4-21-2010 nir summons and complaint

SCANNED ON41912010

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SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK

NEW MILLENNIUM CAPITAL PARTNERS 111, LLC; NEW MILLENNIUM CAPITAL PARTNERS 11, LLC; AJW PARTNERS, LLC; AJW OFFSHORE, LTD.; AJW QUALIFIED PARTNERS, LLC; AJW MASTER FUND, LTD.; AJW PARTNERS 11, LLC; AJW OFFSHORE 11, LTD.; AJW QUALIFIED PARTNERS 11, LLC; and AJW MASTER FUND 11, LTD.,

Plaintiffs,

-against-

SYSTEMS EVOLUTION, INC.,

Defendant.

ORIGNAI Index No.: Purchase Date: April -, 20 10

designate New York ty as the place of trial.

The bases of venue are CPLR $6 501 and 509.

To the Above Named Defendant:

YOU ARE HEREBY SUMMONED and required to serve upon plaintiffs’ undersigned

attorneys an answer to plaintiffs’ complaint in this action within twenty (20) days after the

service of this summons, exclusive of the day of service (or within thirty (30) days after the

service is complete if this summons is not personally delivered to you within the State of New

York), and in the case of your failure to appear or answer, judgment will be taken against you by

default for the relief demanded in the complaint.

942590-1

Supreme Court Records OnLine Library - page 1 of 16

FILED: NEW YORK COUNTY CLERK 04/21/2010 INDEX NO. 600893/2010

NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 04/21/2010

Dated: New York, New York April q, 201 0

rl

OLSHAN GRUNDMAN FROME ROSENZWEIG & WOLOSKY LLP

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By: ThomxJ. Fleming 1

I Chnstine Wong Attorneys for Plaintiffs Park Avenue Tower 65 East 55fh Street New York, New York 10022 (2 12) 45 1-2300

2 942590-1


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SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK

NEW MILLENNIUM CAPITAL PARTNERS 111, LLC; NEW MILLENNIUM CAPITAL PARTNERS 11, LLC; AJW PARTNERS, LLC; AJW OFFSHORE, LTD.; AJW QUALIFIED PARTNERS, LLC; AJW MASTER FUND, LTD.; AJW PARTNERS 11, LLC; AJW OFFSHORE 11, LTD.; AJW QUALIFIED PARTNERS 11, LLC; and AJW MASTER FUND 11, LTD.,

Plaintiffs,

-against-

SYSTEMS EVOLUTION, INC.,

ORliN4 Index No.

COMPLAINT

Defendant.

Plaintiffs, by their attorneys,

their Complaint, allege:

Olshan Grundman Frome

The Parties

1. Plaintiff New Millennium Capital Partners 111, LLC (“NMCP III”) is a limited

liability company organized under the laws of the State of New York, with its principal office

in Roslyn, New York. NMCP I11 is an assignee of New Millennium Capital Partners 11, LLC

(“NMCP 11”) is a limited liability company organized under the laws of the State of New York,

with its principal office in Roslyn, New York.

2. Plaintiff AJW Partners, LLC (“AJWP”) is a limited liability company organized

under the laws of the State of Delaware, with its principal office in Roslyn, New York.

3. Plaintiff AJW Offshore, Ltd. (“AJWO”) is a corporation organized under the laws

of the Cayman Islands, which is managed from Roslyn, New York.

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4. Plaintiff AJW Qualified Partners, LLC (“AJWQP”) is a limited liability company

organized under the laws of the State of New York, with its principal office in Roslyn, New

York.

5 . Plaintiff AJW Master Fund, Ltd. (“AJWMF”) is a corporation organized under

the laws of the Cayman Islands, which is managed from Roslyn, New York.

6 . Plaintiff AJW Partners 11, LLC (“AJWP 11”) is a limited liability company

organized under the laws of the State of Delaware, with its principal office in Roslyn, New

York.

7. Plaintiff AJW Offshore 11, Ltd. (“AJWO 11”) is a corporation organized under the

laws of the Cayman Islands, which is managed from Roslyn, New York.

8. Plaintiff AJW Qualified Partners 11, LLC (“AJWQP II”) is a limited liability

company organized under the laws of the State of New York, with its principal office in

Roslyn, New York.

9. Plaintiff AJW Master Fund 11, Ltd. (“AJWMF II”) is a corporation organized

under the laws of the Cayman Islands, which is managed from Roslyn, New York.

10. Defendant Systems Evolution, Inc. (“SEVI”) is a corporation organized under the

laws of the State of Texas, with its principal place of business in Houston, Texas. SEVI’s

common stock is registered with the United States Securities and Exchange Commission

(“SEC”) and its shares are traded on the pink sheets under the symbol “SSEV.PK’

Jurisdiction and Venue

1 1. Under the Security Agreements and Intellectual Property Security Agreements

between SEVI and plaintiffs, SEVI has consented to be sued in this State, County and Court

for actions, such as this, arising out of or relating to those agreements. Additionally, SEVI has

had sufficient contacts with the State of New York such that it has transacted business within

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this State, from which the claims asserted herein arise, and, therefore, this Court also has

personal jurisdiction over SEVI under CPLR $302(a)( 1).

