eTOTALSOURCE, INC.
1510 POOLE BOULEVARD
YUBA CITY, CALIFORNIA 95993
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
eTotalsource, Inc. The special meeting will be held on Friday, February 4, 2005,
at 9:00 a.m., local time, at the offices of the Company located at 1510 Poole
Boulevard, Yuba City, California 95993.
Your vote is important and I urge you to vote your shares by proxy, whether
or not you plan to attend the meeting. After you read this proxy statement,
please indicate on the proxy card the manner in which you want to have your
shares voted. Then date, sign and mail the proxy card in the postage-paid
envelope that is provided. If you sign and return your proxy card without
indicating your choices, it will be understood that you wish to have your shares
voted in accordance with the recommendations of the Company's Board of
Directors.
We hope to see you at the meeting.
Sincerely,
Terry L. Eilers
President
December __, 2004
eTOTALSOURCE, INC.
1510 POOLE BOULEVARD
YUBA CITY, CALIFORNIA 95993
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 4, 2005
NOTICE IS HEREBY GIVEN that the Special Meeting of Shareholders (the
"Special Meeting") of eTotalsource, Inc. (the "Company"), will be held on
Friday, February 4, 2005, at 9:00 a.m., local time, at the offices of the
Company located at 1510 Poole Boulevard, Yuba City, California 95993, for the
following purposes, as more fully described in the attached Proxy Statement:
1. To elect five (5) directors, each until the next annual meeting of the
Company's shareholders or until their successors are duly elected and qualified;
2. To approve an amendment to the Company's Articles of Incorporation to
increase the authorized common stock of the Company to 300,000,000; and
3. To consider any other matters that may properly come before the Special
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on December 9, 2004,
as the record date for determining the shareholders entitled to notice of and to
vote at the Special Meeting or at any adjournment thereof. A complete list of
the shareholders entitled to vote at the Special Meeting will be open for
examination by any shareholder during ordinary business hours for a period of
ten days prior to the Special Meeting at eTotalsource, Inc., located at 1510
Poole Boulevard, Yuba City, California 95993.
IMPORTANT
You are cordially invited to attend the Special Meeting in person. In order
to ensure your representation at the meeting, however, please promptly complete,
date, sign and return the enclosed proxy in the accompanying envelope. If you
should decide to attend the Special Meeting and vote your shares in person, you
may revoke your proxy at that time.
By Order of the Board of Directors,
Terry L. Eilers
President
December __, 2004
TABLE OF CONTENTS PAGE NO.
----------------- --------
ABOUT THE MEETING..............................................................2
What is the purpose of the special meeting?.................................2
Who is entitled to vote?....................................................2
Who can attend the special meeting?.........................................2
What constitutes a quorum?..................................................2
How do I vote?..............................................................3
What if I do not specify how my shares are to be voted?.....................3
Can I change my vote after I return my proxy card?..........................3
What are the Board's recommendations?.......................................3
What vote is required to approve each item?.................................3
STOCK OWNERSHIP................................................................4
Beneficial Owners...........................................................4
PROPOSAL 1 - ELECTION OF DIRECTORS.............................................5
Directors Standing for Election.............................................5
Recommendation Of The Board Of Directors....................................5
Directors - Present Term Expires at the Special Meeting.....................5
Meetings....................................................................6
Committees of the Board of Directors........................................6
Compensation Of Directors...................................................6
Executive Compensation......................................................7
Stock Option Grants In The Past Fiscal Year.................................8
Employment Agreements.......................................................8
Certain Relationships And Related Transactions..............................8
PROPOSAL 2 - AMENDMENT TO THE CERTIFICATE OF INCORPORATION.....................9
DESCRIPTION OF CAPITAL STOCK..................................................10
General....................................................................10
Common Stock...............................................................10
Convertible Debentures....................................................10
Transfer Agent.............................................................10
Disclosure Of SEC Position On Indemnification For Securities
Act Liabilities...........................................................10
Anti-Takeover Effects Of Provisions Of The Certificate Of
Incorporation Authorized And Unissued Stock...............................11
Equity Line Of Credit......................................................11
Other Matters..............................................................11
Independent Accountants....................................................11
Additional Information.....................................................11
i
eTOTALSOURCE, INC.
