our Articles of Incorporation to change our name to "Fanatic Fans, Inc." and FOR approval of the adoption of the 2012 Stock Option and Restricted Stock Plan. We are not aware of any other matter which may come before the special meeting.  If any other matters are properly presented at the special meeting for action, including a question of adjourning the meeting from time to time, the persons named in the proxies and acting thereunder will have discretion to vote on such matters in accordance with their best judgment.
 
When stock is in the name of more than one person, the proxy is valid only if signed by all such persons.  If the stockholder is a corporation, the proxy should be signed in the name of such corporation by the president or other authorized officer.  If signed as attorney, executor, administrator, trustee, guardian or in any other representative capacity, the signer’s full title should be given and, if not previously furnished, a certificate or other evidence of appointment should be furnished.
 
This proxy statement and the form of proxy that is enclosed are being mailed to our stockholders commencing on or about July 27, 2012.
 
A stockholder executing and returning a proxy has the power to revoke it at any time before it is voted. A stockholder who wishes to revoke a proxy can do so by executing a later-dated proxy relating to the same shares and delivering it to our corporate Secretary prior to the vote at the meeting, by written notice of revocation received by the Secretary prior to the vote at the meeting or by appearing in person at the meeting, filing a written notice of revocation and voting in person the shares to which the proxy relates.

 
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In addition to the use of the mails, proxies may be solicited by personal conversations or by telephone, telex, facsimile or telegram by our directors, officers and regular employees.  Such persons will receive no additional compensation for such services.  Arrangements will also be made with certain brokerage firms and various other custodians, nominees and fiduciaries for the forwarding of solicitation materials to the beneficial owners of our common stock held of record by such persons, and such brokers, custodians, nominees and fiduciaries will be reimbursed for their reasonable out-of-pocket expenses incurred in connection therewith.  We will bear all expenses incurred in connection with this solicitation.
 
The mailing address of our principal corporate office is 1225 West Washington, Suite 213, Tempe, Arizona 85281.
 

 
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Summary of Proposed Asset Sale Terms
 
The following summary highlights the material terms of the proposed sale of substantially all of the assets of our hosted business solutions business segment (the "TPV Business"), including our third party verification service ("TPV"), which is our principal business, to Calibrus Hosted Business Solutions, LLC, an Arizona limited liability company ("CHBS" or the "Buyer"), and our use of the proceeds.  This summary does not contain all of the information that may be important for you to consider in evaluating the proposed sale.  We have included cross references to direct you to more complete information that appears elsewhere in this proxy statement.  You should read this entire proxy statement, the Asset Purchase Agreement and the other documents attached to this proxy statement in their entirety to fully understand the asset sale and its consequences to you before voting.  A copy of the Asset Purchase Agreement between us and the Buyer, dated June 15, 2012, governing the sale of the TPV Business is attached to this proxy statement as Exhibit A.
 
The Companies
 
Calibrus, Inc. is a technology based company established in 1999.  We have two business segments that leverage our technology capabilities.  We have provided hosted business solutions for approximately ten years.  Through this business segment, we provide TPV services, hosted call recording services and interactive voice response/voice recognition ("IVR/VRU") services to a number of telecom, cable and insurance companies. In our second business segment, we have developed Fanatic Fans ("Fanatic Fans"), a location-based, social media and networking application for smart phones, and JabberMonkey ("Jabbermonkey.com"), a social networking site.  Our website is www.Calibrus.com.
 
Calibrus Hosted Business Solutions, LLC, (the "Buyer" or "CHBS"), is a newly-formed Arizona limited liability company managed by Calibrus Management, LLC, an Arizona limited liability company, which entity owns an approximate 40% membership interest in CHBS.  CHBS was formed to acquire and operate the TPV Business.
 
Assets Transferred and Liabilities Assumed.  We are selling substantially all of the assets of our TPV Business, including substantially all of the related computers, equipment, licenses, customer lists, intellectual property and related agreements and contracts with our customers.  CHBS is offering employment to nearly all of the staff of the TPV Business.  See "Description of the TPV Business Sale — Assets Transferred and Liabilities Assumed" on page 17.
 
Purchase Price.  If the proposed sale to CHBS is consummated, CHBS has agreed to pay us an aggregate of $3,000,000, subject to adjustment pursuant to the terms of the Asset Purchase Agreement, of which $2,000,000 will be paid in cash at the closing, $500,000 may be paid in cash twelve months after the closing and $500,000 may be paid in cash eighteen months after the closing, subject to the following conditions:
 
On the closing date, CHBS will pay us $2,000,000 in cash, subject to adjustment for any amounts we owe to CHBS under an Amended and Restated Senior Multiple Advance Promissory Note, dated June 15, 2012 we executed in favor of CHBS (the "CHBS Note"), and a Senior Multiple Advance Promissory Note, dated June 15, 2012, we executed in favor of a third party (the "Third Party Note"). The CHBS Note and the Third Party Note are collectively referred to herein as the "Pre-Closing Note."  This initial $2,000,000 payment will be reduced by the amount, if any, outstanding and payable to CHBS under the Pre-Closing Note, which is $400,000 as of the date hereof, and the Pre-Closing Note will then be cancelled and treated as paid in full.
 
Within thirty days after the end of the twelve month period immediately following the closing date, CHBS has agreed to pay us $500,000 in cash (the "Twelve Month Payment"), subject to the adjustment below. Within such thirty-day period, CHBS will calculate the gross revenues received from all of the existing customers of the TPV Business as of the closing date and from six prospective customers of the TPV Business that we have actively engaged
 

 
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or can demonstrate proof of active engagement for new business (collectively, the "Business Customers") for the twelve-month period beginning on the Closing Date and ending on the last day of the twelfth month following the Closing Date (the "Twelve Month Revenue"). If the Twelve Month Revenue is equal to $3,500,000, then there will be no adjustment to the Twelve Month Payment. If the Twelve Month Revenue is less than $3,500,000, the Twelve Month Payment will be reduced by the amount of $1.25 for every $1.00 the Twelve Month Revenue is less than $3,500,000. If the Twelve Month Revenue is equal to or less than $3,100,000, CHBS will not owe the Twelve Month Payment to us. If the Twelve Month Revenue is greater than $3,500,000, the Twelve Month Payment will be increased by the amount of $0.20 for every $1.00 the Twelve Month Revenue is greater than $3,500,000 until the Twelve Month Revenue equals or exceeds $5,000,000, at which time no further payments will be due to us by CHBS under the Twelve Month Payment.
 
Within thirty days after the end of the eighteen month period immediately following the closing date, CHBS has agreed to pay us $500,000 in cash (the "Eighteen Month Payment"), subject to the adjustment below. Within such thirty-day period, CHBS will calculate the gross revenues received from the Business Customers for the twelve month period beginning on the first day of the seventh month following the closing date and ending at the end of the eighteenth month following the closing date (the "Eighteen Month Revenue").  If the Eighteen Month Revenue is equal to $3,500,000, then there will be no adjustment to the Eighteen Month Payment.  If the Eighteen Month Revenue is less than $3,500,000, the Eighteen Month Payment will be reduced by the amount of $1.25 for every $1.00 the Eighteen Month Revenue is less than $3,500,000.  If the Eighteen Month Revenue is equal to or less than $3,100,000, CHBS will not owe the Eighteen Month Payment to us. If the Eighteen Month Revenue is greater than $3,500,000, the Eighteen Month Payment will be increased by the amount of $0.20 for every $1.00 the Eighteen Month Revenue is greater than $3,500,000 until the Eighteen Month Revenue equals or exceeds $5,000,000, at which time no further payments will be due to us by CHBS under the Eighteen Month Payment.
 
Certain principal shareholders and officers of the Company have agreed to vote for the transaction at the special meeting of stockholders and to deal only with the Buyer in relation to the sale of the TPV Business.  These shareholders represent approximately 38% of the issued and outstanding common stock of the Company.
 
See "Description of the TPV Business Sale—Consideration to be Received" on page 17.
 
Conditions to the Transaction.  CHBS has the right to terminate the sale if certain conditions are not satisfied prior to closing, including the following:
 
·   
our stockholders shall have approved the sale;
 
·    
the TPV Business shall not have suffered a material adverse effect, as defined in the Asset Purchase Agreement, such as a major operational failure;
 
·    
none of our material customers has terminated its relationship with us or notified us that it intends to do so;
 
·    
receipt of all necessary government approvals and consents of all parties, including certain of our major customers, necessary to assign material contracts to CHBS; and
 
·    
certain employees will have entered into employment agreements with CHBS.
 
See "Other Material Terms of the Asset Purchase Agreement — Conditions to the Closing" on page 19.
 
Representations and Warranties.  The Asset Purchase Agreement contains customary representations, warranties and covenants.  All representations and warranties will survive the closing and will expire on the second anniversary of the closing, with some customary exceptions.  See "Other Material Terms of the Asset Purchase Agreement — Representations and Warranties," on page 19.
 

 
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Indemnification.  We have agreed to indemnify CHBS for losses and claims against it arising from our breach of any covenants or any representations or warranties in the Asset Purchase Agreement and other matters.  Our indemnity obligations are capped at the portion of the purchase price we have received under the Asset Purchase Agreement.  Our payment obligations only commence after CHBS has incurred the first $50,000 of claims otherwise eligible for indemnification. CHBS has agreed to similar indemnification obligations in favor of us. The indemnification threshold will not apply to Buyer’s right to offset the Twelve Month Payment or the Eighteen Month Payment due to us to the extent we breach any of our representations or warranties in the Asset Purchase Agreement.
 
See "Other Material Terms of the Asset Purchase Agreement —Indemnification" on page 20.
 
Termination Fees.  We must pay a termination fee of $250,000, plus all reasonable out of pocket expenses incurred by CHBS (including, without limitation, attorneys' fees) in an amount not to exceed $100,000, if we fail to close the transaction contemplated by the Asset Purchase Agreement in accordance with its terms after satisfaction or waiver of all required conditions to closing.
 
Post-Closing Agreements.  We have agreed that we will not, for a period of five years following the closing date (the "Restricted Period"), provide TPV services that compete with the TPV Business in any state in which CHBS conducts the TPV Business during the Restricted Period.  In addition, during the Restricted Period, we will not (i) hire or attempt to hire away any employee of CHBS or the TPV Business or persuade any such employee to leave employment with CHBS or the TPV Business; (ii) solicit, divert, or take away, or attempt to solicit, divert or take away, the business of any person with whom CHBS or the TPV Business has established, or are actively seeking to establish a business or customer relationship with respect to competing services or products; (iii) accept the business or customer relationship of any person with whom CHBS or the TPV Business has established, or are actively seeking to establish, a business or customer relationship with respect to competing services or products; or (iv) solicit, induce or attempt to induce any salesperson, distributor, supplier, vendor, manufacturer, representative, agent, or other person transacting business with CHBS or the TPV Business to terminate their relationship or association with CHBS or the TPV Business, or to represent, distribute or sell services or products in competition with the business of CHBS or the TPV Business. See "Other Material Terms of the Asset Purchase Agreement — Conditions to the Closing" on page 19 and "Noncompetition and Nonsolicitation Agreements" on page 20.
 

 
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Questions and Answers about these Proxy Materials and Voting
 
Why am I receiving these materials?
 
We have sent you this proxy statement and the enclosed proxy card because the Board of Directors is soliciting your proxy to vote at the special meeting of stockholders.  You are invited to attend the special meeting to vote on the proposals described in this proxy statement.  However, you do not need to attend the special meeting to vote your shares.  Instead, you may simply complete, sign and return the enclosed proxy card.
 
What am I being asked to vote upon?
 
We are asking each stockholder to vote in favor of a transaction in which we will sell substantially all of the assets of our TPV Business to CHBS for $3,000,000 in cash, subject to adjustment pursuant to the terms of the Asset Purchase Agreement, less the principal amount of the Pre-Closing Note.
 
This sale may constitute a sale of substantially all of our assets for the purposes of Nevada law, which governs our corporate matters.  Accordingly, the sale is being submitted to stockholders for approval pursuant to §78-565 of the Nevada Corporation Law.  See the unaudited financial statements of the TPV Business beginning on page F-1.
 
In addition, we are asking each stockholder to vote in favor of (i) a change of our name from “Calibrus, Inc.” to “Fanatic Fans, Inc.” to more accurately reflect our new business concentration of developing Fanatic Fans, our social media initiative; and (ii) approval of the adoption of our 2012 Stock Option and Restricted Stock Plan.
 
Why has the Board decided to sell the TPV Business?
 
Our Board of Directors decided that it is in the best interests of Calibrus to sell the TPV Business.  We are currently devoting our funds and efforts in two lines of business:  the TPV Business and Fanatic Fans, our social media initiative.  We believe we should focus our efforts solely on developing and commercializing Fanatic Fans and that there is significant opportunity in the social media and mobile social markets.  The sale of our TPV Business will help us fund Fanatic Fans, allow us to focus our efforts, resources and management time on Fanatic Fans, as well as allow us to explore complimentary or other opportunities that may arise in the social media market from time to time.  See "Proposal One: To Approve the Sale of the TPV Business — Reasons for Engaging in the Sale of the TPV Business" on page 20.
 
What will Calibrus receive in exchange for the TPV Business?
 
CHBS will pay us $3,000,000 in cash, subject to adjustment pursuant to the terms of the Asset Purchase Agreement, less the principal amount of the Pre-Closing Note.
 
What will the stockholders receive if the asset sale is approved and closes?
 
We will make no distributions to our stockholders from the proceeds of the sale of the TPV Business.  Rather, we will use the sale proceeds primarily to fund Fanatic Fans and pay certain  outstanding obligations.
 
What was the process by which Calibrus chose to sell the TPV Business to CHBS?
 
We explored a variety of strategic alternatives to continue to fund our social media initiative through the revenue generated by our existing TPV Business.  After reviewing our available alternatives, our Board of Directors 
 
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directed us to pursue the sale of our TPV Business with the help of our financial advisor, MCA Financial Group.  In a process spanning 12 months, during which we approached 25 different potential buyers, we received one indication of interest and, after additional negotiations, our Board of Directors concluded in June 2012 that a transaction with CHBS represented the best value for selling the TPV Business under the circumstances.   See "Proposal One: To Approve the Sale of the TPV Business —Reasons for Engaging in the Sale of TPV Business" on page 20.
 
What will be the management structure of Calibrus after the sale?
 
Jeff W. Holmes, our Chairman and CEO, Greg Holmes, our President, and Kevin Asher, our Chief Financial Officer, are expected to remain after the sale.  All of our other employees who are currently directly involved with the social media program are expected to remain with us immediately after the sale.  We expect that immediately after closing we will have approximately five employees.  Our administrative staff will report to Greg Holmes.  Greg Holmes and Kevin Asher will report to Jeff Holmes, our Chairman and CEO.
 