The Securities Purchase Agreements and the Notes Issued to Plaintiffs

12. On July 27,2004, plaintiffs received, for good and valuable consideration,

callable secured convertible notes (“Notes”), pursuant to a Securities Purchase Agreement

(“SPA”) with SEVI and/or its predecessor, DealerAdvance, Inc. Pursuant to this offering,

plaintiffs purchased Notes from SEVI in the aggregate principal amount of $499,909.56 in

consideration of their payment of that amount. The SPA was one of several offerings of Notes

by SEVI to plaintiffs. All of these Notes referenced herein are in substantially similar form as

those issued under the SPA. Through October 2008, plaintiffs thereafter loaned additional

funds to SEVI on similar terms, pursuant to similar agreements.

13. As of July 2004, plaintiffs also entered into agreements related to the SPA,

including a Security Agreement, Intellectual Property Security Agreement, and other

agreements with SEVI.

14. For good and valuable consideration paid to SEVI, plaintiffs received Notes on

October 25, 2004, in the aggregate principal amount of $350,000.


February 7,2005, in the aggregate principal amount of $2700.


March 18, 2005, in the aggregate principal amount of $500,000.


July 15,2005, in the aggregate principal amount of $850,150.


February 7,2006, in the aggregate principal amount of $177,300.

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April 1 1, 2006, in the aggregate principal amount of $200,000.

20. For good and valuable consideration paid to SEVI, plaintiffs received Notes on '

May 12, 2006, in the aggregate principal amount of $200,000.


January 1 1 , 2007, in the aggregate principal amount of $1 50,000.




March 15, 2007, in the aggregate principal amount of $150,000.


April 13,2007, in the aggregate principal amount of $150,000.


May 25,2007, in the aggregate principal amount of $1 50,000.


June 14,2007, in the aggregate principal amount of $150,000.


July 16,2007, in the aggregate principal amount of $150,000.


August 10,2007, in the aggregate principal amount of $150,000.


September 17, 2007, in the aggregate principal amount of $150,000.

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October 12,2007, in the aggregate principal amount of $150,000.

3 1. For good and valuable consideration paid to SEVI, plaintiffs received Notes on

December 13,2007, in the aggregate principal amount of $150,000.


January 17,2008, in the aggregate principal amount of $175,000.




February 28,2008, in the aggregate principal amount of $1 50,000.






September 26,2008, in the aggregate principal amount of $1 7,500.

38. In lieu of paying, in cash, interest accrued on the Notes, SEVI issued on

September 30,2008, additional Notes to plaintiffs in the aggregate principal amount of

$625,563.12.

39. For good and valuable consideration paid to SEVI, plaintiffs entered into the last

round of financing with SEVI on October 3,2008, pursuant to which plaintiffs purchased

Notes in the aggregate principal amount of $1 10,000.

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40. In total, plaintiffs loaned in excess of $6 million to SEVI over the course of four

years.

41. Each of the Notes matured, by their terms, within two or three years of the date of

issue. To date, eleven Notes (dated July 2004 through March 2007) have matured and become

due. These Notes remain unpaid.

The Security Agreements

42. Pursuant to the Security Agreements and Intellectual Property Security

Agreements, SEVI granted plaintiffs a first priority security interest in all of SEVI’s goods,

inventory, contract rights, general intangibles, patents, trademarks, copynghts, receivables, and

documents. The Security Agreements and Intellectual Property Security Agreements provide

that if an Event of Default under the Notes occurs, plaintiffs shall have all rights available

under the Uniform Commercial Code, plus the right to immediate possession of the collateral

and the right to operate SEVI’s business using the collateral.

43. Plaintiffs duly perfected their security interests under the Security Agreements

and Intellectual Property Security Agreements in connection with each of the transactions.

Assignments -

44. Plaintiffs NMCP 11, AJWP, AJWO, AJWQP, and AJWMF have assigned certain

of their rights under the Notes, SPAS, Security Agreements and related agreements to plaintiffs

NMCP 111, AJWP 11, AJWO 11, AJWQP 11, and AJWMF 11. Additionally, NMCP I1 has

assigned all of its right, title and interest in the Notes to plaintiff NMCP 111.

Defaults of the Notes

45. Each of the Notes is convertible into SEVI common stock at plaintiffs’ election.

Section 3.2 of the Notes defines as an Event of Default, inter alia, SEVI’s failure to honor its

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obligations regarding plaintiffs’ conversion rights under the Notes, specifically, the failure to

deliver the shares requested and failure to cure this defect.

46. SEVI defaulted on the Notes by failing to honor plaintiffs’ Notices of Conversion,

dated February 23,2010.

47. Section 3.1 of the Notes defines as an Event of Default, inter alia, SEVI’s failure

to pay principal and interest when due.

48. To date, SEVI has defaulted on eleven Notes, which were issued between July

2004 and March 2007 and matured two or three years later, by failing to pay the principal and

interest when due.