1510 POOLE BOULEVARD
YUBA CITY, CALIFORNIA 95993
---------------------
PROXY STATEMENT
DECEMBER __, 2004
---------------------
This proxy statement contains information related to the special meeting of
shareholders of eTotalsource, Inc., to be held on Friday, February 4, 2005, at
9:00 a.m., local time, at the offices of the Company located at 1510 Poole
Boulevard, Yuba City, California 95993, and any postponements or adjournments
thereof. The Company is making this proxy solicitation.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE SPECIAL MEETING?
At the Company's special meeting, shareholders will act upon the matters
outlined in the notice of meeting on the cover page of this proxy statement,
including the election of directors and the approval of an amendment to the
Company's Articles of Incorporation to increase the authorized common stock of
the Company to 300,000,000 shares. In addition, the Company's management will
report on the performance of the Company during fiscal 2004 and respond to
questions from shareholders.
WHO IS ENTITLED TO VOTE?
Only shareholders of record on the close of business on the record date,
December 9, 2004, are entitled to receive notice of the special meeting and to
vote the shares of common stock that they held on that date at the meeting, or
any postponements or adjournments of the meeting. Each outstanding share of
capital stock will be entitled to the number of votes set forth in the following
table on each matter to be voted upon at the meeting. The holders of common
stock vote together as a single class. See "Description of Securities."
DESCRIPTION OF CAPITAL STOCK NUMBER OF VOTES TOTAL VOTES
Common Stock One Vote Per Share 45,210,821
WHO CAN ATTEND THE SPECIAL MEETING?
All shareholders as of the record date, or their duly appointed proxies,
may attend the meeting. Seating, however, is limited. Admission to the meeting
will be on a first-come, first-serve basis. Registration will begin at 8:00
a.m., and seating will begin at 8:30 a.m. Each shareholder may be asked to
present valid picture identification, such as a driver's license or passport.
Cameras, recording devices and other electronic devices will not be permitted at
the meeting.
Please note that if you hold your shares in "street name" (that is, through
a broker or other nominee), you will need to bring a copy of a brokerage
statement reflecting your stock ownership as of the record date and check in at
the registration desk at the meeting.
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of common stock outstanding on the record date will
constitute a quorum, permitting the meeting to conduct its business. As of the
record date, 45,210,821 shares of common stock of the Company were outstanding.
As such, holders of at least 22,605,412 shares (i.e., a majority) must be
present at the meeting, in person or by proxy, to obtain a quorum. Proxies
received but marked as abstentions and broker non-votes will be included in the
calculation of the number of shares considered to be present at the meeting.
2
HOW DO I VOTE?
If you complete and properly sign the accompanying proxy card and return it
to the Company, it will be voted as you direct. If you are a registered
shareholder and attend the meeting, you may deliver your completed proxy card in
person or vote by ballot at the meeting. "Street name" shareholders who wish to
vote at the meeting will need to obtain a proxy form from the institution that
holds their shares.
WHAT IF I DO NOT SPECIFY HOW MY SHARES ARE TO BE VOTED?
If you submit a proxy but do not indicate any voting instructions, then
your shares will be voted in accordance with the Board's recommendations.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy card, you may change your
vote at any time before the proxy is exercised by filing with the Secretary of
the Company either a notice of revocation or a duly executed proxy bearing a
later date. The powers of the proxy holders will be suspended if you attend the
meeting in person and so request, although attendance at the meeting will not by
itself revoke a previously granted proxy.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
Unless you give other instructions on your proxy card, the persons named as
proxy holders on the proxy card will vote in accordance with the recommendation
of the Board of Directors. The Board's recommendation is set forth together with
the description of each item in this proxy statement. In summary, the Board
recommends a vote:
o FOR the election of the nominated slate of directors (see page
5);
o FOR the approval of an amendment to the Company's Certificate of
Incorporation to increase the authorized common stock of the
Company to 300,000,000 shares. (see page 9).
With respect to any other matter that properly comes before the meeting,
the proxy holders will vote as recommended by the Board of Directors or, if no
recommendation is given, in their own discretion.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
ELECTION OF DIRECTORS. The affirmative vote of a plurality of the votes
cast at the meeting is required for the election of directors. This means that
the five (5) nominees will be elected if they receive more affirmative votes
than any other person. A properly executed proxy marked "Withheld" with respect
to the election of any director will not be voted with respect to such director
indicated, although it will be counted for purposes of determining whether there
is a quorum.