What are the risks of the proposed asset sale?
 
If the stockholders approve the sale of the TPV Business and the sale is consummated, we will be selling our only revenue and cash flow producing business and become less diversified.  We will then be a social media company.  Fanatic Fans, our social media business, will require a substantial investment.  Our investment in Fanatic Fans is high risk, but has the potential for significant return if it is successful.  Our available resources, even after the sale of the TPV Business, will not be sufficient to fund completely the development and commercialization of Fanatic Fans.  We will require substantial additional funding for it.  We do not have any commitments for such funding.  Further, even if we do obtain such funding, there can be no assurance that the terms will be favorable to us.  See "Risk Factors" on page 12.
 
What will occur if the sale transaction is not approved?
 
If our stockholders do not approve the sale of the TPV Business, we will not consummate the sale.  We will continue to operate our TPV Business and re-evaluate our strategic alternatives.
 
What are the federal tax consequences of the asset sale to Calibrus?
 
Although we will recognize taxable income in connection with our sale of our TPV Business to CHBS, a portion of this taxable income will be offset to the extent of our current year losses from operations plus available net operating loss carry forwards from prior years.  As of March 31, 2012, we believe that we have approximately $6,890,000 of current year losses from operations plus available net operating loss carry forwards from prior years.  However, due to certain rules imposing limits on the availability of net operating losses under the federal alternative minimum tax system, a portion of this taxable income may be subject to the federal alternative minimum income tax.
 
Am I entitled to appraisal or dissenter’s rights?
 
No. Stockholders are not entitled to any dissenter’s or appraisal rights with respect to the sale of the TPV Business under Nevada law or our Articles of Incorporation.
 
Where and when is the special meeting?
 
The special meeting will be held on Friday, August 22, 2012 at 10:00 a.m. local time, at our offices at 1225 West Washington, Suite 213, Tempe, Arizona 85281.
 

 
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Who can vote at the special meeting?
 
Only holders of our common stock at the close of business on July 13, 2012, the record date, may vote at the special meeting or any adjournment or postponement of the special meeting.  On July 13, 2012, 13,858,580 shares of our common stock were issued and outstanding. Each stockholder is entitled to one vote per share. The presence, in person or by proxy, of a majority of those shares will constitute a quorum at the special meeting.
 
Stockholder of Record:  Shares Registered in Your Name
 
If on July 13, 2012, your shares were registered directly in your name with our transfer agent, Colonial Stock Transfer, then you are a stockholder of record. As a stockholder of record, you may vote in person at the special meeting or vote by proxy. Whether or not you plan to attend the special meeting, we urge you to fill out and return the enclosed proxy card to ensure your vote is counted.
 
Beneficial Owner: Shares Registered in the Name of a Broker or Bank
 
If on July 13, 2012, your shares were held in an account at a brokerage firm, bank, dealer or other similar organization, then you are the beneficial owner of shares held in "street name" and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the special meeting. As a beneficial owner, you have the right to direct your broker or other agent regarding how to vote the shares in your account. You are also invited to attend the special meeting. However, since you are not the stockholder of record, you may not vote your shares in person at the special meeting unless you request and obtain a valid proxy from your broker or other agent.
 
What is a "quorum"?
 
To vote on proposals at the special meeting, a quorum must be present. A quorum requires the presence, in person or by proxy, of the holders of at least a majority of the votes entitled to be cast at the meeting.  Abstentions and broker non-votes are counted as present and entitled to vote for purposes of determining a quorum.  A broker non-vote occurs when you fail to provide voting instructions to your broker for shares that your broker holds on your behalf in a nominee name, which is commonly referred to as holding your shares in "street name."  Under those circumstances, your broker may be authorized to vote for you on some routine items but is prohibited from voting on other items.  Those items for which your broker cannot vote result in broker non-votes.
 
How do I vote?
 
You may vote by proxy or in person at the special meeting.  To vote by proxy, please complete, sign, date and return your proxy card in the postage-prepaid envelope that we have provided. For each of the matters to be voted on at the special meeting, you may vote "For" or "Against" or you may abstain from voting.
 
The procedures for voting are fairly simple:
 
Stockholder of Record: Shares Registered in Your Name. If you are a stockholder of record, you may vote in person at the special meeting or vote by proxy using the enclosed proxy card. Proxies may also be authorized by telephone or over the internet by following the instructions on the proxy card. If you vote by telephone or internet, you do not have to mail in your proxy card. Whether or not you plan to attend the special meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the special meeting and vote in person even if you have already voted by proxy.
 

 
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To vote using the proxy card, simply complete, sign and date the enclosed proxy card and return it promptly in the envelope provided. If you return your signed proxy card to us before the special meeting, we will vote your shares as you direct.
 
·    
To vote by telephone or over the internet, follow the instructions on the proxy card.
 
·    
To vote in person, come to the special meeting and we will give you a ballot when you arrive. If you submit your vote in person, any previous votes that were submitted by you will be superseded by the vote that you cast at the special meeting.
 
Beneficial Owner: Shares Registered in the Name of Broker or Bank. If you are a beneficial owner of shares registered in the name of your broker, bank or other agent, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than from the Company. Simply complete and mail the proxy card to ensure that your vote is counted. To vote in person at the special meeting, you must obtain a valid proxy from your broker, bank or other agent. Follow the instructions from your broker or bank included with these proxy materials, or contact your broker or bank to request a proxy form.
 
How many votes do I have?
 
On each matter to be voted upon, you have one vote for each share of common stock that you own as of July 13, 2012.
 
How do proxies work?
 
Giving your proxy means that you authorize us to vote your shares at the special meeting in the manner you direct.  If you sign, date and return the enclosed proxy card but do not specify how to vote, we will vote your shares
 
(i)            FOR the sale of substantially all of the assets of the TPV Business;
 
(ii)           FOR the change of our name from "Calibrus, Inc." to "Fanatic Fans, Inc." and
 
(iii)          FOR the approval of the adoption of the 2012 Stock Option and Restricted Stock Plan.
 
We do not know of any other matters that will be brought before the special meeting.  If, however, other matters are properly brought before the special meeting, we will vote your proxy on those matters as determined by the person identified on the proxy card as your proxy.
 
How do I revoke my proxy?
 
You may revoke your proxy at any time prior to the special meeting by:
 
·    
notifying the Secretary of Calibrus at our offices at 1225 West Washington, Suite 213, Tempe, Arizona 85281, in writing that you are revoking your proxy;
 
·    
providing another signed proxy that is dated after the proxy you wish to revoke;
 
·    
using the telephone or internet voting procedures; or
 
·    
attending the special meeting and voting in person. Simply attending the meeting will not, by itself, revoke your proxy.
 
If you hold shares through a bank or brokerage firm, you must contact that firm to revoke any prior voting instructions.
 

 
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What happens if I choose not to submit a proxy or to vote?
 
If you do not submit a proxy and do not vote at the special meeting, it will have the same effect as a vote AGAINST (i) approval of the sale of the assets of the TPV Business, and (ii) the change of our name from "Calibrus, Inc." to "Fanatic Fans, Inc."; and an abstention regarding the adoption of the 2012 Stock Option and Restricted Stock Plan.
 
How many votes are required to approve the sale of the TPV Business?
 
The affirmative vote of a majority of the outstanding shares of common stock entitled to vote is necessary for approval of the sale of the TPV Business.  For this purpose, if you do not return your proxy or if you vote to “abstain” on this proposal, your action will have the same effect as if you voted AGAINST the proposal.  If you return a signed and dated proxy card without making any voting selections, your shares will be voted FOR this proposal. Broker non-votes also will have the same effect as a vote AGAINST the proposal.
 
How many votes are required to approve the change of our name to “Fanatic Fans”?
 
The affirmative vote of a majority of the outstanding shares of common stock entitled to vote is necessary to amend our Articles of Incorporation and change our name from “Calibrus, Inc.” to “Fanatic Fans, Inc.”  For this purpose, if you do not return your proxy or if you vote to “abstain” on this proposal, your action will have the same effect as if you voted AGAINST the proposal.  If you return a signed and dated proxy card without making any voting selections, your shares will be voted FOR this proposal. Broker non-votes also will have the same effect as a vote AGAINST the proposal.
 
How many votes are required to approve the adoption of the 2012 Stock Option and Restricted Stock Plan?
 
The affirmative vote of a majority of the outstanding shares of common stock voted at the meeting is necessary for the approval of the adoption of the 2012 Stock Option and Restricted Stock Plan.  If you return a signed and dated proxy card without making any voting selections, your shares will be voted FOR this proposal.  Thus, if you are not a record holder, you must provide voting instructions to the record holder of the shares in accordance with its requirements in order for your shares to be properly voted on this matter.  If you beneficially own your shares in street name and you do not instruct your bank or broker how to vote in this matter, no votes will be cast on your behalf.
 
Who pays for this proxy solicitation?
 
Our Board of Directors is soliciting your proxy.  We will pay the expenses of preparing and distributing this proxy statement and soliciting proxies, including the reasonable expenses of brokerage houses and other custodians, nominees and fiduciaries for forwarding solicitation materials to beneficial owners. In addition, the Company may retain an outside firm to assist in the solicitation of proxies for a fee.
 
Where can I find more information about Calibrus and this proposal?
 
You can get more information about us by inspecting our annual, quarterly and other reports which we file with the U.S. Securities and Exchange Commission, by copying them at the SEC’s Public Reference Room at 100 F Street, N.E., Washington D.C. 20549 or by calling the SEC at 1-800-SEC-0330 (the “SEC”).  You can obtain these reports from the SEC website at www.sec.gov through the EDGAR system or by contacting us directly at the address and telephone number below.
 

 
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If you have other questions about the proposal or the special meeting you can contact us at the following address:
 
Calibrus, Inc.
Attn: Investor Relations
1225 West Washington, Suite 213
Tempe, Arizona 85281
(602) 778-7500
 
The information contained or incorporated in this proxy statement constitutes the information we believe you should rely on in deciding how to vote on the proposal.  We have not authorized anyone to provide you with information that is different from what is contained or incorporated in this proxy statement.  This proxy statement is dated July __, 2012.  You should not assume that the information contained in this proxy statement is accurate as of any date other than this date.  See “Incorporation of Certain Documents by Reference” on page 46.

 
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Risk Factors
 
Risks if Sale of the TPV Business is not approved
 
If the sale of the TPV Business is not approved, we will continue to operate the TPV Business unless and until we are able to negotiate another transaction that the Board of Directors believes is in the best interest of the stockholders and the Company.  As discussed below under “Proposal To Approve the Sale of the TPV Business – Reasons for Engaging in the Sale,” the Board of Directors believes that we will need additional funding to continue the development and commercialization of Fanatic Fans while still making the necessary management effort and investment in the TPV Business to maintain our profitability and to attempt to stem the erosion of the TPV Business due to the decline in volume of TPV calls.  To the extent that we do not obtain needed capital through the sale of the TPV Business, we will have to obtain it through the issuance of additional debt or equity, by entering into joint ventures or other arrangements under which we may share our ownership in Fanatic Fans, or through other means, any one of which may reduce the value, perhaps substantially, of Fanatic Fans to us.  We plan to concentrate our efforts in social media on Fanatic Fans rather than JabberMonkey.  We intend to sell JabberMonkey or obtain a joint venture, partner or other arrangement for it.  There can be no assurance that we will be successful in this regard.  Even if we sell the TPV Business, we will not have the financial resources to fund completely the development and commercialization of Fanatic Fans and thus will require additional funding.  There is no guarantee that we will be able to obtain such funding or obtain it on terms acceptable to us.
 
Risks if the Sale of the TPV Business is approved
 
The sale might not be consummated even though the stockholders approve the sale.
 
Stockholder approval is only one of the closing conditions.  If the remaining closing conditions are not satisfied or waived, including but not limited to the consent of our key TPV customers, the sale might not be consummated, even if the stockholders approve the sale.
 
By completing the sale of the TPV Business, we will become less diversified.
 
By selling our TPV Business, we will be divesting ourselves of our only business segment that is generating revenue and cash flow.  We will become a pure social media company focused on the development and commercialization of Fanatic Fans.  We may also invest in or acquire other social media businesses or technologies in the future if an attractive opportunity presents itself, if we have sufficient capital to explore them, but we have no current opportunities or specific plans to do so at this time.  The sale of our TPV Business increases our business risk because we will be less diversified than before such sale and because we do expect that Fanatic Fans, our remaining business, will not generate any revenue in the immediate future.
 
After the sale of the TPV Business, we will become a pure social networking company in a highly competitive field with high investment costs and high risks.
 
After the sale, we will be a social media company.  We must still complete certain development of Fanatic Fans before we can make a full commercial launch of it to the public.  We must achieve a certain level of users of Fanatic Fans before it can be monetized and produce revenue for us.  We will have to raise substantial additional capital to drive users and merchants to Fanatic Fans and eventually generate revenues and reach profitability, if ever.   We will be dependent upon selling advertisements and finding other ways to monetize our users by selling add-on services from merchants and third party service providers.  For a social application or site to be able to sell advertisements, it must first attract a sufficient number of users to gain the interest of advertisers in buying ads and offering products on the site or the application.  It will take time, management effort and capital to attract users to Fanatic Fans.
 

 
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There can be no assurance that any users will come.  These timeframes, along with the general state of development create additional uncertainty as to the potential success of Fanatic Fans.  The application may not work as we plan and even if it does, there can be no assurance that an economically viable level of users will come, that advertisers will want to advertise or that we can monetize it.  Therefore, it will be costly to maintain the application and market it to attract users and advertisers.
 
Need for Additional Capital.
 
We will require capital in addition to the proceeds received from the sale of the TPV Business to accomplish our business plan for Fanatic Fans.  Traditional forms of financing, such as bank loans, are not available to us.  We anticipate that it will be difficult to raise capital from other sources and the terms upon which we may be able to do so may not be favorable.  This may result in substantial dilution to current stockholders.  There can be no assurance that we will be able to raise the required capital to develop and commercialize Fanatic Fans.
 
Forward-Looking Statements
 
When used in this proxy statement, the words "estimate," "project," "intend," "expect" and similar expressions are intended to identify forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement.  Actual results may differ materially from those contemplated in forward-looking statements and projections.  Risks and uncertainties that may cause such differences include, but are not limited to, our ability to close the sale of the TPV Business, the effects on us if the sale is not completed, and other risk factors detailed under "Risk Factors," above and in our Securities and Exchange Commission filings, including our Form 10-K for the year ended December 31, 2011 and Form 10-Q for the quarter ended March 31, 2012.
 

