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DEC 18 2002
CLERK US DISTRICT COURT
DISTRICT OF ARIZONA
BY ________________ DEPUTY
--------------------------
Francis J. Burke, Jr. (010570)
Jon T. Neumann (018858)
STEPTOE & JOHNSON LLP
201 East Washington Street, Suite 1600
Phoenix, Arizona 85004-2382
Telephone: (602) 257-5200
Facsimile: (602) 257-5299
Attorneys for Plaintiff Merrill Lynch
Business Financial Services Inc.
UNITED STATES DISTRICT COURT
DISTRICT OF ARIZONA
Merrill Lynch Business Financial ) Case No. CIV '02 2553 PHX JAT
Services Inc., a Delaware corporation, ) --------------------
)
Plaintiff, )
) COMPLAINT
vs. )
)
Aspect Semiquip International, Inc. f/k/a )
Aspect Systems, Inc., an Arizona )
corporation; DND Technologies Corp. )
f/k/a Zurickirch Corp., a Nevada )
corporation; Douglas N. Dixon, an )
Arizona resident, )
)
Defendants. )
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Plaintiff Merrill Lynch Business Financial Services Inc., by and through
its undersigned attorneys, for its Complaint against defendants, Aspect Semiquip
International, Inc. f/k/a Aspect Systems, Inc., DND Technologies f/k/a
Zurickirch Corp., and Douglas N. Dixon alleges the following:
PARTIES
1. Merrill Lynch Business Financial Services Inc. ("MLBFS") is a
corporation, incorporated under the laws of the State of Delaware, having its
principle office at 222 North LaSalle Street, Chicago, Illinois, 60601.
2. Aspect Semiquip International, Inc. f/k/a Aspect Systems, Inc. ("ASI")
is a corporation, incorporated under the laws of the State of Arizona, whose
principle place of business is 375 East Elliot Road, Building 6, Chandler,
Arizona, 85225.
3. Upon information and belief, DND Technologies Corp. f/k/a Zurickirch
Corp. ("DND") is a corporation, listed on the NASDAQ, incorporated under the
laws of the State of Nevada, whose principle place of business is 375 East
Elliot Road, Building 6, Chandler, Arizona, 85225.
4. Upon information and belief, Douglas N. Dixon is a resident and
domiciliary of Maricopa County, Arizona ("Mr. Dixon").
JURISDICTION AND VENUE
5. This Court has jurisdiction over this action pursuant to 28 U.S.C. ss.
1332, because there exists complete diversity of citizenship between the parties
to this action and the amount in controversy exceeds $75,000.00, exclusive of
interest, attorneys' fees, and costs.
6. Venue properly lies in this Court pursuant to 28 U.S.C. ss. 1391
(a)(1)-(3) because defendants reside in this judicial district, a substantial
portion of the events giving rise to MLBFS' claims occurred, in whole or in
part, within this district and the resulting damages, as alleged in this
Complaint, occurred and are occurring within this district.
GENERAL ALLECATIONS
7. On or about May 10, 2001, MLBFS entered into a Working Capital
Management Account Loan And Security Agreement No. 412-07C04 ("WCMA Line of
Credit") with ASI, whereby MLBFS agreed to extend ASI a S1,000,000.00 line of
credit (a true and correct copy of the WCMA Line of Credit agreement is attached
as Exhibit 1).
8. On or about May 10, 2001, MLBFS entered into a Term Loan And Security
Agreement No. 0105551801 ("Term Loan") with ASI, whereby MLBFS agreed
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to loan ASI $250,000.00 (a true and correct copy of the Term Loan agreement is
attached as Exhibit 2).