INCREASE IN AUTHORIZED SHARES. For the approval of an amendment to the
Company's Articles of Incorporation to increase the authorized common stock of
the Company to 300,000,000 shares and any other item that properly comes before
the meeting, the affirmative vote of the holders of a majority of the
outstanding shares, as of the record date, will be required for approval. A
properly executed proxy marked "Abstain" with respect to any such matter will
not be voted, although it will be counted for purposes of determining whether
there is a quorum. Accordingly, an abstention will have the effect of a negative
vote.
If you hold your shares in "street name" through a broker or other nominee,
your broker or nominee may not be permitted to exercise voting discretion with
respect to some of the matters to be acted upon. Thus, if you do not give your
broker or nominee specific instructions, your shares may not be voted on those
matters and will not be counted in determining the number of shares necessary
for approval. Shares represented by such "broker non-votes," however, will be
counted in determining whether there is a quorum.
3
STOCK OWNERSHIP
BENEFICIAL OWNERS
The following table presents certain information regarding the beneficial
ownership of all shares of common stock at December 9, 2004 for each executive
officer and director of our Company and for each person known to us who owns
beneficially more than 5% of the outstanding shares of our common stock. The
percentage ownership shown in such table is based upon the 45,210,821 common
shares issued and outstanding at December 9, 2004 and ownership by these persons
of options or warrants exercisable within 60 days of such date. Unless otherwise
indicated, each person has sole voting and investment power over such shares.
Amount and Nature of Percent
Name and Address of Beneficial Owner(1) Beneficial Ownership Owned
Terry Eilers 6,672,039 14.66%
1510 Poole Boulevard (includes 300,000 options) (2)
Yuba City, CA 95993
Morrow Revocable Trust 1,845,056 4.06%
(beneficially J. Cody Morrow & Family) (includes 200,000 options) (2)
12655 Rough & Ready
Grass Valley, CA 95945
Michael Sullinger 668,544 1.47%
1510 Poole Boulevard (includes 200,000 options) (2)
Yuba City, CA 95993
Virgil Baker 1,577,363 3.46%
1510 Poole Boulevard (includes 300,000 options) (2)
Yuba City, CA 95993
A. Richard Barber 998,352 2.20%
1510 Poole Boulevard (includes 50,000 options) (2)
Yuba City, CA 95993
All directors and executive officers 11,761,354 25.42%
as a group (5 persons) (includes 1,050,000 options)
- ---------------
* Represents less than 1%.
(1) Applicable percentage of ownership is based on 45,210,821 shares of common
stock outstanding as of December 9, 2004, together with securities
exercisable or convertible into shares of common stock within 60 days of
December 9, 2004 for each stockholder. Beneficial ownership is determined
in accordance with the rules of the SEC and generally includes voting or
investment power with respect to securities. Shares of common stock subject
to securities exercisable or convertible into shares of common stock that
are currently exercisable or exercisable within 60 days of December 9, 2004
are deemed to be beneficially owned by the person holding such options for
the purpose of computing the percentage of ownership of such person, but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Represents options that are exercisable within 60 days of December 9, 2004.
(3) Unless otherwise indicated, the persons named in the table have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them.
Each principal shareholder has sole investment power and sole voting power
over the shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
We are not aware of any instance since January 1, 2002, when an executive
officer, director or owner of more than ten percent of the outstanding shares of
common stock failed to comply with reporting requirements of Section 16(a) of
the Securities Exchange Act of 1934.
4
PROPOSAL 1 - ELECTION OF DIRECTORS
DIRECTORS STANDING FOR ELECTION
The Board of Directors of the Company consists of five (5) seats. Each
director holds office until the first special meeting of shareholders following
their election or appointment and until their successors have been duly elected
and qualified.