 
13

 

Proposal One:   to approve the sale of the TPV Business
 
If the sale of our TPV Business is approved by our stockholders, we intend to complete the sale of substantially all of the assets of the TPV Business to CHBS under the terms of the Asset Purchase Agreement.  We plan to use the net proceeds of the sale to fund the development and commercialization of Fanatic Fans, our mobile social smart phone application or "app," pay certain outstanding obligations, and possibly explore other opportunities in social media or complementary technologies that may arise from time to time, provided that we have sufficient capital.  A detailed description of the TPV Business sale and related information is included in this proxy statement.  Descriptions of the TPV Business sale in this proxy statement are qualified in their entirety by reference to the Asset Purchase Agreement attached to this proxy statement as Exhibit A.  Stockholders are encouraged to read the Asset Purchase Agreement in its entirety.
 
Calibrus, Inc.
 
Through our Hosted Business Solutions, we provide TPV Services, Hosted Call Recording Services and Interactive Voice Response/Voice Recognition Unit ("IVR/VRU") Services to telecom, cable and insurance companies.  We estimate that we have processed over 50 million live agent calls/recordings and five million IVR calls/recordings to date serving these companies.
 
Through our technology we provide fully-integrated live voice, data, and automated services and combinations of services from a unified platform.  Our  processes and functionality allow our IT staff to design and build systems to satisfy clients’ process requirements.  Our technology allows us to develop and build customized web-based solutions incorporating call recording, “click to call” and voice message broadcast functionality.
 
Products and Services - Hosted Third Party Verification (TPV) Services
 
Our TPV service is easy to use and we offer TPV service through both live operator and IVR/VRU.  Our Live Operators process thousands of TPV calls daily.  Live Operator TPV has been the solution of choice for several of our largest customers.  Live operators offer the best customer experience and typically higher success rates over IVR/VRU solutions.  Our Automated IVR/VRU solution offers a low-cost alternative to a live voice agent while ensuring compliance with both FCC and State PUC ("Public Utility Commission") TPV requirements. Our IVR systems feature intuitive scripting to automatically ensure the correct questions are asked. Our custom IVR solutions enable a client’s customers to easily opt-out to a live agent at any time if they require personal attention.
 
TPV is the confirmation of a customer’s order by an independent third party.  This process protects both the customer and the company selling services from fraud and slamming/cramming of products onto their lines.  Slamming is the practice of customers being switched from one company to another without their approval, and sometimes without any knowledge whatsoever until they received their bill.  In response to slamming, legislation was enacted that required companies that were changing a customer’s dial tone or long distance to their services would have to first obtain the customer’s approval.   In the TPV process, once the sale has been made, the customer is transferred to an independent third party, such as us, that will read a pre-determined script including questions to which the customer will answer yes or no.
 
Our automated IVR verification method provides customers with a pre-determined script to comply with each client’s unique verification requirements.  In addition to our automated TPV services, we also offer Live Operator TPV Service.  When customers want to provide live interactions with ultimate flexibility, our Live Operator Services can be used in conjunction with our automated TPV services or as a standalone service.
 

 
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TPV revenue accounted for approximately 98.5% of our total revenue in 2011, of which 77.1% was derived from Live Operator services and 21.6% was derived IVR/VRU services.  Our TPV services are priced on per transaction or per minute usage.
 
Other Services
 
We also offer Live Agent VOIP Verifications, Automated IVR Verifications as a low-cost alternative to a live voice agent that still complies with TPV requirements of both the FCC and State PUC.  Customers can easily opt-out to a live agent at any time if they require personal attention.
 
We also offer Hosted Call Recording, Hosted Call Recording for the Insurance Industry, Click-To-Call Services known as "ClickTalk," Call Center Services and SpeechTrack.com as additional solutions for various customer needs.
 
Fanatic Fans
 
In the second half of 2010 we commenced development of Fanatic Fans, a location based social media/networking application for smart phones.  The Fanatic Fans application has been live on the Apple App Store and Android Marketplace since April 2011.
 
Fanatic Fans will inform its users about upcoming live events in the sports and music industries by giving users the ability to interact with live events, share their experiences, and earn rewards for attending sports and other live events.   Users can browse a calendar of upcoming events that can be segmented by region, artist or team.  Users can get detailed information on the event and discuss the event with other fans.  While at an event users can share their experiences with the social networks Facebook and Twitter and communicate with other people at the event.  Users can unlock virtual awards and earn virtual points in recognition of attending events.  Within their profile users can browse and view the items they have unlocked and receive news on their favorite artists.  Finally, users can redeem their virtual points for food/drinks, apparel and purchase event tickets in the application award section.
 
Fanatic Fans will reward users for their support of their favorite sports teams, music artists or bands.  National and local businesses will be able to market to fans who attend the events by listing promotions (goods and services) on our application.  Businesses can list their promotions, users can view and redeem these promotions and offers.   Fanatic Fans plans to offer contests and provide recognition to the most avid users of our application.
 
Functionality of Fanatic Fans
 
When a user is at an event the application automatically determines the event or show he or she is attending using the phone's GPS.  The user can view information on the show or event.  Users can make comments about upcoming events on a forum that also allows fans to interact with one another while at the show or event.  The comments of users can go directly to Facebook and Twitter if the user chooses to link his Fanatic Fans account.  Users can check in while attending an event.  By checking in the user will unlock a virtual award that can also be published to Facebook and Twitter.  Users also earn virtual currency by checking into a location.  After checking in the user can return to the comments page where they can continue to read and add comments about the show or event.
 
When users are not at a show they may use Fanatic Fans to locate upcoming shows or events.  Users may browse a calendar of all upcoming shows and sort by location and the artists that they follow.  Users can get information on the show, including time, location, and performing artists, or sporting or other events.  Users may view tips created by other members and add tips of their own.  Finally, users can confirm that they are planning to attend an event and tell their friends by publishing to Facebook and Twitter.
 

 
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Fanatic Fans features a profile page that allows users to view their past activity within the app and receive news updates on their favorite artists or sports team.  They are able to view all of the awards that they have unlocked, and all the shows or events that they have attended.  They also will receive the latest news posts of their favorite music artist, athlete or team.  Finally, users can adjust their personal settings from their profile, including which artists or team they wish to follow, their home town, and their Facebook and Twitter account information.  Vendors and businesses can list promotions for users to redeem Fanatic Fan virtual points and users can buy tickets to live events through a third party.
 
Fanatic Fans Website
 
Live event content posted by users through Fanatic Fans is also available on the Fanatic Fans website.  Comments, pictures and videos uploaded to the Fanatic Fans app by fans using their mobile phone attending live events are instantly saved on the FanaticFans.com website.  Users can watch videos, view pictures and learn what people are saying about live sports or music events in real-time.  As fans express and share their excitement, other users can join in and make comments, upload pictures and videos before, during and after the live event and share to Facebook and Twitter.
 
Additionally, users of the FanaticFans.com website can view a complete listing of discount offers by merchants on food, drinks, merchandise and tickets.  Users can check on all upcoming sports and music events in their area and other cities around the nation and review all of their live event comments, pictures and videos in their profile pages.
 
Facebook Application for Fanatic Fans
 
The Fanatic Fans application in Facebook allows sports and music fans to view user generated content and experience the live event on Facebook with the Fanatic Fans Facebook app.  The Fanatic Fans Facebook app allows Facebook users to access all live event sports and concert content without ever having to leave Facebook.  Users can see photos and videos that fans have taken of their favorite sports team and/or music artist in real-time and learn what they thought of the game or concert.
 
Facebook users can see their favorite live events through the Fanatic Fans Facebook app.  The Fanatic Fans app features a calendar of all sports and music events by region.  Users can look up the location and time of an event and get a map with directions showing them exactly how to get there.  When a user sees an event he is interested in he can share it with his Facebook friends, buy tickets to the event, make comments, post videos and pictures before, during, and after the event.
 
Facebook users can earn rewards for attending their favorite live events and using the Fanatic Fans Facebook or mobile applications.  Facebook users will be able to access a complete listing of merchant discount offers on food, drinks, merchandise and tickets and look up discounts nearby and redeem rewards using the Fanatic Fans mobile application.
 
Competition
 
Through Fanatic Fans we will be entering one of the fastest growing segments of location based social networking and as such we will face intense competition from applications, such as Foursquare and Gowalla.  Many of the competitors in this space are well financed and have the advantage of having already captured consumers who may be unwilling to switch to a new application.  We have no intellectual property protection and are only now preparing preliminary patent and trademark filings.  We do not know if any of our filings will lead to actually receiving provisional patents or final patents or trademarks.
 
Start-ups, such as SuperGlued and Flow'd, are recognizing the opportunities presented in specific market verticals related to check-in.  We believe that niche strategy is likely to be the next wave in location-based social-networking and that arena offers the greatest opportunity for frequent sustained usage, although we can offer no assurances in this regard.

 
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Marketing
 
Our marketing plan is to develop awareness of Fanatic Fans by cultivating partnerships with universities, utilizing traditional advertising mediums and implementing web 2.0 marketing techniques with the goal of delivering Fanatic Fans to the right people at the right place.  We plan to use in-house personnel and outside agencies to make Fanatic Fans relevant to its target audience, subject to having sufficient capital.  Fanatic Fans is a global application, but our marketing strategies will initially be very targeted to just several geographic locations.
 
Revenue Model
 
Our initial revenue model will be based on advertising.  As such, we do not anticipate any revenue for some time.  We also intend to generate revenue from monthly fees for businesses listing promotions in the application.  In order to sell advertisements or charge monthly fees, we will need to have a certain level of users.
 
Finally, we intend to partner with one or more ticket companies in order to achieve a revenue share agreement for tickets sold for live events through the Fanatic Fans application.  To be able to achieve a revenue share agreement, we will need to have a certain level of users on the app.  If we are not able to attract sufficient users, it may be unlikely that we can achieve a revenue share agreement with any ticket company.
 
JabberMonkey
 
We closed the alpha testing phase of development of our JabberMonkey website during December 2009.  The site reached the beta testing phase in the first part of December, 2009 and ran through November 2010.  The first non-beta version of the website went into operation in December 2010.  We have not aggressively marketed the website due to a lack of sufficient capital and our plan to pursue the development and commercialization of Fanatic Fans.  We are maintaining the JabberMonkey website, but our intent is to sell it or enter into a joint venture, partnership or similar arrangement with a third party to formally launch and commercialize it.  There can be no assurance that we will be successful in this regard.
 
CHBS
 
Calibrus Hosted Business Solutions, LLC, (the "Buyer" or "CHBS"), is a newly-formed Arizona limited liability company managed by Calibrus Management, LLC, an Arizona limited liability company, which entity owns an approximate 40% membership interest in CHBS.  CHBS was formed to acquire and operate the TPV Business.
 
Description of the TPV Business Sale
 
On June 21, 2012, we announced that we had entered into an Asset Purchase Agreement to sell our TPV Business to CHBS.  Upon the closing of the asset sale, we will assign and CHBS will assume and agree to perform those obligations outstanding on or arising after the closing date relating to the operation of the TPV Business.  See unaudited financial statements of the TPV Business beginning on Page F-1.
 
Consideration to be Received.  If the proposed sale to CHBS is consummated, CHBS has agreed to pay us an aggregate of $3,000,000, subject to adjustment pursuant to the terms of the Asset Purchase Agreement, of which $2,000,000 will be paid in cash at the closing, $500,000 may be paid in cash twelve months after the closing and $500,000 may be paid in cash eighteen months after the closing subject to the following conditions:
 

 
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On the closing date, CHBS will pay us $2,000,000 in cash, subject to adjustment for any amounts we owe to CHBS under an Amended and Restated Senior Multiple Advance Promissory Note, dated June 15, 2012, in favor of CHBS, as holder (the "CHBS Note"), and a Senior Multiple Advance Promissory Note, dated June 15, 2012, we executed in favor of a third party, as holder (the "Third Party Note") (the CHBS Note and the Third Party Note are collectively referred to herein as the "Pre-Closing Note").  This initial $2,000,000 payment will be reduced by the amount, if any, outstanding and payable to CHBS under the Pre-Closing Note, which is $400,000 as of the date hereof, and the Pre-Closing Note will then be cancelled and treated as paid in full.
 
Within thirty days after the end of the twelve month period following the closing date, CHBS has agreed to pay us $500,000 in cash (the "Twelve Month Payment"), subject to the adjustment below. Within such thirty-day period, CHBS will calculate the gross revenues received from all of the existing customers of the TPV Business as of the closing date and from six prospective customers of the TPV Business that we have actively engaged or can demonstrate proof of active engagement for new business (collectively, the "Business Customers") for the twelve-month period beginning on the Closing Date and ending on the last day of the twelfth month following the Closing Date (the "Twelve Month Revenue"). If the Twelve Month Revenue is equal to $3,500,000, then there will be no adjustment to the Twelve Month Payment. If the Twelve Month Revenue is less than $3,500,000, the Twelve Month Payment will be reduced by the amount of $1.25 for every $1.00 the Twelve Month Revenue is less than $3,500,000. If the Twelve Month Revenue is equal to or less than $3,100,000, CHBS will not owe us the Twelve Month Payment.  If the Twelve Month Revenue is greater than $3,500,000, the Twelve Month Payment will be increased by the amount of $0.20 for every $1.00 the Twelve Month Revenue is greater than $3,500,000 until the Twelve Month Revenue equals or exceeds $5,000,000, at which time no further payments will be due to us under the Twelve Month Payment.
 
Within thirty days after the end of the eighteen month period immediately following the closing date, CHBS has agreed to pay us $500,000 in cash (the "Eighteen Month Payment"), subject to the adjustment below. Within such thirty-day period, CHBS will calculate the gross revenues received from the Business Customers for the twelve month period beginning on the first day of the seventh month following the closing date and ending at the end of the eighteenth month following the closing date (the "Eighteen Month Revenue").  If the Eighteen Month Revenue is equal to $3,500,000, then there will be no adjustment to the Eighteen Month Payment.  If the Eighteen Month Revenue is less than $3,500,000, the Eighteen Month Payment will be reduced by the amount of $1.25 for every $1.00 the Eighteen Month Revenue is less than $3,500,000.  If the Eighteen Month Revenue is equal to or less than $3,100,000, CHBS will not owe us the Eighteen Month Payment.  If the Eighteen Month Revenue is greater than $3,500,000, the Eighteen Month Payment will be increased by the amount of $0.20 for every $1.00 the Eighteen Month Revenue is greater than $3,500,000 until the Eighteen Month Revenue equals or exceeds $5,000,000, at which time no further payments will be due to us under the Eighteen Month Payment.
Certain principal shareholders and officers of the Company have agreed to vote for the transaction at the special meeting of stockholders and to deal only with the Buyer in relation to the sale of the TPV Business.  These shareholders represent approximately 38% of the issued and outstanding common stock of the Company.
 