9. As provided by the WCMA Line of Credit and the Term Loan (collectively
"Loan Agreements"), on or about June 6, 2001, MLBFS filed a Uniform Commercial
Code Financing Statement UCC-1 against certain assets of ASI which were
designated as collateral for the Loan Agreements. The UCC-1 described the
collateral as: "All Accounts, Chattel Paper, Contract Rights, Inventory,
Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents,
Instruments," and further provided "Investment Property and Financial Assets of
Debtor, howsoever arising, whether now owned or existing or thereafter acquired
or arising, and wherever located; together with all parts thereof (including
spare parts), all accessories and accessions thereto, all books and records
(including computer records) directly related thereto, all proceeds thereof
(including, without limitation, proceeds in the form of Accounts and insurance
proceeds). In accordance with the terms of a certain Loan Agreement between
Debtor and Secured Party, Debtor has agreed that except of certain 'Permitted
Liens' (as defined by [the WCMA Line of Credit] agreement), Debtor will not
further encumber any of the above property without the prior written consent of
the Secured Party" (the "Collateral") (a true and correct copy of the UCC-1 is
attached as Exhibit 3).
10. Under both Loan Agreements, ASI cannot engage in any of the following
without MLBFS's prior approval: "any merger or consolidation with, or purchase
or otherwise acquire all or substantially all of the assets of, or any material
stock, partnership, joint venture or other equity interest in, any person or
entity, or sell, transfter or lease all or any substantial part of its assets,
if any such action woud result in either: (A) a material change in the principal
business, ownership or control of [ASI], or (B) a material adverse change in the
financial or operations of [ASI] ... [ASI] shall not cause or permit any other
person or entity to assume or succeed to any material
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business or operations of [ASI]; and ... [ASI] shall not cause or permit any
material change in its controlling ownership." [Exhibit 1 at 3.3(g), Exhibit 2
at 3.3(g).]
11. The Loan Agreements also required ASI to maintain a "tangible net
worth" exceeding $1,700,000.00 at all times and a "net cash flow" of not less
than $300,000.00 as of the end of each of its fiscal years. [Exhibit 1 at 3.3(h)
& (i), Exhibit 2 at 3.3(h) & (i).]
12. Finally, the Loan Agreements stated that, ASI shall not directly or
indirectly acquire or merge the assets or stock of any other entity. Exhibit 1
at 3.3(j), Exhibit 2 at (j).]
13. On or about May 10, 2001, Mr. Dixon signed an Unconditional Guaranty
for the Loan Agreements (a true and correct copy of the guarantee is attached as
Exhibit 4).
14. MLBFS funded the Loan Agreements on or about June 6, 2001.
15. On information and belief, Mr. Dixon was the sole shareholder of ASI
stock at the time the parties entered into the WCMA Line of Credit and Term Loan
agreements as well as during the times MLBFS funded the debt to ASI.
16. The WCMA Line of Credit expired by its terms on May 31, 2002. MLBFS
extended the Maturity Date until July 31, 2002 in order to secure financial
information necessary to evaluate ASI's financial condition to determine whether
to renew the WCMA Line of Credit.
17. On or about July 17, 2002, MLBFS sent ASI and Mr. Dixon a Notice of
Non-Renewal and Demand for Payment (the "Demand Notice") (a true and correct
copy of the Demand Notice is attached as Exhibit 5).
18. Without limitation, the Demand Notice informed ASI and Mr. Dixon that
the WCMA Line of Credit would expire on July 31, 2002 and that MLBFS was not
going to renew the WCMA Line of Credit. The Demand Notice also made formal
written
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demand upon ASI and Mr. Dixon for full repayment for all outstanding amounts due
under the WCMA Line of Credit and Term Loan on or before July 31, 2002. ASI and
Mr. Dixon failed to repay the loans on or before July 31, 2002.
19. On information and belief, on or about August 2, 2002, DND acquired
ASI in a tax-free exchange of stock without the consent of MLBFS, in direct
violation of the Loan Agreements. On information and belief, ASI now claims to
be a wholly owned subsidiary of DND.