The Board of Directors has nominated Terry Eilers, Virgil Baker, Michael
Sullinger, A. Richard Barber and J. Cody Morrow for election as directors. The
accompanying proxy will be voted for the election of these nominees, unless
authority to vote for one or more nominees is withheld. In the event that any of
the nominees is unable or unwilling to serve as a director for any reason (which
is not anticipated), the proxy will be voted for the election of any substitute
nominee designated by the Board of Directors. Messrs. Eilers, Baker, Sullinger,
Barber and Morrow have previously served as a member of the Board of Directors
and have consented to such terms.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
EACH OF THE NOMINEES
DIRECTORS - PRESENT TERM EXPIRES AT THE SPECIAL MEETING
TERRY EILERS - From 1994 to the Present, Mr. Eilers has
CEO, Chairman, and Director been founder, CEO, Director of
eTotalSource, Inc. since 2002 eTotalSource. Former VP, Regional Manager
and Regional Training Director for Lawyers
Title Company, 1984-1987. Mr. Eilers was
involved in the creation, operation and
sale of Sydney Cambric Publishing
1983-1985, where he was in charge of
implementing marketing and management
systems, developing and supervising
management training and conducting live
seminars to nearly 1 million people
worldwide for many Fortune 500 companies
such as, Bank of America, Coldwell Banker,
IBM, Xerox, and First American Financial.
Over the past 30 years, his management and
computer sales programs have been utilized
by major real estate entities, banks,
savings and loans, insurance companies,
sales and research organizations and
publishing companies worldwide such as
Norwest Mortgage, Century 21, Sun Trust,
Stewart Title Company, and Lawyers Title.
1980-1994. He was appointed President,
CEO, and Director of Premium Enterprises,
Inc. (now eTotalSource, Inc.) on December
31, 2002. He is a frequent author, having
written, and published through Crescent
Publishing, Sydney Cambric Publishing and
the Disney Corporation-Hyperion
Publishing, 12 books concentrated in the
real estate, business management and
personal development fields. Some of the
titles Mr. Eilers has written include: How
to Sell Your Home Fast (Disney/Hyperion),
How To Buy the Home You Want
(Disney/Hyperion), The Title and Document
Handbook (Sydney Cambric), Mortgage
Lending Handbook (Sydney Cambric),
Mastering Peak Performance (EMR
Publishing), Real Estate Calculator
Handbook (Sydney Cambric). He has an AA
Administration of Justice -Sacramento City
College 1971 Extensive Course Work -
California State College/Sacramento, Yuba
College, Lincoln School of Law 1970-1985.
VIRGIL BAKER Mr. Baker was formerly the CFO for AGRICO,
CFO, Director of the Company (since a large agriculture corporation 1993-1996
2003) and founder of eTotalSource, - where he designed and integrated the
Inc. 1996-Present network programs for the accounting, cash
flow and inventory systems on a nationwide
basis. Mr. Baker had the added
responsibility for all of the
International commerce generation. He has
a BA Accounting - California State
University/Chico - 1992. Mr. Baker was
appointed CFO of Premium Enterprises, Inc.
(now eTotalSource, Inc.) on December 31,
2002 and was appointed as Director in May
2003.
5
MICHAEL SULLINGER Mr. Sullinger has extensive background in
COO - SECRETARY - (DIRECTOR OF development and management of partnerships
ETOTALSOURCE SINCE 2003) and joint ventures. Mr. Sullinger's
ELECTED TO BOARD OF DIRECTORS previous private legal practice involved
FOR 2003 business litigation, formation of business
entities and advising principals and
directors in the planning and operation of
various companies. Mr. Sullinger has
served as a Board of Director on numerous
government, business and philanthropic
organizations. He has a BA Public
Administration University of San Francisco
1977; JD - Cal Northern School of Law
1992. He was appointed Director in May
2003 and Secretary of Premium Enterprises,
Inc. (now eTotalSource, Inc.) on December
31, 2002.
J. CODY MORROW From 1995 to the present, Mr. Morrow has
DIRECTOR OF ETOTALSOURCE INC. served as President of Morrow Marketing
(SINCE 2003) International , which has $200 million+
annual sales nationally and
internationally. Current direct business
operations in Europe, Thailand and India.
Many years experience in opening foreign
markets. Prior to Morrow Marketing, he was
President of Monarch Development
Corporation 1989-1993 a Southern
California based Real Estate Development
Company. He was appointed Director of
Premium Enterprises, Inc. (now
eTotalSource, Inc.) in May 2003.