Assets Transferred and Liabilities Assumed. We are selling and transferring substantially all of the assets of our TPV Business (other than cash and accounts receivable), which includes computers, equipment, licenses, customer lists, rights to intellectual property and related contracts and agreements. CHBS will assume our obligations under the assumed contracts and will agree to perform our obligations under all of TPV Business contracts with our TPV customers.  CHBS also is hiring substantially all of the TPV Business’ staff and assuming or otherwise relieving us of related employee obligations.  However, any obligation not expressly assumed by CHBS pursuant to the Asset Purchase Agreement will remain our responsibility, which will include obligations related to any employee severance payments, change-in-control severance payments, worker’s compensation claims, stock options, taxes, liabilities related to excluded assets and undisclosed or contingent liabilities, if any.
 

 
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Other Material Terms of the Asset Purchase Agreement
 
Representations and Warranties. The Asset Purchase Agreement contains customary representations and warranties we are making to CHBS relating to, among other things:
 
·    
due organization and good standing;
 
·    
ownership of the TPV Business;
 
·    
corporate authority to enter into the Asset Purchase Agreement;
 
·    
the accuracy of financial statements;
 
·    
absence of certain liabilities;
 
·    
compliance with laws;
 
·    
absence of material changes or events;
 
·    
tax matters;
 
·    
environmental matters;
 
·    
employee matters;
 
·    
insurance matters;
 
·    
our customers;
 
·    
absence of liabilities related to employee benefit plans;
 
·    
absence of litigation;
 
·    
matters related to the amount and condition of the TPV Business, including intellectual property and other intangible assets; and
 
·    
matters related to contracts and commitments.
 
CHBS has made representations and warranties to us regarding its legal capacity and authority to enter into and perform its obligations under the Asset Purchase Agreement, its financing commitment regarding the sale and the lack of required consents or approvals.  The representations and warranties of CHBS and us expire at the two-year anniversary of the closing.
 
Conditions to the Closing.  The closing of the sale will be held promptly after approval by our stockholders and the satisfaction of all other conditions to closing.  The obligation of CHBS to purchase the assets of the TPV Business is subject to various conditions, which must be satisfied prior to September 7, 2012, including the following:
 
·    
our representations and warranties must be true and correct on the closing date;
 
·    
the TPV Business shall not have suffered, a material adverse effect, as defined in the Asset Purchase Agreement, such as any adverse changes in the laws relating to the TPV Business;
 
·    
that none of our material customers of the TPV Business has terminated its relationship with us or notified us that it intends to do so;
 
·    
receipt of all necessary government approvals and the consent of all parties necessary to transfer and assign material TPV Business contracts;
 
·    
approval by our stockholders of the sale of the TPV Business; and
 
·    
certain employees will have entered into employment agreements with CHBS.
 

 
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·    
Indemnification. We have agreed to indemnify CHBS for any losses and claims against it arising from:
 
·    
our breach of any covenants or any representations or warranties in the Asset Purchase Agreement;
 
·    
any liabilities we have agreed to retain;
 
·    
any of the assets CHBS did not purchase;
 
·    
some claims arising out of conduct that occurred prior to the closing;
 
·    
and taxes.
 
Our indemnity obligations are capped at the portion of the purchase price we have received under the Asset Purchase Agreement.  Our payment obligations only commence after CHBS has incurred the first $50,000 of claims otherwise eligible for indemnification. CHBS has agreed to similar indemnification obligations in favor of us. The indemnification threshold will not apply to the Buyer’s right to offset the Twelve Month Payment or the Eighteen Month Payment due to us to the extent we breach any of our representations or warranties in the Asset Purchase Agreement.
 
CHBS has agreed to indemnify us for any of our losses resulting from any inaccuracy in or breach or nonperformance of any of CHBS’ representations, warranties, covenants or agreements, its conduct and operation of the TPV Business after the closing and its failure to pay, perform or otherwise discharge the liabilities it agreed to assume as part of its purchase of the TPV Business.
 
Termination and Breakup Fee.  We must pay a termination fee of $250,000, plus all reasonable out of pocket expenses incurred by CHBS (including, without limitation, attorneys' fees) in an amount not to exceed $100,000, if we fail to close the transaction contemplated by the Asset Purchase Agreement in accordance with its terms after satisfaction or waiver of all required conditions to closing.
 
Noncompetition and Nonsolicitation Agreements.  We have agreed that we will not, for a period of five years following the closing date (the "Restricted Period"), provide TPV services that compete with the TPV Business in any state in which CHBS conducts the TPV Business during the Restricted Period.  In addition, during the Restricted Period, we will not (i) hire or attempt to hire away any employee of CHBS or the TPV Business or persuade any such employee to leave employment with CHBS or the TPV Business; (ii) solicit, divert, or take away, or attempt to solicit, divert or take away, the business of any person with whom CHBS or the TPV Business has established, or are actively seeking to establish a business or customer relationship with respect to competing services or products; (iii) accept the business or customer relationship of any person with whom CHBS or the TPV Business has established, or are actively seeking to establish, a business or customer relationship with respect to competing services or products; or (iv) solicit, induce or attempt to induce any salesperson, distributor, supplier, vendor, manufacturer, representative, agent, or other person transacting business with CHBS or the TPV Business to terminate their relationship or association with CHBS or the TPV Business, or to represent, distribute or sell services or products in competition with the business of CHBS or the TPV Business.
 
Reasons for Engaging in the Sale of the TPV Business
 
Our Board of Directors believes that the proposed sale of the TPV Business to CHBS under the terms of the Asset Purchase Agreement is in our best interests and the best interests of our stockholders.  Among other things, the Board believes that the sale is an essential step to carry out our strategy to transform ourselves from a TPV service provider to a social media company by focusing on the development and commercialization of Fanatic Fans.
 

 
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In reaching the decision to sell the TPV Business, our Board of Directors considered a number of factors, including those described below:
 
Emphasis on Social Media.  Our Board of Directors believes the TPV industry is shrinking and that there are fewer growth opportunities for us.  We have nearly all of the major telecom companies as clients and it would require substantial management time and effort to maintain the TPV Business at its current level and possibly expand the segment by obtaining new customers in new industries, such as insurance.  We believe that social media offers a better long-term prospect for growth and appreciation for us and our stockholders.
 
Operating History and Financial Condition. Our Board of Directors considered the current and historical financial condition and results of operations of the TPV Business, as well as our strategic objectives in social media.  During much of the last three years, our TPV Business generated sufficient revenues and earnings to fund part of the social media related development activities.  However, our  internal projections for 2012 and beyond include development and spending targets for Fanatic Fans that would substantially exceed funds generated from our existing TPV Business and available funds.  Therefore, during the last year our Board of Directors has been exploring strategic alternatives to assure we would be able to fully fund our social media efforts.
 
Strategic Alternatives.  The decision of the Board to approve and recommend the sale of the TPV Business was the result of an extended evaluation process. During the last year, the Board and senior management have, from time to time, evaluated and considered a number of alternatives.  Among these were:
 
·    
Continue to fund the requirements of the social media program from the TPV Business cash flow and earnings. Our Board of Directors determined that this strategy would not be viable without securing significant additional funding.  While we were able to raise new capital for our social media initiative, these funds were not sufficient.  A number of prospective investors declined to participate in such financings because our business was not a pure play in social media.  Furthermore, we believe that the TPV Business would also require additional investment and management time in order to maintain its historical revenue and profitability, to attempt to stem the erosion of the business or to expand the breath of the segment by obtaining new clients outside telecommunications.
 
·    
Continue to fund the requirements of the social media program from the TPV Business cash flow and earnings and secure a strategic partner to share the cost of the social media in exchange for some rights or interest to the social media program. This alternative might generate sufficient funds to cover the future development costs of Fanatic Fans and allow us to generate positive cash flow for some period.  However, our Board believes that Fanatic Fans is still relatively early in its commercialization cycle.  Accordingly, we would have to give up disproportionately greater future value to obtain funding from a strategic partner now rather than in later stages of development and promotion when we might have additional data and progress respecting its commercial potential.  The Board believes that the longer we can retain control over Fanatic Fans, the more valuable it becomes to potential partners and/or acquirers.
 
·    
Sell the TPV Business and become a "pure-play" social media company focused on commercializing Fanatic Fans.  In the Board’s view, this alternative positions us as a social media company in a promising segment of the social media/social networking market and provides needed capital to further our development and commercialization of Fanatic Fans.
 

 
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·    
After careful consideration and consultation with industry experts and advisors, our Board of Directors decided that stockholders were likely to benefit most if we were to successfully pursue the sale of the TPV Business.  It then commenced a process to explore such a sale.
 
The Board believes this alternative provides the following advantages:
 
·    
allows us to focus exclusively on social media as a pure-play without the distraction of simultaneously attempting to manage two very different business segments;
 
·    
gives us the financial flexibility to pursue the development and commercialization of Fanatic Fans; seek the sale or joint venture of JabberMonkey, which may raise additional capital for us; and permit us to explore the acquisition of complementary social media and technologies, to the extent we have sufficient capital;
 
·    
grants us greater visibility into the long-term value of our social media program; and
 
·    
provides greater clarity of our vision for both our current stockholders and the investment community as a whole.
 
The foregoing information and factors considered by our Board are not intended to be exhaustive, but includes all of the material factors considered by our Board.
 
Background, Past Contacts, and Negotiations
 
Set forth below is a chronological description of some of the events leading up to and the material contacts between Calibrus and CHBS relating to the sale of the TPV Business.
 
During July 2011, the Board of Directors discussed the process to begin the search for a buyer for the TPV Business.
 
On August 18, 2011,  we engaged the services of MCA Financial Group, a regional financial advisor located in Phoenix, Arizona to explore strategic alternatives for the TPV Business.
 
From August 2011 through May 2012, MCA Financial Group approached approximately 25 potential acquirers to discuss strategic transactions with us, including a sale of the TPV Business.  By 2012, it had held discussions with one potential purchaser, not including CHBS, had executed a non-disclosure agreement with the potential purchaser, and allowed it access to certain non-public financial and other information regarding the TPV Business.
 
On January 27, 2012, we executed a term sheet with a potential purchaser, which expired on March 12, 2012.  In March 2012, such potential purchaser declined to purchase the TPV Business due to other, non-related business reasons.
 
In early April 2012, we initiated discussions with CHBS regarding a potential transaction relating to the TPV Business and we executed a non-disclosure agreement with CHBS.
 
During April 2012, CHBS submitted a non-binding proposal to us for the purchase of the TPV Business.
 
On April 23, 2012, we executed a non-binding letter of intent with CHBS regarding the purchase and sale of the TPV Business and began the process of due diligence and the negotiation of the definitive terms of a purchase agreement.
 

 
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On May 22, 2012, the management of CHBS and its outside legal counsel met in Phoenix, Arizona with members of our management and our outside legal counsel to discuss the terms of the sale.  Members of the CHBS staff conducted its financial and legal due diligence at our facilities.
 
From May 2012 through mid-June 2012, legal counsel and management continued to negotiate the terms of the sale and explore the resolution of open deal terms related to the proposed transaction with CHBS and its legal counsel.  The parties and their legal counsel further negotiated the terms of the sale and drafted the Asset Purchase Agreement, leading to the present proposed sale of the TPV Business.
 
On June 15, 2012, the parties executed the definitive Asset Purchase Agreement.  On June 21, 2012, we announced the sale of the TPV Business.
 
Valuation - Sale Price
 
The Board of Directors believes that the sale price for the TPV Business and terms contained  in the Asset Purchase Agreement are fair under the circumstances.  It bases this conclusion upon the relative lack of interest of other potential purchasers contacted by the MCA Financial Group and the perceived problems of the TPV Business noted by such parties, including its relatively small size, limited or no growth opportunities to justify spending the time and investing the capital; the decline in the TPV industry's call volumes as the number of land and long distance lines decrease; and customer contracts that can be terminated at any time or on short notice.
 
Based upon information available, it appears that under current economic conditions, the market value of the TPV Business is between two to three times EBITDA. A three-year average of our EBITDA of approximately $1.5 million thus translates into a value of $3.0 million to $4.5 million.  The market information available to the Board suggests that to reach the higher end of the range, we would likely need to carry a portion of the sales price to help finance the sale.  An additional negative factor was that our first quarter operating results showed a decline in TPV volume over the prior period in 2011.
 
Vote Required for Approval of the TPV Business Sale
 
In order for us to sell the TPV Business to CHBS, the holders of a majority of the outstanding common stock must vote to approve the sale of the TPV Business.
 
Recommendation of the Board of Directors to Stockholders
 
Our Board of Directors has approved the sale of the TPV Business and the Asset Purchase Agreement. Our Board of Directors believes that the sale of the TPV Business is in the best interests of our stockholders and recommends that stockholders vote FOR the sale of the TPV Business under the Asset Purchase Agreement.
 

 
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Conflicts of Interest; Interests of Certain
Persons in Matters to be acted upon
 
Under the terms of our existing stock option plans, all outstanding stock options are currently vested and exercisable.  However, most of such stock options are exercisable at a price that exceeds the current market value of such shares. For options held by terminated employees, such options will terminate ninety days after the closing of the proposed sale of the TPV Business.  In relation to the proposed adoption of the 2012 Stock Option and Restricted Stock Plan of the Company, if such plan is approved, our officers and directors may become recipient of award grants under such plan.  For more detail about the shareholdings of and options held by our officers and directors, see the “Security Ownership of Certain Beneficial Owners and Management” on page 44.
 
Accounting Treatment of the Asset Sale
 
Under accounting principles generally accepted in the United States, upon consummation of the sale of the TPV Business, we will remove the net assets sold from our balance sheet and record the gain on the sale, net of transaction costs, severance and other related costs, including applicable state and federal income taxes, in our statement of operations.
 
Certain United States Tax Consequences of the TPV Business Sale
 
The following is a summary of the certain United States federal income tax consequences relating to the proposed sale of our TPV Business to CHBS.  The summary does not consider the effect of any applicable foreign, state, local or other tax laws nor does it address tax consequences applicable to stockholders that may be subject to special federal income tax rules.  The following summary is based on the current provisions of the Internal Revenue Code of 1986, as amended, existing, temporary, and proposed Treasury regulations thereunder, and current administrative rulings and court decisions.  Future legislative, judicial or administrative actions or decisions, which may be retroactive in effect, may affect the accuracy of any statements in this summary with respect to the transactions entered into or contemplated prior to the effective date of those changes.
 
The proposed sale of our TPV Business to CHBS will be a transaction taxable to us for United States federal income tax purposes.  We will recognize taxable income equal to the amount realized on the sale in excess of our tax basis in the assets sold.  The amount realized on the sale will consist of the cash we receive in exchange for the assets sold, plus the amount of related liabilities assumed by CHBS.
 