49. Pursuant to Section 3.10 of the Notes, upon an Event of Default under any Note,

an Event of Default occurs under every other Note.

50. As a result of the foregoing uncured defaults, plaintiffs have exercised their rights

under the Notes to accelerate and demand payment in full of the Default Sum or Default

Amount, as defined in Section 3.10 of the Notes, plus appropriate interest and penalties. By

plaintiffs’ written notice delivered to SEVI on March 4, 201 0, plaintiffs exercised their option

to accelerate the Notes and make them all immediately due and payable.

Attorneys’ Fees

5 1. In addition to the foregoing, upon a default of the Notes or breach of the

Securities Purchase Agreements, plaintiffs are entitled to their costs of collection, including an

award of attorneys’ fees, pursuant to Section 4.5 of the Notes and Section 8(a) of the Securities

Purchase Agreements if they prevail in this litigation.

First Cause of Action (Breach of Contract)

52. Plaintiffs restate the allegations in paragraphs 1 through 50.

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53. Based upon the foregoing, SEVI has breached its obligations to NMCP I11 under

the Notes. As a direct, approximate and foreseeable result of SEVI’s breach, NMCP I11 is

entitled to recover from SEVI an amount to be determined at trial, representing the Default

Sum or Default Amount as defined in Section 3.10 of the Notes, plus all interest and penalties,

and attorneys’ fees.

Second Cause of Action (Breach of Contract)


55. Based upon the foregoing, SEVI has breached its obligations to NMCP I1 under

the Notes. As a direct, approximate and foreseeable result of SEVI’s breach, NMCP I1 is




Third Cause of Action (Breach of Contract)


57. Based upon the foregoing, SEVI has breached its obligations to AJWP under the

Notes. As a direct, approximate and foreseeable result of SEVI’s breach, AJWP is entitled to

recover from SEVI an amount to be determined at trial, representing the Default Sum or

Default Amount as defined in Section 3.10 of the Notes, plus all interest and penalties, and

attorneys’ fees.

Fourth Cause of Action (Breach of Contract)


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59. Based upon the foregoing, SEVI has breached its obligations to AJWO under the

Notes. As a direct, approximate and foreseeable result of SEVI’s breach, AJWO is entitled to



attorneys’ fees.

Fifth Cause of Action [Breach of Contract)


61. Based upon the foregoing, SEVI has breached its obligations to AJWQP under the

Notes. As a direct, approximate and foreseeable result of SEVI’s breach, AJWQP is entitled to



attorneys’ fees.

Sixth Cause of Action (Breach of Contract)


63. Based upon the foregoing, SEVI has breached its obligations to AJWMF under

the Notes. As a direct, approximate and foreseeable result of SEVI’s breach, AJWMF is




Seventh Cause of Action [Breach of Contract)


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65. Based upon the foregoing, SEVI has breached its obligations to AJWP I1 under

the Notes. As a direct, approximate and foreseeable result of SEVI’s breach, AJWP I1 is




Eighth Cause of Action [Breach of Contract)


67. Based upon the foregoing, SEVI has breached its obligations to AJWO I1 under

the Notes. As a direct, approximate and foreseeable result of SEVI’s breach, AJWO I1 is




Ninth Cause of Action (Breach of Contract)


69. Based upon the foregoing, SEVI has breached its obligations to AJWQP I1 under

the Notes. As a direct, approximate and foreseeable result of SEVI’s breach, AJWQP I1 is


Sum or Default Amount as defined in Section 3.1 0 of the Notes, plus all interest and penalties,


Tenth Cause of Action (Breach of Contract)


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71. Based upon the foregoing, SEVI has breached its obligations to AJWMF I1 under

the Notes. As a direct, approximate and foreseeable result of SEVI’s breach, AJWMF I1 is




Eleventh Cause of Action (Marshalling of Assets)


73. Based upon the foregoing, plaintiffs are entitled to an Order directing SEVI to

marshal, in preparation for foreclosure, all of its assets in which plaintiffs have a security

interest under the Security Agreements and Intellectual Property Security Agreements, and

deliver promptly to plaintiffs a list of those assets and their locations.

Plaintiffs have no adequate remedy at law. 74.

WHEREFORE, plaintiffs pray that judgment be entered against SEVI:

A. Awarding plaintiffs all sums due under the Notes, plus prejudgment

interest, attorneys’ fees, costs and disbursements, in an amount to be determined at trial but

believed to be in excess of $6 million;

B. Ordering that SEVI, in preparation for foreclosure, marshal all of the

assets in which plaintiffs have a security interest under the Security Agreements and

Intellectual Property Security Agreements, and deliver promptly to plaintiffs a list of those

assets and their location; and

C. Granting such other and further relief to plaintiffs as the Court deems just

and proper.

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Dated: New York, New York

OLSHAN GRUNDMAN FROME ROSENZWEIG & WOLOSKY LLP

By: ck&iy Thomas J. Fleming

\ Chst ine Wong Attorneys for Plaintus Park Avenue Tower 65 East 55'h Street New York, New York 10022 (212) 451-2300

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4-21-2010 nir summons and complaint

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