20. On or about September 26, 2002, MLBFS issued a Notice of Default and
Demand for Payment to ASI and Mr. Dixon ("Default Letter") (a true and accurate
copy of the Default Letter is attached as Exhibit 6). The Default Letter
formally notified ASI and Mr. Dixon that they were in default on the matured
WCMA Line of Credit as well as the Term Loan, and again demanded immediate
repayment of all outstanding debt. ASI and Mr. Dixon failed to comply with the
demands of the Default Letter.
21. On or about September 26, 2002, MLBFS also sent Notice Of Lien And
Security Interest ("Notice Letter") to DND (a true and accurate copy of the
Notice Letter is attached as Exhibit 7). The Notice Letter informed DND that ASI
was indebted to MLBFS under several loan and security agreements, that the loans
were in default and that they were immediately payable. The Notice Letter also
informed DND that MLBFS had a perfected security interest on substantially all
of ASI's business assets, which served as collateral for ASI's indebtedness. The
Notice Letter also contained MLBFS's formal objection to ASI's acquisition by
DND without MLBFS's permission of the provision of the Loan Agreements which
provided that ASI could not cause or permit any other person or entity to assume
or succeed to any material business or operations of ASI and ASI shall not cause
or permit any material change in its controlling ownership.
22. On or about December 6, 2002, MLBFS' attorneys sent letters to ASI,
Mr. Dixon, and DND in a final attempt to resolve the default without the
necessity of
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litigation ("Final Demand") (a true and accurate copy of the Final Demand is
attached as Exhibit 8). The Final Demand stated that MLBFS might be willing to
forebear litigation and enter into a payout arrangement based on certain
conditions. ASI was given until Friday, December 13, 2002 to respond, but failed
to do so in any meaningful way.
FIRST CLAIM FOR RELIEF
(Breach of Contract against AS1)
23. MLBFS incorporates the allegations in the preceding paragraphs as
though fully set forth herein.
24. ASI has materially breached the Loan Agreements by, without
limitation: failing to remit payments when due in accordance with the terms of
the Loan Agreements; failing to pay interest on unpaid balances; entering into
an exchange of stock with DND without MLBFS's permission; agreeing to
subordinate or actually attempting to subordinate MLBFS's security interest to
other lenders or potential lenders; violating the Tangible Net Worth covenants
of the Loan Agreements; and violating the Net Cash Flow covenants of the Loan
Agreements.
25. As a result of ASI's breaches, MLBFS has suffered damages in an amount
to be proven at trial.
WHEREFORE, MLBFS prays that the Court (1) enter judgment in its favor and
against ASI; (2) award MLBFS its damages to be proven at trial plus pre- and
post-judgment interest; (3) because this action arises out of contract, in
accordance with A.R.S. ss. 12-341.01 and ss. 3.7(d) of the Loan Agreements,
award MLBFS its costs and attorneys' fees; and (4) grant MLBFS all further
relief to which it may be entitled.
SECOND CLAIM FOR RELIEF
(Breach of Contract Against DND)
26. MLBFS incorporates the allegations in the preceding paragraphs as
though fully set forth herein.
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27. By acquiring ASI, DND has assumed all of ASI's obligations under the
Loan Agreements.
28. DND has materially breached the Loan Agreements by, without
limitation: failing to remit payments when due in accordance with the terms of
the Loan Agreements; failing to pay interest on unpaid balances; entering into
an exchange of stock with ASI without MLBFS's permission; agreeing to
subordinate or actually attempting to subordinate MLBFS's security interest to
other lenders or potential lenders; violating the Tangible Net Worth covenants
of the Loan Agreements; and violating the Net Cash Flow covenants of the Loan
Agreements.
29. As a result of DND's breaches, MLBFS has suffered damages in an amount
to be proven at trial.