Although we will recognize taxable income in connection with our sale of our TPV Business to CHBS, a portion of this taxable income will be offset to the extent of our current year losses from operations plus available net operating loss carry forwards from prior years.  The taxable income will differ from the income to be reported in the Calibrus' financial statements due to temporary tax differences and certain other differences between the tax laws and generally accepted accounting principles.
 
As of March 31, 2012, we believe that we have approximately $6,890,000 of current year losses from operations plus available net operating loss carry forwards from prior years and that we will be able to apply these net operating losses against this taxable income.  However, due to certain rules imposing limits on the availability of net operating losses under the federal alternative minimum tax system, a portion of this taxable income may be subject to the federal alternative minimum income tax.
 
The availability and amount of net operating losses (both from the current and prior years) are subject to audit and adjustment by the Internal Revenue Service.  In the event that the Internal Revenue Service adjusts our net operating loss, we may incur an increased tax liability in connection with this sale.
 

 
24

 

Our stockholders should not experience any federal income tax consequences as a result of the consummation of the proposed sale of our TPV Business to CHBS.
 
Each Stockholder is urged to consult his or her own tax advisor as to the federal income tax consequences of the proposed sale, and also as to any state, local, foreign or other tax consequences based on his or her own particular facts and circumstances.
 
Regulatory Approvals
 
We are not required to comply with any federal or state regulatory requirements or obtain approval from any federal or state agency in connection with the asset sale.  CHBS has represented to us in the Asset Purchase Agreement that it is not required to comply with any such requirements or obtain approval from any such agencies.
 
Proposal Two:  To change the name of the Corporation to "Fanatic Fans, Inc."
 
If our stockholders approve the sale of our TPV Business, we believe that we should change our name to reflect our new business direction.  As a result, we are proposing to change our name from “Calibrus, Inc.” to “Fanatic Fans, Inc.”
 
Vote Required
 
This name change will require the amendment of our Articles of Incorporation, which will require the holders of a majority of our issued and outstanding common stock to approve such action.
 
Recommendation of the Board of Directors to Stockholders
 
Our Board recommends that the stockholders vote FOR the amendment of our Articles of Incorporation to change our name to “Fanatic Fans, Inc.”
 
Proposal Three:  To Approve the Adoption of the 2012 Stock Option
and Restricted Stock Plan
 
We are seeking stockholder approval for the 2012 Stock Option and Restricted Stock Plan (the "2012 Plan") including the reservation of 3,000,000 shares issuable under the 2012 Plan.  The 2012 Plan was adopted by the Board of Directors on July 13, 2012, subject to stockholder approval at the special meeting.  Accordingly, no grants of options have been made under the 2012 Plan to date.  If our stockholders approve the 2012 Plan, 3,000,000 shares will be available for future grants.
 
The Board of Directors believes that it is in the best interests of us and our stockholders to approve the 2012 Plan.  All of our existing stock option plans have expired and thus we currently have no shares available for grant under our existing stock option plans.  Our last stock option plan was approved in 2001.  Further, due to the economic recession and dramatic stock market decline, including in the price of our common stock, the exercise prices of the vast majority of the options now outstanding are well above the current market price.
 
The Board believes that equity awards assist in retaining, motivating and rewarding employees, executives and consultants by giving them an opportunity to obtain long-term equity participation in us. In addition, equity awards are an important contributor to aligning the incentives of our employees with the interests of our stockholders. The Board also believes equity awards are essential to attracting new employees and retaining current employees.  Further, the granting of options to new and existing employees frequently permits us to pay lower salaries than otherwise might be the case.
 

 
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The Board of Directors believes that to remain competitive with other technology companies in our long-term incentive plans, we must continue to provide employees with the opportunity to obtain equity in us and that an inability to offer equity incentives to new and current employees would put us at a competitive disadvantage in attracting and retaining qualified personnel. Our named executive officers and directors have an interest in this proposal because they are expected to receive awards under the 2012 Plan if it is approved at the special meeting.
 
Summary of the 2012 Stock Option and Restricted Stock Plan
 
Our Board of Directors adopted the 2012 Plan on July 13, 2012.  At the special meeting, we are asking stockholders to approve the 2012 Plan and to approve the reservation of 3,000,000 shares issuable under the 2012 Plan.  The 2012 Plan authorizes us to issue 3,000,000 shares of common stock upon exercise of options and grant of restricted stock awards.  No options have been granted under the 2012 Plan to date.  The 2012 Plan authorizes us to grant (i) to the key employees incentive stock options to purchase shares of common stock, non-qualified stock options to purchase shares of common stock and restricted stock awards, and (ii) to non-employee directors and consultants non-qualified stock options and restricted stock awards.  As of July 2012, approximately two employees, three executive officers, four non-employee directors and two consultants were eligible to participate in the 2012 Plan.
 
The following paragraphs provide a summary of the principal features of the 2012 Plan and its operation. The following summary is qualified in its entirety by reference to the 2012 Plan as set forth in Exhibit B.
 
Objectives. The objective of the 2012 Plan is to provide incentives to our key employees, directors and consultants to achieve financial results aimed at increasing stockholder value and attracting talented individuals to us. Persons eligible to be granted stock options or restricted stock under the 2012 Plan will be those persons whose performance, in the judgment of our Board of Directors, can have significant impact on our success.
 
Oversight. Our Board will administer the 2012 Plan by making determinations regarding the persons to whom options or restricted stock should be granted and the amount, terms, conditions and restrictions of the awards. The Board also has the authority to interpret the provisions of the 2012 Plan and to establish and amend rules for its administration subject to the 2012 Plan’s limitations.
 
Number of Shares of Common Stock Available Under the 2012 Plan. If our stockholders approve the 2012 Plan, a total of 3,000,000 shares of our common stock will be reserved for issuance under the 2012 Plan.
 
Types of Grants. The 2012 Plan allows for the grant of incentive stock options, non-qualified stock options and restricted stock awards. The 2012 Plan does not specify what portion of the awards may be in the form of incentive stock options, non-statutory options or restricted stock. Incentive stock options awarded to our employees are qualified stock options under the Internal Revenue Code.
 
Statutory Conditions on Stock Option—Exercise Price. Incentive stock options granted under the 2012 Plan must have an exercise price at least equal to 100% of the fair market value of the common stock as of the date of grant. Incentive stock options granted to any person who owns, immediately after the grant, stock possessing more than 10% of the combined voting power of all classes of our stock, or of any parent or subsidiary corporation, must have an exercise price at least equal to 110% of the fair market value of the common stock on the date of grant. Non-statutory stock options may have an exercise price at least equal to 100% of the fair market value of the common stock as of the date of the grant.
 
- Dollar limit. The aggregate fair market value, determined as of the time an incentive stock option is granted, of the common stock with respect to which incentive stock options are exercisable
 

 
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by an employee for the first time during any calendar year cannot exceed $100,000. However, there is no aggregate dollar limitation on the amount of non-statutory stock options that may be exercisable for the first time during any calendar year.
 
- Expiration date. Any option granted under the 2012 Plan will expire at the time fixed by our Board of Directors, which cannot be more than ten years after the date it is granted or, in the case of any person who owns more than 10% of the combined voting power of all classes of our stock or of any subsidiary corporation, not more than five years after the date of grant.
 
- Exercisability. Our Board may also specify when all or part of an option becomes exercisable, but in the absence of such specification, the option will ordinarily be exercisable in whole or in part at any time during its term. However, the board of directors may accelerate the exercisability of any option at its discretion.
 
- Assignability. Options granted under the 2012 Plan are not assignable.
 
- Termination. Incentive stock options may be exercised only while the optionee is employed by us or within twelve months after termination by reason of death or disabilities or within three months after termination for any other reason.
 
Reversion of Stock to the Stock Reserve; Evergreen Share Amount. If any award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the shares of Common Stock not acquired under such award shall revert to and again become available for issuance under the Plan. If any award granted under this Plan is exercised, canceled, terminates, expires, or lapses for any reason, any shares subject to such award again shall be available for the grant of an award under the Plan.
 
Payment upon Exercise of Options. Payment of the exercise price for any option may be in cash, or with our consent, by withheld shares which, upon exercise, have a fair market value at the time the option is exercised equal to the option price (plus applicable withholding tax) or in the form of shares of common stock, subject to restrictions.
 
Restricted Stock. Our Board is authorized to grant restricted stock awards. A restricted stock grant is a grant of shares of our common stock, which is subject to restrictions on transferability, risk of forfeiture and other restrictions and which may be forfeited in the event of certain terminations of employment or service prior to the end of a restricted period specified by the Board of Directors. A participant granted restricted stock generally has all of the rights of a stockholder, unless otherwise determined by the Compensation Committee.
 
Merger or Sale of Assets. In the event of a merger of the Company with or into another corporation, or the sale of all or substantially all of our assets, any unvested restricted stock awards will vest immediately prior to closing of the event resulting in the change of control, and the Board shall have the power and discretion to provide for each award holder’s election alternatives regarding the terms and conditions for the exercise of such awards. The alternative may provide that each outstanding stock option and restricted stock award will be assumed or substituted for by the successor corporation (or a parent or subsidiary of such successor corporation). If there is no assumption or substitution of outstanding awards, the administrator will provide notice to the recipient of their alternatives regarding their right to exercise the stock option as to all of the shares subject to the stock option.
 
Amendment and Termination of the 2012 Plan.  The administrator has the authority to amend, alter, suspend, or terminate the 2012 Plan, except that stockholder approval will be required for any amendment to the 2012 Plan to the extent required by any applicable law, regulation, or Nasdaq or stock exchange rule. Any amendment, alteration, suspension, or termination will not, without the consent of the
 

 
27

 

participant, materially adversely affect any rights or obligations under any stock option or restricted stock award previously granted.  The 2012 Plan has a term of ten (10) years beginning July 13, 2012, unless terminated earlier by the administrator.
 
Amendment of Awards. Subject to the terms of the Plan, the Board at any time, and from time to time, may amend the terms of any one or more awards; including, expressly, that the Board and/or the Compensation Committee, may, from time to time, amend an award to decrease the exercise price per share of any issued and outstanding award, provided that no award may be amended to have an exercise price less than the current market price of the Company's common stock on the date of the amendment of an award.  In addition, no amendment under the Plan shall impair the rights under any award, by any such amendment, unless the applicable Participant consents in writing. 
 
Recent Stock Option and Restricted Stock Award Grants to Employees, Consultants, and Directors
 
Previously, the Company has adopted two stock option plans.  Our board of directors adopted the 2001 Incentive Stock Option Plan (the “2001 ISO Plan”) on January 2, 2001.  The 2001 ISO Plan authorizes us to issue up to 2,000,000 shares of our common stock. To date, we have granted 1,318,334 options, all with an exercise price of $1.00 per share.  As of July 1, 2012, no further options may be issued under the 2001 ISO Plan.  Upon completion of the proposed sale of the TPV Business, options to purchase 338,334 shares of common stock under the 2001 ISO Plan will terminate 90 days upon termination of the employment of employees associated with the TPV Business.
 
On January 2, 2001, our board of directors also adopted the 2001 Non-Qualified Stock Option Plan (the “2001 Non-Qualified Plan”).  The 2001 Non-Qualified Plan authorizes us to reserve 2,850,000 shares for future grants under it.  To date, we have granted 780,000 options under the 2001 Non-Qualified Plan, all with an exercise price of $1.00 per share.  As of July 1, 2012, no further options may be issued under the 2001 Non-Qualified Plan. Upon completion of the proposed sale of the TPV Business, no options under the 2001 Non-Qualified Plan will terminate 90 days upon termination of the employment of employees associated with the TPV Business.  The 2001 ISO Plan and the 2001 Non-Qualified Plan are referred to as the “Plans.”
 
The Company also issued a total of 500,000 options outside of the existing plans to members of the Company's Advisory Board.  These options were issued on December 31, 2011 and have a term of three years and an exercise price of $0.25.
 
The number and the terms of stock options and restricted stock awards that an employee, director, or consultant may receive under our Plans is in the discretion of the administrator and therefore cannot be determined in advance.  Previously, our Board of Directors’ policy was to grant directors annual awards of stock options, but we have not done so since 2010.
 
 
The following table sets forth (a) the aggregate number of shares subject to options granted under the Plans as of July 13, 2012 and (b) the average per share exercise price of such options.  The last reported trade for the shares of the common stock of the Company on the OTC Bulletin Board Market was $0.35 per share as of July 10, 2012.
 

 
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Stock Option and Restricted Stock Grants
 
 
Name of Individual or Group
 
Number of
Options Granted*
   
Average per Share
Exercise Price
 
Jeff Holmes, CEO & Director
    370,000     $ 1.00  
Greg Holmes, President
    275,000     $ 1.00  
Kirk Blosch, Director
    235,000     $ 1.00  
Charles House, Director
    235,000     $ 1.00  
Christian J. Hoffmann, III, Director
    285,000     $ 1.00  
Michael Myers, Director
    25,000     $ 1.00  
Kevin Asher, CFO
    225,000     $ 1.00  
Tom Harker, CTO
    129,167     $ 1.00  
                 
All executive officers, as a group
    999,167     $ 1.00  
All directors who are not executive officers, as a group
    780,000     $ 1.00  
All employees who are not executive officers, as a group
    319,167     $ 1.00  


 
*    The Company also issued a total of 500,000 options outside of the existing plans to members of the Company's Advisory Board.  These options were issued on December 31, 2011 and have a term of three years and an exercise price of $0.25.
 
Securities Authorized for Issuance under Equity Compensation Plans
 
 
 
 
 
 
 
 
Plan Category
 
Number of Securities to be issued upon exercise of outstanding options, warrants and rights
   
Weighted-average exercise price of outstanding options, warrants and rights
   
Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in
column (a)
 
   
(a)
   
(b)
   
(c)
 
Equity compensation plans approved by security holders
    2,098,334     $ 1.00       -  
Total
    2,098,334     $ 1.00       -  
 
The Company also has 500,000 options issued outside of the compensation plans with a weighted average exercise price of $0.25.  These options have a three-year term.
 
Federal Tax Aspects
 
The following summary is a brief discussion of certain federal income tax consequences to U.S. taxpayers and to the Company of stock option, stock appreciation rights, and restricted stock awards granted under the 2012 Plan.  This summary is not intended to be a complete discussion of all of the federal income tax consequences of the 2012 Plan or of all of the requirements that must be met in order to qualify for the tax treatment described below.  The following summary is based upon the provisions of U.S. federal tax law as in effect on the date hereof, which is subject to change (perhaps with retroactive effect), and does not constitute tax advice.  In addition, because tax consequences may vary, and certain exceptions to the general rules discussed in this summary may be applicable, depending upon the personal circumstances of individual recipients and each recipient should consider his or her personal situation and consult with his or her own tax advisor with respect to the specific tax consequences applicable to him or her.  The following assumes stock options have been granted at an exercise price per share at least equal to 100% of the fair market value of the Company’s common stock on the date of grant.