A. RICHARD BARGER From 1983 to the present, Mr. Barber has
DIRECTOR OF ETOTAL SOURCE, INC. been the founder and senior partner of A.
(SINCE 2003) Richard Barber & Associates, a literary
agency and consultant to numerous major
publishing companies. He was also the
Director of Development for Network
Enterprises, Inc., 1969-1983 where he
supervised the creations and writing of
television and film properties. Former
Director and Senior Editor of Public
Relations, for Viking Penguin, Inc.
Lecturer in publishing at New York,
Harvard and Radcliff Universities, 1971-
1989. Mr. Barber's Extensive Academic
Background is as follows: Phillips Exeter
Academy, Exeter Fellow in History
(1963-1965), Columbia University, M.A,
Ph.D (1962-1963). Course work at Dartmouth
College, Special Dartmouth Fellow, A.B.,
and study programs with Corey Ford at
Harvard, William & Mary, University of
Michigan, British Museum, Oxford
University and Columbia University
(1961-1962). He was appointed Director of
Premium Enterprises, Inc. (now
eTotalSource, Inc.) in May 2003.
MEETINGS
During the Company's fiscal year ending December 31, 2003, the Board of
Directors met on 5 occasions. Each director attended more than 75% of the total
number of meetings of the Board and Committees on which he served.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. We currently do not have an Audit Committee.
COMPENSATION COMMITTEE. The Compensation Committee consists of Michael
Sullinger and Virgil Baker.
COMPENSATION OF DIRECTORS
During the fiscal year ended December 31, 2003, the Company did not pay its
directors any remuneration.
6
EXECUTIVE COMPENSATION
The following table sets forth compensation for the fiscal year ended
December 31, 2003 for our executive officers:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS PAYOUTS
OTHER RESTRICTED
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) SAR'S PAYOUTS COMPENSATION
PRINCIPAL POSITION Year ($) ($) ($) (#) (#) ($) ($)
Terry Eilers 2003 $ 79,000 0 0 0 -- -- --
President, CEO 2002 $ 37,000 0 0 0 -- -- --
2001 $111,000 0 0 0 -- -- --
Michael Sullinger 2003 0 0 0 0 -- -- --
Secretary, COO, 2002 0 0 0 0 -- -- --
Legal Counsel 2001 0 0 0 0 -- -- --
Virgil Baker 2003 $ 76,900 0 0 0 -- -- --
CFO 2002 $ 18,000 0 0 0 -- -- --
2001 $ 72,000 0 0 0 -- -- --
- ------------
The following table contains information regarding options granted during
the year ended December 31, 2003 to eTotalsource's named executive officer.
OPTION/SAR GRANTS TABLE
% TOTAL
NO. OF SECURITIES OPTIONS/SAR'S
UNDERLYING GRANTED TO EXERCISE OR BASE
OPTIONS/SAR'S EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#) YEAR ENDED ($ PER SHARE) DATE
Terry Eilers -- 0% -- --
President, CEO
Micahel Sullinger -- 0% -- --
Secretary, COO, Legal
Counsel
Virgil Baker, CFO -- 0% -- --
The following table contains information regarding options exercised in the
year ended December 31, 2003, and the number of shares of common stock
underlying options held as of December 31, 2003, by eTotalsource's named
executive officer.
7
AGGREGATED OPTIONS/SAR EXERCISES
IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTIONS/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED ON VALUE OPTIONS/SAR'S AT FY-END OPTIONS/SAR'S AT FY-END
EXERCISE REALIZED (#) ($)
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
Terry Eilers -- -- -- -- -- --
Virgil Baker -- -- -- -- -- --
Michael Sullinger -- -- -- -- -- --
STOCK OPTION GRANTS IN THE PAST FISCAL YEAR
The Company did not grant any option in fiscal year 2003.
EMPLOYMENT AGREEMENTS
Agreements were executed with the Chief Executive Officer, Terry Eilers,
and the Chief Financial Officer, Virgil Baker, at the inception of the Company
(February 7, 2000) which expire December 31, 2003. Annual salary is $150,000 and
$96,000, respectively, and each accrues an annual non-accountable automobile
allowance of $9,000. The agreements also provide for 10% royalties on license
revenues of the Company's PresentaPro (TM) software and an annual bonus of
incentive stock options (covering 200,000 shares each). In addition, the CEO is
entitled to a 5% referral commission on certain sales. Unpaid salary and
commissions can be paid with warrants to purchase common stock at $1 per share.