WHEREFORE, MLBFS prays that the Court (1) enter judgment in its favor and
against DND; (2) award MLBFS its damages to be proven at trial plus pre- and
post-judgment interest; (3) because this action arises out of contract, in
accordance with A.R.S. ss. 12-341.01 and ss. 3.7(d) of the Loan Agreements,
award MLBFS its costs and attorneys' fees; and (4) grant MLBFS all further
relief to which it may be entitled.
THIRD CLAIM FOR RELIEF
(Unjust Enrichment Against DND)
30. MLBFS incorporates the allegations in the preceding paragraphs as
though fully set forth herein.
31. MLBFS conferred a benefit upon DND by providing loans to ASI which DND
has obtained the benefit of through its acquisition of ASI.
32. As a result of DND's acquisition of ASI and the Collateral, DND has
realized, and will continue to realize, substantial pecuniary gain as a result
of the loans and Collateral.
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33. By accepting this gain but refusing to pay the amounts owed, DND has
been unjustly enriched at MLBFS' expense.
34. DND has provided no justification for its failure or refusal to pay
the amounts owed.
35. As a direct and proximate result of DND'S conduct, MLBFS has sustained
damages in an amount to be proven at trial.
WHEREFORE, MLBFS prays that the Court (1) enter judgment in its favor and
against DND; (2) award MLBFS its damages to be proven at trial; and (3) grant
MLBFS all further relief to which it may be entitled.
FOURTH CLAIM FOR RELIEF
(Common Law Conversion Against DND)
36. MLBFS incorporates the allegations in the preceding paragraphs as
though fully set forth herein.
37. DND has taken physical control of the MLBFS' Collateral in derogation
of the Loan Agreements.
38. DND has no proper right, title, or interest in the Collateral superior
to MLBFS's interest.
39. Through DND's exercise and control over the Collateral, DND has
intentionally exercised dominion and control over the Collateral in which MLBFS
has a security interest, in a manner inconsistent with MLBFS' security interest.
40. DND's actions constitute conversion under the common law of the State
of Arizona.
41. DND's action constitutes willful, wanton, and malicious conduct done
with an evil mind and with reckless disregard for the rights of MLBFS.
Consequently, the imposition of punitive damages is warranted.
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42. As a result of DND's conversion of the Collateral MLBFS has been
damaged in an amount to be determined at trail and is entitled to an award of
damages, including punitive damages.
WHEREFORE, MLBFS prays that the Court (1) enter judgment in its favor and
against DND; (2) award MLBFS it damages, including punitive damage, to be proven
at trial; and (3) grant MLBFS all further relief to which it may be entitled.
FIFTH CLAIM FOR RELIEF
(Breach of Guarantee by Mr. Dixon)
43. MLBFS realleges and incorporates the allegations set forth in the
preceding paragraphs as if fully set forth herein.
44. Prior to filing this Complaint, MLBFS notified Mr. Dixon of ASI's
failure to perform under the Loan Agreements and demanded payment of all amounts
due under the Loan Agreements.
45. As of the time of the filing of this Complaint, Mr. Dixon has not paid
MLBFS the amounts due under the Loan Agreements in violation of the express
terms of his personal guarantee.
46. Mr. Dixon's failure to pay MLBFS the amount due under the Loan
Agreements constitutes his breach of his personal guarantee to MLBFS.
WHEREFORE, MLBFS prays that the Court (1) enter judgment in its favor and
against Mr. Dixon; (2) award MLBFS its damages to be proven at trial; (3) since
this action arises out of contract, in accordance with A.R.S. ss. 12-341.01,
award MLBFS its costs and attorneys' fees; and (4) grant MLBFS all further
relief to which it may be entitled.
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DATED this 18th day of December, 2002.
STEPTOE & JOHNSON LLP
By /s/ Jon T. Neumann
---------------------------------------
Francis J. Burke, Jr.
Jon T. Neumann
201 East Washington Street, Suite 1600
Phoenix, Arizona 85004-2382
Attorneys for Plaintiff Merrill Lynch
Business Financial Services Inc.
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