 
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Tax consequences of nonqualified stock options.  In general, an employee, director or consultant will not recognize income at the time of the grant of nonqualified options under the 2012 Plan.  When an optionee exercises a nonqualified stock option, he or she generally will recognize ordinary income equal to the excess, if any, of the fair market value (determined on the day of exercise) of the shares of the common stock received over the option exercise price.  The tax basis of such shares to the optionee will be equal to the exercise price paid plus the amount of ordinary income includible in his or her gross income at the time of the exercise.  Upon a subsequent sale or exchange of shares acquired pursuant to the exercise of a nonqualified stock option, the optionee will have taxable capital gain or loss, measured by the difference between the amount realized on the sale or exchange and the tax basis of the shares.  The capital gain or loss will be short-term or long-term depending on holding period of the shares sold.
 
Tax consequences of incentive stock options.  In general, an employee will not recognize income on the grant of incentive stock options under the 2012 Plan.  Except with respect to the alternative minimum tax, an optionee will not recognize income on the exercise of an incentive stock option unless the option exercise price is paid with stock acquired on the exercise of an incentive stock option and the following holding period for such stock has not been satisfied.  For purposes of the alternative minimum tax, however, an optionee will be required to treat an amount equal to the difference between the fair market value (determined on the day of exercise) of our shares of the common stock received and the exercise price as an item of adjustment in computing the optionee's alternative minimum taxable income.
 
An optionee will recognize long-term capital gain or loss on a sale of the shares acquired on exercise, provided the shares acquired are not sold or otherwise disposed of before the earlier of:  (i) two years from the date of grant of the option, or (ii) one year from the date of exercise of the option.  In general, the amount of gain or loss will equal the difference, if any, between the sale price of such shares and the exercise price.  If the stock is not held for the required period of time, the optionee will recognize ordinary income to the extent the fair market value (determined on the day of exercise) of the stock exceeds the option price, but limited to the gain recognized on sale.  The balance of any such gain will be a short-term or long-term capital gain (depending on the applicable holding period).
 
For the exercise of a stock option to qualify for the foregoing incentive stock option tax treatment, an optionee generally must be an employee of the Company continuously from the date of the grant until any termination of employment, and in the event of a termination of employment, the stock option must be exercised within three months after the termination.
 
Tax consequences of restricted stock awards.  In general, the recipient of a stock award will recognize ordinary income at the time the shares are received equal to the excess, if any, of the fair market value of the shares received over the amount, if any, the recipient paid in exchange for the shares.  If, however, the shares are subject to vesting or other restrictions (that is, they are nontransferable and subject to a substantial risk of forfeiture) when the shares are granted (for example, if the employee is required to work for a period of time in order to have the right to sell the stock), the recipient generally will not recognize income until the shares become vested or the restrictions otherwise lapse, at which time the recipient will recognize ordinary income equal to the excess, if any, of the fair market value of the shares on the date of vesting (or the date of the lapse of a restriction) less the amount, if any, the recipient paid in exchange for the shares.  If the shares are forfeited under the terms of the restricted stock award, the recipient will not recognize income and will not be allowed an income tax deduction with respect to the forfeiture.
 
A recipient may file an election under Section 83(b) of the Internal Revenue Code of 1986, as amended, with the Internal Revenue Service within thirty (30) days of his or her receipt of the stock award to recognize ordinary income, as of the award date, equal to the excess, if any, of the fair market value of the shares on the award date less the amount, if any, the recipient paid in exchange for the shares.  If a recipient makes a Section 83(b) election, then the recipient will not otherwise be taxed in the year the vesting or restriction lapses, and, if the stock award is forfeited, he or she will not be allowed an income

 
30

 
 
tax deduction.  If the recipient does not make a Section 83(b) election, dividends paid to the recipient on the shares prior to the date the vesting or restrictions lapse will be treated as compensation income.
 
The recipient’s tax basis for the determination of gain or loss upon the subsequent disposition of shares acquired as stock awards will be the amount paid for such shares plus the amount includible in his or her gross income as compensation in respect of such shares.  A recipient's holding period for the shares will begin on the day after the later of the day the shares are transferred to the recipient or the day that the vesting or other restriction lapses.
 
Tax consequences of stock appreciation right awards. In general, there are no immediate tax consequences of receiving an award of stock appreciation rights under the 2012 Plan (whether as a stand-alone award or in tandem with a related option award).  Upon the exercise of a stock appreciation right, the recipient will recognize ordinary income equal to difference between the amount of cash, if any, and the fair market value of our shares, if any, that the recipient receives as a result of the exercise and the stock appreciation right grant price, if any.  The tax basis of any shares received by the recipient pursuant to a stock appreciation right should be equal to the amount includible in his or her gross income as compensation in respect of such shares, and the recipient's holding period should normally commence on the day after the day on which he or she recognizes taxable income in respect of such shares.
 
Withholding and other consequences.  Any compensation includible in the gross income of a recipient will be subject to appropriate federal and state income tax withholding.
 
Tax effect for the Company. The Company generally is entitled to an income tax deduction in connection with a stock option, stock appreciation right or restricted stock award granted under the 2012 Plan in an amount equal to the ordinary income realized by a participant at the time the participant recognizes such income (for example, the exercise of a nonqualified stock option).  Special rules may limit the deductibility of compensation paid to the Company’s Chief Executive Officer and to each of its four most highly compensated executive officers under Section 162(m) of the Internal Revenue Code to the extent that annual compensation paid to any of the foregoing individuals exceeds $1,000,000.
 
The foregoing is only a brief summary of the effect of federal income taxation upon participants and the Company with respect to the grant and exercise of stock options, stock appreciation rights, and restricted stock awards under the 2012 Plan.  It does not purport to be complete, and does not discuss the tax consequences of a recipient’s death or the provisions of the income tax laws of any municipality state or foreign country in which the recipient may reside.  The foregoing Summary is not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.
 
Vote Required
 
The affirmative vote of a majority of the votes cast will be required to approve the 2012 Plan.
 
Recommendation of the Board of Directors to Stockholders
 
Our Board of Directors unanimously recommends that stockholders vote
FOR the approval of the 2012 Stock Option and Restricted Stock Plan.
 

 
31

 

Executive Compensation
 
The following table sets forth, for the fiscal years indicated, all compensation awarded to, earned by or paid to Calibrus’ chief executive officer and each of the other executive officers that were serving as executive officers at December 31, 2011 (collectively referred to as the "Named Executives").  No other executive officer serving during 2011 received compensation greater than $100,000.
 
Summary Compensation Table
 
Name and Principal Position
Year
 
Salary
   
Bonus
   
Stock
Awards
   
Option
Awards
   
Non-Equity Incentive Plan Compensation
   
Nonqualified 
Deferred Compensation
   
All Other Compensation
   
Total
 
(a)
(b)
 
(c)
   
(d)
   
(e)
   
(f) (1)
   
(g)
   
(h)
   
(i) (2)
   
(j)
 
Jeff W. Holmes, CEO
12/31/2011
 
$
79,250
   
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
4,363
   
$
83,613
 
 
12/31/2010
 
$
194,593
   
$
0
   
$
0
   
$
27,000
   
$
0
   
$
0
   
$
4,054
   
$
225,647
 
Greg W. Holmes, President
12/31/2011
 
$
54,163
   
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
4,393
   
$
58,556
 
 
12/31/2010
 
$
131,201
   
$
0
   
$
0
   
$
20,250
   
$
0
   
$
0
   
$
4,120
   
$
155,571
 
Thomas Harker, CTO
12/31/2011
 
$
102,400
   
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
4,460
   
$
106,860
 
 
12/31/2010
 
$
123,290
   
$
0
   
$
0
   
$
7,125
   
$
0
   
$
0
   
$
4,123
   
$
134,538
 
Kevin J. Asher, CFO
12/31/2011
 
$
100,000
   
$
0
   
$
0
   
$
0
   
$
0
   
$
0
   
$
4,372
   
$
104,372
 
 
12/31/2010
 
$
126,250
   
$
0
   
$
0
   
$
13,500
   
$
0
   
$
0
   
$
4,120
   
$
143,870
 
         ____________
 
(1)
The Company has adopted two Stock Option Plans, the 2001 Non-Qualified Stock Option Plan and the 2001 Incentive Stock Option Plan. During the year ended December 31, 2010 the Company increased the number of options available for grant under the 2001 Incentive Stock Option Plan by 550,000 options. Under the 2001 Non-Qualified Plan, the Company may grant options for up to 2,850,000 shares of common stock and has granted 780,000 options as of July 13, 2012, all with an exercise price of $1.00 The maximum term of the options is five years, and they vest at various times according to the Option Agreements. Under the 2001 Incentive Stock Option Plan, the Company may grant options for up to 2,000,000 shares of common stock and has granted 1,318,334 as of July 13, 2012, all with an exercise price of $1.00. The maximum term of the options is five years and they vest at various times according to the Option Agreements. All forfeited and expired options are added back into the plan and become immediately available for issuance.
 
 
(2)
The amounts shown include Company-paid portion of health insurance for the fiscal years ended 2011 and 2010.
 
Outstanding Equity Awards At Fiscal Year-End
 
   
Stock Awards
     
Stock Awards
 
Name
 
Number of securities underlying unexercised Options (#) Exercisable
   
Number of Securities Underlying Unexercised Options (#) Unexercisable
   
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)
   
Option
Exercise
Price ($)
 
Option
Expiration
Date
 
Number of Shares or Units of Stock That Have Not Vested (#)
   
Market Value of Shares or Units of Stock That Have Not Vested ($)
   
Equity Incentive Plan Awards: Number of Unearned Shares Units or Other Rights That Have Not Vested (#)
   
Equity Incentive Plan Awards Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#)
 
Jeff W. Holmes
   
70,000
     
-
     
-
   
$
1.00
 
12/17/2013
   
-
     
-
     
-
     
-
 
CEO
   
300,000
     
-
     
-
   
$
1.00
 
9/10/2015
   
-
     
-
     
-
     
-
 
Greg W. Holmes
   
50,000
     
-
     
-
   
$
1.00
 
12/17/2013
   
-
     
-
     
-
     
-
 
President
   
225,000
     
-
     
-
   
$
1.00
 
9/10/2015
   
-
     
-
     
-
     
-
 
Tom Harker
   
50,000
     
-
     
-
   
$
1.00
 
12/17/2013
   
-
     
-
     
-
     
-
 
CTO
   
79,167
     
-
     
-
   
$
1.00
 
9/10/2015
   
-
     
-
     
-
     
-
 
Kevin Asher
   
50,000
     
-
     
-
   
$
1.00
 
11/18/2013
   
-
     
-
     
-
     
-
 
CFO
   
25,000
     
-
     
-
   
$
1.00
 
12/17/2013
   
-
     
-
     
-
     
-
 
     
150,000
     
-
     
-
   
$
1.00
 
9/10/2015
   
-
     
-
     
-
     
-
 


 
32

 
 
Compensation of Directors
 
Name
Year
 
Fees Earned or Paid in Cash ($)
   
Stock Awards ($)
   
Option Awards ($)(1)
   
Non-Equity Incentive Plan Compensation ($)
   
Nonqualified Deferred Compensation Earnings ($)
   
All Other Compensation ($)
   
Total ($)
 
(a)
(b)
 
(c)
   
(d)
   
(e)
   
(f)
   
(g)
   
(h)
   
(i)
 
Kirk Blosch (2)
12/31/2011
   
-
     
-
   
$
0
     
-
     
-
     
-
     
-
 
 
12/31/2010
   
-
     
-
   
$
13,050
     
-
     
-
     
-
     
13,050
 
Charles House (2)
12/31/2011
   
-
     
-
   
$
0
     
-
     
-
     
-
     
-
 
 
12/31/2010
   
-
     
-
   
$
13,050
     
-
     
-
     
-
     
13,050
 
Christian J. Hoffmann, III (2)
12/31/2011
   
-
     
-
   
$
0
     
-
     
-
     
-
     
-
 
 
12/31/2010
   
-
     
-
   
$
17,550
     
-
     
-
     
-
     
17,550
 
Michael Myers (2)
12/31/2011
   
-
     
-
   
$
0
     
-
     
-
     
-
     
-
 
 
12/31/2010
   
-
     
-
   
$
2,250
     
-
     
-
     
-
     
2,250
 

 
_____________
 
(1)
This column represents the aggregate grant date fair value of the awards granted in 2011 and 2010, respectively. Therefore, the values shown here are not representative of the amounts that may eventually be realized by a director. Pursuant to the rules of the Securities and Exchange Commission, we have provided a grant date fair value for option awards in accordance with the provisions of  FASB ASC 718 Share-based Payments.  For option awards, the fair value is estimated as of the date of grant using the Black-Scholes option pricing model, which requires the use of certain assumptions, including the risk-free interest rate, dividend yield, volatility, expected term and forfeitures. Expected term is determined using an average of the contractual term and vesting period of the award.  Expected volatility of award grants made under the Company’s plans is measured using the historical daily changes in the market price of similar industry indices, which are publicly traded, over the expected term of the award.  Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards and forfeitures are based on the history of cancellations of awards granted by the Company and management's analysis of potential forfeitures. For further information on these calculations, please refer to the notes to our financial statements, Notes 1 and 12 included in Item 8 of this Form 10-K.
 
 
 
(2)
As of December 31, 2011, Kirk Blosch had 280,000 options outstanding, Charles House had 280,000 options outstanding, Christian J. Hoffmann, III had 330,000 options outstanding and Michael Myers had 25,000 options outstanding.  No director had any stock awards outstanding.
 
Option/SAR Grants in Last Fiscal Year
 
In fiscal 2011 no options were granted.  In fiscal 2010, 984,167 options were granted out of Calibrus’ Incentive Option Plan and 510,000 options were granted out of the Non-Qualified Option Plan.
 
The Company has adopted two Stock Option Plans, the 2001 Non-Qualified Stock Option Plan and the 2001 Incentive Stock Option Plan. During the year ended December 31, 2010 the Company increased the number of options available for grant under the 2001 Incentive Stock Option Plan by 550,000 options.  Under the 2001 Non-Qualified Plan, the Company may grant options for up to 2,850,000 shares of common stock and has granted 780,000 as of July 13, 2012, all with an exercise price of $1.00. The maximum term of the options is five years, and they vest at various times according to the Option Agreements. Under the 2001 Incentive Stock Option Plan, the Company may grant options for up to 2,000,000 shares of common stock and has granted 1,318,334 as of July 13, 2012, all with an exercise price of $1.00.  The maximum term of the options is five years and they vest at various times according to the Option Agreements.  All forfeited and expired options are added back into the plan and become immediately available for issuance.
 