During 2002 and 2001, CEO compensation expensed pursuant to these arrangements
totaled $159,000 and $204,962, and CFO compensation totaled $105,000 and
$105,000, respectively (exclusive of the fair value of incentive stock options).
An agreement was executed August 1, 2002 with the Chief Operating Officer,
Michael Sullinger, which expires December 31, 2007. Annual salary is $120,000
and a non-accountable automobile allowance of $9,000. The agreement also
provides for a 10% royalty on the license revenues of the Company's
PresentaPro(TM) software and an annual bonus of incentive stock options
(covering 200,000 shares). Unpaid salary and commissions can be paid with
warrants to purchase common stock at $1 per share. During 2003 and 2002, COO
compensation expensed pursuant to these arrangements totaled $60,000 and
$43,538, respectively (exclusive of the fair value of incentive stock options).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We believe that all prior related party transactions have been entered into
upon terms no less favorable to us than those that could be obtained from
unaffiliated third parties. Our reasonable belief of fair value is based upon
proximate similar transactions with third parties or attempts to obtain the
consideration from third parties. All ongoing and future transactions with such
persons, including any loans or compensation to such persons, will be approved
by a majority of disinterested members of the Board of Directors.
On December 30, 2002, PMN acquired 91% of the preferred and common stock of
eTotalsource, Inc. incorporated in California on February 7, 2000), pursuant to
an Agreement and Plan of Reorganization effective December 30, 2002,by issuing
15,540,011 shares of PMN common stock to eTotalsource shareholders.
Immediately after the transaction, the eTotalsource shareholders owned
approximately 88.5% of the Company's common stock. Coincident with the
transaction, the Company changed its fiscal year from June 30 to December 31.
The reorganization is recorded as a recapitalization effected by a reverse
merger wherein PMN is treated as the acquiree for accounting purposes, even
though it is the legal acquirer. The transaction has been accounted for as a
purchase, and accordingly, since the transaction occurred December 31, 2002, the
results of operations for the periods presented represent solely those of the
accounting acquirer - eTotalsource. Since PMN was a non-operating shell with
limited business activity, goodwill was not recorded.
No officer, director, or affiliate of the Company has or proposes to have
any direct or indirect material interest in any asset proposed to be acquired by
the Company through security holdings, contracts, options, or otherwise.
8
PROPOSAL 2 - AMENDMENT TO THE CERTIFICATE OF INCORPORATION
Our Company's Board of Directors proposes an amendment to our Company's
Articles of Incorporation to increase the number of authorized shares of common
stock, no par value, from 100,000,000 to 300,000,000 shares. Our Company desires
to increase its authorized capital stock because (i) management believes that
the Company will need significant authorized capital stock available for
issuance and (ii) it desires to raise capital by issuing shares of stock. The
amendment to our Company's Articles of Incorporation shall provide for the
authorization of 300,000,000 shares of our Company's common stock. As of
December 9, 2004, 45,210,821 shares of the Company's common stock were issued
and outstanding.
There are certain advantages and disadvantages of voting for an increase in
the Company's authorized common stock. The advantages include:
o The ability to raise capital by issuing capital stock, including
under the Standby Equity Distribution Agreement with Cornell
Capital Partners, LP.
o To have shares available to pursue business expansion
opportunities.
The disadvantages include:
o Dilution to the existing shareholders, including a decrease in
our net income per share in future periods. This could cause the
market price of our stock to decline.
o Provoking short-selling in our common stock, which would put
downward pressure on the market price of our common stock.
o Increasing the supply of shares of stock. This supply of stock
without a corresponding demand could cause the market price of
our stock to decline.
o A potential change of control if all or a significant block of
the shares to be issued are held by one or more shareholders
working together.
Other than the Standby Equity Distribution Agreement, our Company does not
currently have written or oral plans, arrangements or understandings to issue
any of the additional shares of common stock that would be authorized by this
proposed amendment to our Certificate of Incorporation.
If the amendment to our Company's Articles of Incorporation is adopted, an
amendment to the Articles of Incorporation of eTotalsource, Inc. shall be filed
with the Colorado Secretary of State so that Article Four shall be as follows:
"The maximum number of shares of stock that this corporation
is authorized to have outstanding at any one time is
300,000,000 shares of common stock, no par value."
In additional to the reasons specified above, the Company's Board of
Directors believes that it is desirable to have additional authorized shares of
common stock available for possible future financings, possible future
acquisition transactions and other general corporate purposes. Having such
additional authorized shares of common stock available for issuance in the
future would give our Company greater flexibility and may allow such shares to
be issued without the expense and delay of a special shareholders' meeting.
Although such issuance of additional shares with respect to future financings
and acquisitions would dilute existing shareholders, management believes that
such transactions would increase the value of our Company to our shareholders.
RECOMMENDATION OF THE BOARD OF DIRECTORS
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF
AN AMENDMENT TO OUR COMPANY'S ARTICLES OF INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF COMMON STOCK, NO PAR VALUE, FROM 100,000,000 TO
300,000,000 SHARES.
9
DESCRIPTION OF CAPITAL STOCK
GENERAL
eTotalsource's authorized capital consists of 300,000,000 shares of common
stock, no par value. At December 9, 2004, there were 45,210,821 outstanding
shares of common stock. Set forth below is a description of certain provisions
relating to the Company's capital stock.
COMMON STOCK
Each outstanding share of common stock has one vote on all matters
requiring a vote of the stockholders. There is no right to cumulative voting;
thus, the holder of fifty percent or more of the shares outstanding can, if they
choose to do so, elect all of the directors. In the event of a voluntary or
involuntary liquidation, all stockholders are entitled to a pro rata
distribution after payment of liabilities and after provision has been made for
each class of stock, if any, having preference over the common stock. The
holders of the common stock have no preemptive rights with respect to future
offerings of shares of common stock. Subject to the declaration and payment of
dividends upon any preferred stock at the time outstanding, to the extent of any
preference to which that preferred stock is entitled and after the provision for
any sinking or purchase fund or funds for any series of any preferred stock has
been complied with, the board of directors may declared and pay dividends on the
common stock, payable in cash or other consideration, out of the funds legally
available therefore. It is eTotalsource's present intention to retain earnings,
if any, for use in its business. The payment of dividends on the common stock
are, therefore, unlikely in the foreseeable future.
CONVERTIBLE DEBENTURES
eTotalsource has an outstanding convertible debenture, which was issued in
the original principal amount of $175,000. This debenture accrues interest at a
rate of 5% per year and matures two years from the issuance date. The debenture
is convertible at the holder's option any time up to maturity at a conversion
price equal to the lower of (i) 120% of the closing bid price of the common
stock as of the closing date (ii) 80% of the lowest closing bid price of the
common stock for the five trading days immediately preceding the conversion
date. At maturity, eTotalsource has the option to either pay the holder the
outstanding principal balance and accrued interest or to convert the debenture
into shares of common stock at a conversion price equal to the lower of (i) 120%
of the closing bid price of the common stock as of the closing date or (ii) 80%
of the lowest closing bid price of the common stock for the five trading days
immediately preceding the conversion date. eTotalsource has the right to redeem
the debenture upon fifteen days notice for 120% of the amount redeemed.
eTotalsource will issue an addition convertible debenture in the principal
amount of $175,000, upon the same terms as the debenture described above, upon
filing a registration statement registering shares of the Company's common stock
underlying the convertible debentures and to be issued pursuant to the Company's
Standby Equity Distribution Agreement.
TRANSFER AGENT
The Transfer Agent for the common stock is Executive Registrar & Transfer,
Inc., located at 3615 South Huron Street, Suite 104, Englewood, Colorado 80110.
DISCLOSURE OF SEC POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation, as well as our By-Laws provide for the
indemnification of directors, officers, employees and agents of the corporation
to the fullest extent provided by the corporate law of the State of Colorado, as
well as is described in the Articles of Incorporation and the By-Laws. These
sections generally provide that the Company may indemnify any person who was or
is a party to any threatened, pending or completed action, suit or proceeding
whether civil, criminal, administrative or investigative except for an action by
or in right of the corporation by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation. Generally, no
indemnification may be made where the person has been determined to be negligent
or guilty of misconduct in the performance of his or her duties to the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons of eTotalsource,
pursuant to the foregoing provisions, or otherwise, we have been advised that,
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act of 1933, and is,
therefore, unenforceable.
10
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION
AUTHORIZED AND UNISSUED STOCK
The authorized but unissued shares of our common are available for future
issuance without our shareholders' approval. These additional shares may be
utilized for a variety of corporate purposes including but not limited to future
public or direct offerings to raise additional capital, corporate acquisitions
and employee incentive plans.
EQUITY LINE OF CREDIT
On October 8, 2004, we entered into a Standby Equity Distribution Agreement
with Cornell Capital Partners. Pursuant to the Standby Equity Distribution
Agreement, we may, at our discretion, periodically issue and sell shares of our
common stock for a total purchase price of $10 million. If we request advances
under the Standby Equity Distribution Agreement, Cornell Capital Partners will
purchase shares of common stock of eTotalsource for 98% of the lowest volume
weighted average price on the Over-the Counter Bulletin Board or other principal
market on which our common stock is traded for the five (5) days immediately
following the advance notice date. Cornell Capital Partners will retail 5% of
each advance under the Standby Equity Distribution Agreement. We may not request
advances in excess of a total of $10 million. The maximum of each advance is
equal to $200,000.
In order for our Company to receive the $10,000,000 available under the
Standby Equity Distribution Agreement based on our current stock price of $0.07,
we would have to issue 145,772,595 shares of our common stock. Our current
Articles of Incorporation authorized us to issue 100 million shares of common
stock. As of December 9, 2004, we have 45,210,821 shares issued and outstanding.
Therefore, we may need to issue more than 54,953,684 shares remaining to draw
down the entire $10,000,000 available under the Standby Equity Distribution
Agreement.
OTHER MATTERS
As of the date of this proxy statement, our Company knows of no business
that will be presented for consideration at the meeting other than the items
referred to above. If any other matter is properly brought before the meeting
for action by shareholders, proxies in the enclosed form returned to our Company
will be voted in accordance with the recommendation of our Board of Directors
or, in the absence of such a recommendation, in accordance with the judgment of
the proxy holder.
INDEPENDENT ACCOUNTANTS
The firm of Gordon, Hughes & Banks, LLP served as our Company's independent
accountants for Fiscal 2003. A representative of the firm will be available to
respond to questions at the Special Meeting of the Shareholders. This
representative will have an opportunity to make a statement if he desires to do
so. The Company has selected Gordon, Hughes & Banks, LLP as its independent
accountants for Fiscal 2004.
AUDIT FEES. The aggregate fees billed for professional services rendered
was $ 28,450.00 for the audit of the Company's annual financial statements for
the year ended December 31, 2003 and the reviews of the financial statements
included in the Company's Forms 10-QSB for that fiscal year.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. None of the
professional services described in Paragraphs (c)(4)(ii) of Rule 2-01 of
Regulation S-X were rendered by the principal accountant for the year ended
December 31, 2002.
ALL OTHER FEES. Other than the services described above under the captions
"Audit Fees" and "Financial Information Systems Design and Implementation Fees,"
the aggregate fees billed for services rendered by the principal accountant was
$ 5,500 for the year ended December 31, 2003.
ADDITIONAL INFORMATION
PROXY SOLICITATION COSTS. Our Company is soliciting the enclosed proxies.
The cost of soliciting proxies in the enclosed form will be borne by our
Company. Officers and regular employees of our Company may, but without
compensation other than their regular compensation, solicit proxies by further
mailing or personal conversations, or by telephone, telex, facsimile or
electronic means. Our Company will, upon request, reimburse brokerage firms for
their reasonable expenses in forwarding solicitation materials to the beneficial
owners of stock.
11
INCORPORATION BY REFERENCE. Certain financial and other information
required pursuant to Item 13 of the Proxy Rules is incorporated by reference to
the Company's Annual Report, which is being delivered to the shareholders with
this proxy statement. In order to facilitate compliance with Rule 2-02(a) of
Regulation S-X, one copy of the definitive proxy statement will include a
manually signed copy of the accountant's report.
BY ORDER OF THE BOARD OF DIRECTORS
Terry L. Eilers
President
Yuba City, California
December __, 2004
12