The opinion of the court was delivered by: Laura Taylor Swain, United States District Judge.
Plaintiff Laurus Master Fund, Ltd. ("Laurus"), brings this motion seeking a default judgment against Defendant Versacom International, Inc. ("Versacom"). The Court has considered thoroughly all submissions related to this motion. For the following reasons, Plaintiff's motion is granted, Versacom is directed to issue and deliver certain common stock to Plaintiff, and damages and costs are awarded to the extent set forth below. This Memorandum Order constitutes the Court's findings of fact and conclusions of law to the extent such are required by Rule 52 of the Federal Rules of Civil Procedure.
On July 11, 2002, Laurus filed a complaint seeking injunctive relief and damages. Laurus also filed a motion for a preliminary injunction seeking an order directing Versacom to issue Laurus 34,000,000 shares of common stock. Versacom was served with the summons and complaint and the motion for injunctive relief on July 15, 2002. On August 19, 2002, the Court issued an order consolidating Laurus' motion for a preliminary injunction and the determination on the merits under Fed.R.Civ.P. 65(a)(1) and permitting Laurus to make a motion for a default judgment. On September 4, 2002, Laurus obtained a Certificate of Default. As required by the Court's August 19, 2002 Order, Laurus' motion was accompanied by evidentiary material. Laurus filed and served additional evidentiary material in response to a March 31, 2003 Order. Versacom has not responded to the complaint or any of the motions and has not otherwise appeared in this action.
Laurus is a private investment fund based in the Cayman Islands. (Affidavit of Daniel Laifer, sworn to September 12, 2002 ("Laifer Aff.") ¶ 1.) Versacom is a provider of telecommunication services throughout the United States. (Laifer Aff. ¶ 4.) In September and October of 2001, Laurus and Versacom negotiated a private equity financing agreement. (Laifer Aff. ¶ 5.) On October 17, 2001, Laurus and Versacom entered into certain agreements relating to the financing. (Laifer Aff. ¶ 6) The agreements include the Versacom International, Inc. Securities Purchase Agreement entered into October 17, 2001 ("Purchase Agreement") (Laifer Aff., Ex. A), a Convertible Note ("Note") (Laifer Aff., Ex. B), a security agreement dated October 17, 2001 relating to accounts receivable (Laifer Aff. Ex. C) and a security agreement concerning Versacom shares, dated October 17, 2001 (Laifer Aff., Ex. D). Each of these agreements provides that it is governed by New York Law. (See Purchase Agreement, section 12.1; Note, section 4.1; Security Agreement (accounts receivable), section 12; Security Agreement, (shares) section 12.6.)
In connection with the financing agreements, Laurus agreed to deliver to Versacom $300,000 in return for the Note, 50,000 shares of Versacom common stock and a security interest in Versacom's accounts receivable. (Laifer Aff. ¶ 8, Exs. A-D.)
The Note came due, with interest, on October 17, 2003. (Note, Laifer Aff., Ex. B.) The agreements also gave Laurus the right to convert the principal and interest under the Note into Versacom common stock. (Id.; Note, Section 2.1.) Under the financing agreements, Versacom was required to file a registration statement with the Securities and Exchange Commission (the "SEC") with respect to the shares of common stock within 45 days of the closing date of the transaction. (Purchase Agreement, Laifer Aff., Ex. A.) The registration statement was to be declared effective within 135 days of the closing date (the "Effective Date"). The Purchase Agreement provided that, if Versacom failed to meet either of these deadlines, Versacom would pay Laurus liquidated damages. The agreement further provided that the payment of liquidated damages did not relieve Versacom of its obligation to honor Laurus' notices to convert the principal and interest into stock. (See Purchase Agreement, Section 9.4.)
The Note provided that, on or after the Effective Date, Laurus had the absolute right to convert the principal and interest into Versacom common stock at the lower of $0.23/share or 80% of the average of the three lowest market prices for the 30 trading days prior to the conversion. (Note, 2.1(a) and (b), Laifer Aff. Ex. B.) Absent a default, Laurus could not effect a conversion would that result in Laurus having beneficial ownership of more than 4.99% of the outstanding shares. (Purchase Agreement, section 8.4, Laifer Aff. Ex. A). In the event of a default, however, this limitation could be voided. (Id.)
Under one of the security agreements between Versacom and Laurus, Laurus obtained a security interest in certain accounts receivable. (Security Agreement, section 4, Laifer Aff., Ex. C.) Under the terms of the security agreement concerning accounts receivable, Versacom was required to deliver funds in respect of paid receivables to Laurus. (Id.)
A second security agreement between Laurus and certain Versacom officers gave Laurus a security interest in shares of Versacom stock held by the officers. (Security Agreement, section 9, Laifer Aff. Ex. D.)
Laurus and Versacom also entered into an escrow agreement which provided that, on October 17, 2001, Versacom would deliver the Note and 50,000 shares of Versacom stock to an escrow agent. (Funds Escrow Agreement, section 2.1, Laifer Aff., Ex. E.) Laurus was to deliver $300,000 to the escrow agent on or about October 17, 2001. (Funds Escrow Agreement, section 2.2.)
Versacom filed a registration statement with the SEC on December 7, 2001, which was six days late. (Laifer Aff. ¶ 27.) In addition, the registration statement was not declared effective by the effective date provided for in the Purchase Agreement. (See Affidavit of Pat Regan, sworn to September 12, 2002, ¶ 8; Laifer Aff. ¶ 28; Purchase Agreement, section 9.4.) Because Versacom failed to effect a timely registration statement, it was in default under the terms of the financing agreements. (See Note, section 3.11; Purchase Agreement, section 9.4.)
In January of 2002, Laurus discovered that Versacom had failed to turn over certain funds in respect of accounts receivable that had been paid. Laurus asked Versacom to cure this breach of the financing agreements. (Laifer Aff. ¶ 22, Notice of Default and Acceleration, Ex. H.)
Subsequent to Versacom's defaults concerning the accounts receivable and the untimely registration statement, Laurus foreclosed on its security interest in the shares of stock held by Versacom officers. (Laifer Aff. ¶ 24, Notice of Default and Acceleration, Ex. H.) Thus, Laurus became a shareholder of Versacom, holding 2,142,000 shares. Its shareholder status gave Laurus rights to inspect ...