The Company also issued a total of 500,000 options outside of the existing plans to members of the Company’s Advisory Board.  The Options were issued on December 31, 2011 and have a term of three years and an exercise price of $0.25.

 
33

 

Stock Option Exercise
 
In fiscal 2011, none of the named executives exercised any options to purchase shares of common stock.
 
Long-Term Incentive Plan (“LTIP”)
 
There were no awards granted during fiscal year 2011 or 2010.
 
Board of Directors Compensation
 
Each director may be paid his expenses, if any, of attendance at each meeting of the board of directors, and may be paid a stated salary as director or a fixed sum for attendance at each meeting of the board or directors or both.  No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefore.  For 2011, no Directors received compensation.   For 2010 each director received options during the year with Kirk Blosch and Charles House each receiving 145,000 options, Christian J. Hoffmann, III receiving 195,000 options and Michael Myers receiving 25,000 options.  No other compensation arrangements exist between Calibrus and our Directors.
 
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
 
Calibrus has agreements with all officers and those employees identified herein as key employees. All of our agreements contain language assigning all inventions over to Calibrus, they also contain non-compete agreements. Additionally, on termination, if not for cause and Calibrus is cash flow and earnings positive, our officers and key employees will receive up to three months salary as severance. On a change of control of Calibrus, which results in termination of the officer or key employee and Calibrus is cash flow positive and has positive earnings per share at the time of the change of control, the officer or key employee will receive a three months salary as severance based on the officers or employees’ current salary. Employment contracts are entered into for two, three or four year periods with automatic two, three or four one year extensions depending on the officer or key employee. Except for terms and salary, all of our employment contracts contain the same material terms. A summary of the officers’ employment contracts are below:
 
Employee
Beginning Date
 
Annual Salary
 
Jeff W. Holmes
1/1/2005
 
$
220,000
 
Greg W. Holmes
1/1/2005
 
$
150,000
 
Kevin J. Asher
2/5/2008
 
$
130,000
 
Tom Harker
1/10/2007
 
$
140,000
 
Michael Brande
1/10/2007
 
$
105,000
 
Michael Rae
1/10/2007
 
$
90,000
 
Kelly Robinson
6/28/2004
 
$
90,000
 

 
During the years ended December 31, 2011 and 2010, each of the employees listed above took salary decreases due to limited cash flow in the Company.  Each of the employees has agreed to waive the unpaid amounts per their respective employment agreements.
 
The Company has agreed to indemnify its officers and directors for certain events or occurrences arising as a result of the officer or director serving in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited.
 

 
34

 

Report on Repricing of Options/SARs
 
We have not adjusted or amended the exercise price of stock options or SARs previously awarded to any executive officers.
 
Report on Executive Compensation
 
The Compensation Committee of the Board of Directors determines the compensation of Calibrus’ executive officer and president and sets policies for and reviews with the chief executive officer and president the compensation awarded to the other principal executives, if any.   The board of directors has two committees, the audit and compensation committee which are made up of non-employee directors.  Our Compensation Committee is composed of Kirk Blosch and Charles House.  Our Audit Committee is composed of Kirk Blosch, Charles House and Christian J. Hoffmann, III.
 
The compensation policies utilized by the Board of Directors are intended to enable Calibrus to attract, retain and motivate executive officers to meet our goals using appropriate combinations of base salary and incentive compensation in the form of stock options. Generally, compensation decisions are based on contractual commitments, if any, as well as corporate performance, the level of individual responsibility of the particular executive and individual performance. During the fiscal year ended December 31, 2011, Calibrus’ chief executive officer was Jeff W. Holmes, our President was Greg W. Holmes and Kevin J. Asher was CFO.
 
Base salaries for Calibrus’ executive officers are determined initially by evaluating the responsibilities of the position held and the experience of the individual, and by reference to the competitive marketplace for management talent, including a comparison of base salaries for comparable positions at comparable companies within Calibrus’ industry.
 
Annual salary adjustments are determined by evaluating the competitive marketplace, the performance of Calibrus, the performance of the executive, particularly with respect to the ability to manage the growth of Calibrus, the length of the executive's service to Calibrus and any increased responsibilities assumed by the executive.
 
During the year ended December 31, 2011 each of the Company’s executives took salary decreases due to limited cash flow in the Company.  Each of the employees has agreed to waive the unpaid amounts per their respective employment agreements.
 

 
35

 

Unaudited Pro Forma Condensed Financial Statements
 
The following unaudited pro forma condensed financial statements are based on the historical consolidated financial statements of Calibrus, Inc. incorporated by reference into this proxy statement, adjusted to give effect to the disposition of the TPV Business in accordance with the Asset Purchase Agreement dated June 15, 2012 between us and CHBS.  The statements are derived from, and should be read in conjunction with, our historical financial statements and notes thereto, as presented in our Annual Report on Form 10-K for the year ended December 31, 2011 and 2010, originally filed with the SEC on April 16, 2012, which financials are incorporated by reference or included in this proxy statement, and our Quarterly Report on Form 10-Q, as amended, for the period ended March 31, 2012, which financials are incorporated by reference or included in this proxy statement.
 
The unaudited pro forma condensed balance sheets give effect to the proposed transaction as if it occurred on the date of the balance sheet.  The cash proceeds and resulting gain are only included in the March 31, 2012 balance sheet.  The unaudited pro forma condensed statements of operations for the three months ended March 31, 2012 and the years ended December 31, 2011 and 2010 give effect to the transaction as if it had occurred as of January 1, 2010 and 2009, respectively.
 
The pro forma condensed financial information is presented for illustrative purposes only, is based upon estimates of the management of Calibrus and is not necessarily indicative of the operating results or financial position that would have occurred if all of the events as described above had occurred on the first day of the respective periods presented, nor is it necessarily indicative of our future operating results or financial position.  Actual results could differ materially from these estimates.
 
The pro forma adjustments are based upon information available and certain assumptions that management believes are reasonable under the circumstances.  The unaudited pro forma condensed financial statements of Calibrus should be read in conjunction with the notes thereto.
 

 
36

 

 
CALIBRUS, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
March 31, 2012
 
ASSETS
 
Historical
Calibrus, Inc.
  (6 )  
Pro Forma Adjustments
   
Pro Forma
 
                         
Current Assets
                       
Cash and cash equivalents
$ 975         $ 962,214   (1 )   $ 963,189  
Accounts receivable - trade, net
  477,793           -           477,793  
Prepaid expenses
  117,394           (2,063 ) (2 )     115,331  
Note receivable, net of discount
  -           -   (3 )     -  
                               
     Total Current Assets
  596,162           960,151           1,556,313  
                               
Property and equipment, net
  37,233           (27,216 ) (2 )     10,017  
Deposits
  28,534           (27,599 ) (1 )     935  
Notes receivable, net of discount
  -           -   (4 )     -  
                               
     Total Assets
$ 661,929         $ 905,336         $ 1,567,265  
 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
Current Liabilities
                 
Convertible related party notes payable - current portion
$ 15,000     $ (15,000 )   (1 ) $ -  
Note payable - current portion
  50,000       (50,000 )   (1 )   -  
Related party notes payable, net of discount - current portion
  492,400       (492,400 )   (1 )   -  
Due to factor
  302,985       (302,985 )   (1 )   -  
Accounts payable - trade
  512,372       -           512,372  
Accrued liabilities
  248,865       -           248,865  
                           
     Total Current Liabilities
  1,621,622       (860,385 )         761,237  
                           
     Total Liabilities
  1,621,622       (860,385 )         761,237  
                           
Stockholders' Equity (Deficit)
                         
Preferred stock, $.001 par value, 5,000,000 shares authorized,
      none issued or outstanding
  -       -           -  
Common stock, $.001 par value, 45,000,000 shares authorized;
      13,808,580 shares issued and outstanding
  13,809       -           13,809  
Additional paid-in capital
  9,277,185       -           9,277,185  
Accumulated deficit
  (10,250,687 )     1,765,721     (5 )   (8,484,966 )
                           
     Total Stockholders’ Equity (Deficit)
  (959,693 )     1,765,721           806,028  
                           
     Total Liabilities and Stockholders’ Equity (Deficit)
$ 661,929     $ 905,336         $ 1,567,265  

See accompanying notes to unaudited pro forma condensed financial statements.

 
37

 


CALIBRUS, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the three months ended March 31, 2012

 
Historical Calibrus, Inc.
  (7 )
Pro Forma Adjustments
     
Pro Forma
 
                     
Revenues
$ 919,408       $ (919,408 ) (10 ) $ -  
                           
Cost of revenues
  357,303         (357,303 ) (10 )   -  
                           
Gross profit
  562,105         (562,105 )       -  
                           
General and administrative expenses
  331,633         (123,900 ) (10 )   207,733  
Research and development
  362,511         -         362,511  
                           
Loss from Operations
  (132,039 )       (438,205 )       (570,244 )
                           
Other Income (Expense):
                         
     Interest income
  -         -         -  
     Interest expense
  (73,172 )       73,172   (11 )   -  
                           
    (73,172 )       73,172         -  
                           
Loss before income taxes
  (205,211 )       (365,033 )       (570,244 )
                           
Income tax benefit (expense) - deferred
  -         -         -  
                           
Net Loss
$ (205,211 )     $ (365,033 )     $ (570,244 )
                           
Loss per Common Share:
                         
     Basic and Diluted
$ (0.01 )     $ (0.03 )     $ (0.04 )
                           
                           
Weighted Average Common Shares Outstanding:
                         
    Basic and Diluted
  13,808,580         13,808,580         13,808,580  
                           
 
See accompanying notes to unaudited pro forma condensed financial statements.

 
38

 
 
CALIBRUS, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the year ended December 31, 2011

 
Historical Calibrus, Inc.
  (8 )  
Pro Forma Adjustments
       
Pro Forma
 
                         
Revenues
$ 3,563,265         $ (3,563,265 ) (10 )   $ -  
                               
Cost of revenues
  1,293,801           (1,293,801 ) (10 )     -  
                               
Gross profit
  2,269,464           (2,269,464 )         -  
                               
General and administrative expenses
  2,356,291           (519,681 ) (10 )     1,836,610  
Impairment expense
  1,757,898           -           1,757,898  
Research and development
  1,472,113           -           1,472,113  
                               
Loss from Operations
  (3,316,838 )         (1,749,783 )         (5,066,621 )
                               
Other Income (Expense):
                             
     Interest income
  23           -           23  
     Interest expense
  (3,015,156 )         279,967   (11 )     (2,735,189 )
                               
    (3,015,133 )         279,967           (2,735,166 )
                               
Loss before income taxes
  (6,331,971 )         (1,469,816 )         (7,801,787 )
                               
Income tax benefit (expense) - deferred
  -           -           -  
                               
Net Loss
$ (6,331,971 )       $ (1,469,816 )       $ (7,801,787 )
                               
Loss per Common Share:
                             
     Basic and Diluted
$ (0.79 )       $ (0.18 )       $ (0.98 )
                               
                               
Weighted Average Common Shares Outstanding:
                             
    Basic and Diluted
  7,978,820           7,978,820           7,978,820  
                               

See accompanying notes to unaudited pro forma condensed financial statements.
 
 
39

 
 
CALIBRUS, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the year ended December 31, 2010

 
Historical Calibrus, Inc.
  (9 )  
Pro Forma Adjustments
       
Pro Forma
 
                         
Revenues
$ 3,745,876         $ (3,745,876 ) (10 )   $ -  
                               
Cost of revenues
  1,334,272           (1,334,272 ) (10 )     -  
                               
Gross profit
  2,411,604           (2,411,604 )         -  
                               
General and administrative expenses
  2,195,023           (687,522 ) (10 )     1,507,501  
Research and development
  232,327           -           232,327  
                               
Loss from Operations
  (15,746 )         (1,724,082 )         (1,739,828 )
                               
Other Income (Expense):
                             
     Interest income
  591           -           591  
     Interest expense
  (113,108 )         113,108   (11 )     -  
                               
    (112,517 )         113,108           591  
                               
Loss before income taxes
  (128,263 )         (1,610,974 )         (1,739,237 )
                               
Income tax benefit (expense) - deferred
  -           -           -  
                               
Net Loss
$ (128,263 )       $ (1,610,974 )       $ (1,739,237 )
                               
Loss per Common Share:
                             
     Basic and Diluted
$ (0.02 )       $ (0.24 )       $ (0.26 )
                               
                               
Weighted Average Common Shares Outstanding:
                             
    Basic and Diluted
  6,794,600           6,794,600           6,794,600  
                               
 
See accompanying notes to unaudited pro forma condensed financial statements.

 
40

 

CALIBRUS, INC.
Notes to the Unaudited Pro Forma Condensed Financial Statements
(Unaudited)
Divestiture
 
On June 21, 2012, Calibrus, Inc. ("Calibrus") announced that it had entered into an agreement (the "Asset Purchase Agreement") to sell substantially all of the assets and related liabilities of the TPV Business (the "TPV Business"), including substantially all of the related computers, equipment, licenses, customer lists, intellectual property and agreements and contracts to Calibrus Hosted Business Solutions, LLC ("CHBS") (collectively, the "Proposed Transaction").  The sale will be accounted for by Calibrus as a discontinued operation.
 
If the Proposed Transaction is consummated, on the closing date, CHBS has agreed to pay us $2,000,000 in cash, subject to adjustment for any amounts we owe to CHBS under an Amended and Restated Senior Multiple Advance Promissory Note, dated June 15, 2012 we executed in favor of CHBS (the "CHBS Note"), and a Senior Multiple Advance Promissory Note, dated June 15, 2012, we executed in favor of a third party (the "Third Party Note"). The CHBS Note and the Third Party Note are collectively referred to herein as the "Pre-Closing Note."  This initial $2,000,000 payment will be reduced by the amount, if any, outstanding and payable to CHBS under the Pre-Closing Note, which is $400,000 as of the date hereof, and the Pre-Closing Note will then be cancelled and treated as paid in full.
 
Within thirty days after the end of the twelve month period immediately following the closing date, CHBS has agreed to pay us $500,000 in cash (the "Twelve Month Payment"), subject to the adjustment below. Within such thirty-day period, CHBS will calculate the gross revenues received from all of the existing customers of the TPV Business as of the closing date and from six prospective customers of the TPV Business that we have actively engaged or can demonstrate proof of active engagement for new business (collectively, the "Business Customers") for the twelve-month period beginning on the Closing Date and ending on the last day of the twelfth month following the Closing Date (the "Twelve Month Revenue"). If the Twelve Month Revenue is equal to $3,500,000, then there will be no adjustment to the Twelve Month Payment. If the Twelve Month Revenue is less than $3,500,000, the Twelve Month Payment will be reduced by the amount of $1.25 for every $1.00 the Twelve Month Revenue is less than $3,500,000. If the Twelve Month Revenue is equal to or less than $3,100,000, CHBS will not owe the Twelve Month Payment to us. If the Twelve Month Revenue is greater than $3,500,000, the Twelve Month Payment will be increased by the amount of $0.20 for every $1.00 the Twelve Month Revenue is greater than $3,500,000 until the Twelve Month Revenue equals or exceeds $5,000,000, at which time no further payments will be due to us by CHBS under the Twelve Month Payment.
 
Within thirty days after the end of the eighteen month period immediately following the closing date, CHBS has agreed to pay us $500,000 in cash (the "Eighteen Month Payment"), subject to the adjustment below. Within such thirty-day period, CHBS will calculate the gross revenues received from the Business Customers for the twelve month period beginning on the first day of the seventh month following the closing date and ending at the end of the eighteenth month following the closing date (the "Eighteen Month Revenue").  If the Eighteen Month Revenue is equal to $3,500,000, then there will be no adjustment to the Eighteen Month Payment.  If the Eighteen Month Revenue is less than $3,500,000, the Eighteen Month Payment will be reduced by the amount of $1.25 for every $1.00 the Eighteen Month Revenue is less than $3,500,000.  If the Eighteen Month Revenue is equal to or less than $3,100,000, CHBS will not owe the Eighteen Month Payment to us. If the Eighteen Month Revenue is greater than $3,500,000, the Eighteen Month Payment will be increased by the amount of $0.20 for every $1.00 the Eighteen Month Revenue is greater than $3,500,000 until the Eighteen Month Revenue equals or exceeds $5,000,000, at which time no further payments will be due to us by CHBS under the Eighteen Month Payment.
 

 
41

 
 
CALIBRUS, INC.
Notes to the Unaudited Pro Forma Condensed Financial Statements (Continued)
(Unaudited)
 
CHBS has the right to terminate the sale if certain conditions are not satisfied prior to closing, including: (i) receipt by Calibrus of any necessary government approvals and the consent of any parties necessary to assign material contracts to CHBS; (ii) approval of the sale by the stockholders of Calibrus; and (iii) no material adverse change in Calibrus’ business.
 
(1)     
To reflect the cash proceeds of $2,000,000 initial payment for the sale of TPV Business, plus $27,599 working capital adjustment for rent deposit, less the planned reduction of outstanding debt obligations.
 
(2)     
Represents adjustments to eliminate assets of the TPV Business Sold.
 
(3)     
Represents the $500,000 12-month earn-out payment, net of discount.  The $471,500 has been fully reserved due to the uncertainty of achieving the earn-out.
 
(4)     
Represents the $500,000 18-month earn-out payment, net of discount.  The $445,000 has been fully reserved due to the uncertainty of achieving the earn-out.
 
(5)     
To record the gain on sale of the TPV Business.  The long-term non-interest bearing note receivable was recorded net of discount.  The gain on sale is reconciled below:
 
Cash consideration due at Closing:
  $ 2,000,000  
  12-Month earn-out payment due August 1, 2012, net of discount
    471,500  
  18-Month earn-out payment due February 1, 2014, net of discount
    445,000  
  Less Earn-out reserve
    (916,500 )
  Less Direct Costs of Sale
    (205,000 )
Net Proceeds from Sale
    1,795,000  
         
Less book value of Assets Sold:
       
  Prepaid licenses
    (2,063 )
  Hardware
    (14,172 )
  Furniture and Fixtures
    (10,074 )
  Leasehold Improvements
    (1,855 )
Software Costs
    (1,115 )
         
Gain on Sale of Assets
  $ 1,765,721  

 
(6)     
Represents the Condensed Balance Sheet included in the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2012.
 
(7)     
Represents the Condensed Statement of Operations included in the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2012.
 
(8)     
Represents the Statement of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
 

 
42

 
 
CALIBRUS, INC.
Notes to the Unaudited Pro Forma Condensed Financial Statements (Continued)
(Unaudited)
 
(9)     
Represents the Statement of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.
 
(10)     
Represents adjustments to eliminate the results of operations of Calibrus, Inc. that the Company believes are directly attributable to the sale of the TPV Business and are factually supportable and will not continue after the sale.
 
(11)     
Represents adjustments to eliminate interest expense as a result of all of the outstanding debt obligations of the Company having been paid in full from the cash proceeds of the sale of the TPV Business.
 

 
43

 

Voting Securities and Principal Holders Thereof
 
Only stockholders of record at the close of business on July 13, 2012 (the “Record Date”) will be entitled to vote at the Special Meeting.  On the record date, there were issued and outstanding 13,858,580 shares of common stock.  Each holder of common stock is entitled to one vote, exercisable in person or by proxy, for each share of our common stock held of record on the Record Date.  The presence of a majority of the shares of common stock entitled to vote, in person or by proxy, is required to constitute a quorum for the conduct of business at the Special Meeting.  Abstentions and broker non-votes are each included in the determination of the number of shares present for quorum purposes.
 
The Inspector of Election appointed by the Chairman of our Board of Directors shall determine the shares represented at the meeting and the validity of proxies and ballots and shall count all proxies and ballots.  The affirmative vote of a majority of our outstanding shares of common stock is required to approve the proposal to sell our TVP Assets to CHBS.  The affirmative vote of a majority of the outstanding shares of common stock entitled to vote is necessary to amend our Articles of Incorporation and change our name from “Calibrus, Inc.” to “Fanatic Fans, Inc.”  The affirmative vote of a majority of the outstanding shares of common stock voted at the meeting is necessary for the approval of the adoption of the 2012 Stock Option and Restricted Stock Plan.
 
Security Ownership of Certain Beneficial Owners and Management
 
The following table sets forth certain information regarding the beneficial ownership of our common stock at July 13, 2012 with respect to (i) each person or group known to us to beneficially own more than 5% of the outstanding shares of our common stock; (ii) each of our directors; (iii) each of our executive officers; and (iv) all of our directors and all of our executive officers as a group.
 
   
Shares Beneficially
Owned (1) (2)
 
Name
 
Number
   
Percent
 
Jeff W. Holmes (3)
    2,407,064       16.79 %
Kirk Blosch (4)
2081 S. Lakeline Drive
Salt Lake City, UT 84109
    1,630,334       11.57 %
Greg Holmes (5)
    806,060       5.50 %
Kevin Asher (6)
    225,000       1.60 %
Charles House (7)
    235,000       1.67 %
Christian J. Hoffmann III (8)
    385,000       2.72 %
Michael Myers (9)
    25,000       *  
All directors and executive officers as a group
(7 persons) (10)
    5,713,458       36.54 %
 
 _____________________
 
* Less than one percent
 
(1)     
For purposes of this table, "beneficial ownership" is determined in accordance with the rules of the Securities and Exchange Commission ("SEC") and generally includes voting or investment power with respect to securities.  In accordance with SEC rules, shares which may be acquired by a person upon exercise of stock options or any other right within 60 days of the date of the table are deemed beneficially owned by such person.  Except as indicated by footnote, and subject to community property laws where applicable, the persons or entities named in the table above have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.
 

 
44

 
 
(2)     
The address of these stockholders is c/o Calibrus, Inc., 1225 West Washington, Suite 213, Tempe, AZ  85281.
 
(3)     
Includes 370,000 stock options which are exercisable now at prices ranging from $1.00 to $1.52 per share. Shares also include 50,000 warrants issued to Mr. Holmes which are now exercisable at $0.50 per share. Shares also include 437,093 shares and 54,637 warrants issued to Scottsdale Equity Growth Fund, LLC in which Mr. Holmes is the Managing Member, which are exercisable now at $0.325 per share.
 
(4)     
Includes 235,000 stock options which are exercisable now at a price of $1.00 per share. Mr. Blosch owns 1,395,334 shares, exclusive of the options.
 
(5)     
Includes 275,000 stock options which are exercisable currently at $1.00 per share. Mr. Greg Holmes owns 531,060 shares, exclusive of the options.
 
(6)     
Includes 225,000 stock options which are exercisable currently at $1.00 per share.
 
(7)     
Shares include 235,000 stock options which are exercisable currently at $1.00 per share.  Mr. House owns no shares. The shares shown are options he can exercise.
 
(8)     
Includes 285,000 stock options which are exercisable currently at $1.00 per share. Mr. Hoffmann owns 75,000 shares, exclusive of the options. Also includes 25,000 warrants that are immediately exercisable at $0.50 per share.
 
(9)     
Includes 25,000 stock options which are exercisable currently at $1.00 per share.  Mr. Myers owns no shares,  The shares shown are options he can exercise.
 
(10)     
Includes 1,650,000 shares directors and executive officers have a right to acquire upon exercise of stock options and 129,637 shares exercisable upon exercise of warrants.
 

 
45

 

Incorporation of Certain Documents by Reference
 
The U.S. Securities and Exchange Commission (the “SEC”) allows us to “incorporate by reference” the information we file with the SEC, which means that we can disclose important information by referring you to documents we have previously filed with the SEC.  The information incorporated by reference is considered a part of this proxy statement.  Any information we file with the SEC after this proxy statement will automatically update and, to the extent applicable under the circumstances, supersede the information in this proxy statement.
 
We incorporate by reference the documents listed below and any additional documents filed by us with the SEC between the date of this proxy statement and the date of our Special Meeting.  The documents we incorporate by reference are:
 
 
Our Annual Report on Form 10-K for the fiscal year ended December 31, 2011; and
 
 
Our Quarterly Reports on Form 10-Q for the fiscal quarter ended March 31, 2012.
 
These documents and any other documents incorporated by reference may be obtained from the SEC, including by means of the internet through the SEC’s EDGAR system at www.sec.gov.  Documents incorporated by reference are also available, without charge, excluding exhibits unless they have been specifically incorporated by reference in this proxy statement, by requesting them in writing or by telephone from us by contacting us at:
 
Calibrus, Inc.
Attn: Investor Relations
1225 West Washington, Suite 213
Tempe, Arizona 85281
(602) 778-7500
 
We will send, by first class mail or other prompt means, within one business day of the date we receive your request, the incorporated documents to each person to whom a proxy statement has been delivered.
 
Stockholder Proposals
 
Stockholder proposals intended to be eligible for inclusion in the Company's proxy statement and proxy card relating to the 2013 annual meeting of stockholders of the Company must be submitted to the Company in accordance with Rule 14a-8 under the Exchange Act of 1934 and the Company’s Bylaws. The notice must be personally delivered to the Company or sent by first class certified mail, return receipt requested, postage prepaid, and must include the name and address of the stockholder, the number of voting securities held by the stockholder of record, a statement that the stockholder holds such shares beneficially and the text of the proposal to be presented for vote at the meeting, and a statement in support of the proposal.
 
A stockholder proposal is a stockholder's recommendation or requirement that the Company and/or the Board take action, which the stockholder intends to present at the 2013 annual meeting of the Company's stockholders. The proposal should state as clearly as possible the course of action that the stockholder believes the Company should follow and should be accompanied by a supporting statement. The proposal, including the accompanying supporting statement, may not exceed 500 words. The Company reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements. As the rules of the SEC make clear, simply submitting a proposal does not guarantee that it will be included.
 

 
46

 

Other Matters
 
We know of no other matters to be submitted at the Special Meeting.  If any other matter properly comes before the Special Meeting, it is the intention of the persons named in the enclosed proxy card to vote the shares they represent as our Board of Directors may recommend.
 

 
July __, 2012                                                                                     THE BOARD OF DIRECTORS


 
47

 

Index to Unaudited Condensed Financial Statements of the TPV Business
 
The following tables present the unaudited condensed financial statements of the TPV Business.  The unaudited balance sheet data is as of March 31, 2012, December 31, 2011 and December 31, 2010.  The unaudited statements of operations are for the three months ended March 31, 2012 and 2011 and for the years ended December 31, 2011 and December 31, 2010.  These financial statements, in the opinion of management, include all adjustments, consisting only of normal recurring accruals that are necessary for a fair presentation of the financial position and results of operations for these periods.  The historical financial information may not be indicative of future performance and does not reflect what the TPV Business’ financial position and results of operations would have been had it operated as a separate, stand-alone entity during the periods presented.
 
 
The following unaudited condensed financial statements are filed with this proxy statement:
 
   
Page
 
Unaudited Balance Sheets at March 31, 2012 and December 31, 2011 and 2010
  F-2  
 
Unaudited Statements of Operations for the three months ended March 31, 2012 and 2011 and the years ended December 31, 2011 and 2010
  F-3  
 
Unaudited Statement of Stockholders’ Net Investment for the three months ended March 31, 2012 and the years ended December 31, 2011 and 2010
  F-4  
 
Unaudited Statements of Cash Flows for the three months ended March 31, 2012 and 2011 and the years ended December 31, 2011 and 2010
  F-5  
 
Notes to Unaudited Financial Statements                                                                                                          
  F-6 - F-12  



 
F-1

 
 
TPV BUSINESS
 
UNAUDITED CONDENSED BALANCE SHEETS
 
   
ASSETS
 
   
March 31,
   
December 31,
 
   
2012
   
2011
   
2010
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
Current Assets:
                 
        Cash and cash equivalents
  $ 975     $ 11,065     $ 21,519  
        Accounts receivables - trade, net
    477,793       526,413       372,990  
        Prepaid expenses
    15,344       3,094       6,133  
                        Total Current Assets
    494,112       540,572       400,642  
                         
Property and equipment, net
    37,233       41,065       47,357  
Deposits
    28,534       28,649       29,392  
                        Total Assets
  $ 559,879     $ 610,286     $ 477,391  
                         
LIABILITIES AND STOCKHOLDERS’ NET DEFICIT
 
                         
Current Liabilities:
                       
         Due to factor
  $ 302,985     $ 238,966     $ 132,729  
         Accounts payable - trade
    292,462       320,489       278,132  
         Accrued liabilities
    248,865       216,870       266,106  
                         
                       Total Current Liabilities
    844,312       776,325       676,967  
                         
                       Total Liabilities
    844,312       776,325       676,967  
                         
                       Stockholders' Net Deficit
    (284,433 )     (166,039 )     (199,576 )
                         
                         
                      Total Liabilities and Stockholders’ Net Deficit
  $ 559,879     $ 610,286     $ 477,391  
 
The accompanying notes are an integral
part of the TPV Business Unaudited Financial Statements
 
 
F-2

 
 
TPV BUSINESS
 
UNAUDITED STATEMENTS OF OPERATIONS
 
   
   
For the Three Months Ended:
   
For the Years Ended: