As filed with the Securities and Exchange Commission on June 4, 1996
Registration Statement No. 333-1994
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 3
TO
FORM S-11
Registration Statement
Under the
Securities Act of 1933
East Coast Capital Company, LLC
(Name of Registrant as Specified in Its Governing Instruments)
New York 6162 13-3874234
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification No.)
Incorporation Code Number)
or Organization)
110 East 59th Street, 6th Floor, New York, New York 10022
(Address of Principal Place of Business or Intended Principal Place of Business)
Norman Dansker, 110 East 59th Street, 6th Floor New York, New York 10022
- -------------------------------------------------------------------------
(Name, Address and Telephone Number of Agent For Service)
Approximate Date of Proposed Sale to the Public: As soon as practicable after
the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ___
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________________
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
check the following box [x].
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CALCULATION OF REGISTRATION FEE
Title of Each Dollar Amount to Proposed Maximum
Class of be Registered Offering Price
Secirities to be Per Unit(1)
Registered
Debentures $10,000,000 $5,000
Proposed Maximum
Aggregate
Offering Price
$10,000,000
Amount of Registration Fee $3,448.28
1. Estimated solely for the purpose of calculating the registration fee.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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EAST COAST CAPITAL COMPANY, LCC
Cross Reference Sheet
Item Caption Location
1. Forepart of Registration Statement Outside Front Cover Page
and Outside Front Cover Page of and Outside
Prospectus
2. Inside Front and Outside Back Cover Inside Front and
Outside Pages of Prospectus Back Cover Pages
3. Summary Information, Risk Factors Prospectus Summary;
and Ratio of Earnings to Fixed Charges Risk Factors
4. Determination of Offering Price The Offering
5. Dilution Not Applicable
6. Selling Security Holders Not Applicable
7. Plan of Distribution The Offering
8. Use of Proceeds Use of Proceeds
9. Selected Financial Data Summary of Consolidated
Financial Information;
Financial Statements
10. Management's Discussion and Analysis Management's
of Financial Condition and Results Discussion and Analysis
of Operations of Financial
Condition and Results
of Operation
11. General Information as to Registrant Business; Risk
Factors; Financial
Statements; Selected
Financial Data;
Prospectus Summary;
Use of Proceeds
12. Policy with Respect to Certain Business; Description of
Activities Debentures
13. Investment Policies of Registrant Business; Description of
Debentures
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14. Description of Real Estate Business--Facilities
15. Operating Data Business; Risk
Factors; Financial
Statements; Selected
Financial Data;
Prospectus Summary;
Use of Proceeds;
Description of Debentures
16. Tax Treatment of Registrant and Description of Debentures
its Security Holders
17. Market Price of and Dividends on the Market Information;
Registrant's Common Equity and Related Prospectus Summary
Stockholder Matters
18. Description of Registrant's Securities Description of
Securities
19. Legal Proceedings Not Applicable
20. Security Ownership of Certain Principal Owners
Beneficial Owners and Management
21. Directors and Executive Officers Management
22. Executive Compensation Executive Compensation
23. Certain Relationships and Related Certain Transactions
Transactions
24. Selection, Management and Custody Business, Description of
of Registrant's Investment Debentures
25. Policies With Respect to Certain Business; Certain Transactions;
Transactions Description of Debentures
26. Limitation of Liability Description of Debentures
27. Financial Statements and Information Financial Statements
28. Interest of Named Experts and Counsel Legal Matters; Experts
29. Disclosure of Commission Position on Business - Indemnification
Indemnification for Securities
Act Liabilities
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Subject to Completion June 4, 1996
EAST COAST CAPITAL COMPANY, LLC
(a New York Limited Liability Company)
$10,000,000
Series A Registered
Subordinated Debentures
$4,000,000 due 10/31/98
$6,000,000 due 6/30/01
Minimum Investment of $5,000 At Par
Minimum Offering: $1,000,000
EAST COAST CAPITAL COMPANY, LLC (the "Company") is a
recently formed New York Limited Liability Company which was
formed for the principal purpose of making real estate
mortgage loans and purchasing real estate mortgages. The
Company has had no business operations to date. See "The
Company's Business."
The Company is offering, through its Executives and Manager and
participating broker/dealers on an "all or none" basis as to $1,000,000 (Minimum
Offering") and on a "best efforts" basis, $9,000,000 aggregate principal amount
of its Series A Registered Subordinated Debentures (the "Debentures"). The
maximum offering is $10,000,000 ("Maximum Offering"). As more fully described
under "Description of Debentures", the Debentures will be issued in two
maturities: $4,000,000 due October 31, 1998 (the "1998 Debentures"): and
$6,000,000 due June 30, 2001 (the "2001 Debentures"). Interest on the Debentures
will be payable quarterly within five (5) business days following the end of
each calendar quarter from the date of issue of the Debentures, as set forth in
the following table:
1998 Debentures 2001 Debentures
Due Date Due Date
Maturity: ____ ____
Interest Rate: 9% 11%
The Debentures are unsecured debt obligations of the Company and will
be subordinated to all Senior Indebtedness (as hereinafter defined). There is no
limit to the amount of Senior Indebtedness to which the Debentures may be
subordinated. As of the date hereof there is no senior indebtedness to which the
Debentures are currently subordinated. However it is anticipated that the
Company may be able to borrow an amount equal to the amount of the Debentures
sold, to which the Debentures would be
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Information contained herein is subject to completion or amendment. A
registration statement relating to these activities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not consittute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any State.
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subordinated. No assurance can be given that the Company will be able to borrow
on this basis. The Debentures will be issued in fully registered form only in
denominations of $1,000 (with an initial minimum purchase of $5,000) and in
multiples thereof. Management of the Company reserves the right to purchase up
to 25% ($250,000) of the Debentures in order to meet the Minimum Offering. If
Management exercises this option the purchase of such Debentures will be for
investment purposes only and not for resale. All subscriptions shall be
non-revocable. See "Description of Debentures."
Prior to this Offering, there has been no public market for the
Debentures and it is not expected, that an active trading market for the
Debentures will develop or be sustained. The Debentures offered herein have not
been and will not be rated. For information regarding the factors considered in
determining the initial public offering price of the Debentures see "The
Offering". For information concerning a former bankruptcy proceeding
and litigation involving the Manager of the Company, see"Risk Factors", page 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. SEE "RISK FACTORS"
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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Price to Public Discounts and Proceeds to
Commissions(1) Company(3)
Per 1998 Debenture $ 5,000.00 $ 250.00 $ 4,750.00
Total 1998 Debentures(2) $ 4,000,000.00 $ 200,000.00 $ 3,800,000.00
Per 2001 Debenture $ 5,000.00 $ 400.00 $ 4,600.00
Total 20001 Debenture(2) $ 6,000,000.00 $ 480,000.00 $ 5,520,000.00
Total Offering(2) $10,000,000.00 $ 680,000.00 $ 9,320,000.00
(1) The Company will pay brokers a commission on the purchase
price of each Debenture sold up to 5 % of the 1998 Debentures
sold by them and 8% of the 2001 Debentures sold by them. The
registrant currently has no broker-dealers committed to sell
the Debentures. No commissions will be paid to employees and
Manager of the Company. See "Plan of Offering."
(2) The minimum amount of Debentures required to be sold prior to the
Termination Date is $1,000,000 in the aggregate, which may consist of
any of the Debentures or part thereof. The amount shown assumes all
Debentures offered will be sold.
(3) Before deducting the maximum commission of $680,000 referred
to in Note (1) above, and approximately $150,000 for certain
printing and other costs and expenses. If only the minimum
amount is sold the commission will be up to $80,000 and the
printing and other costs and expenses will be approximately
$140,000. See "Use of Proceeds."
, 1996
The Company intends to furnish annual reports to Debenture Holders
containing audited financial statements certified by independent certified
public accountants. The Company maintains offices at 110 East 59th Street, New
York, New York.
This Offering will terminate on , 1996, unless extended for an
additional six month period by the Company, with notice to subscribers to
_____________ 1997 (the "Termination Date"). Once the minimum Debentures have
been sold, no minimum number of Debentures must be purchased in order for a
closing under
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this Offering to occur. If the minimum number of Debentures is not sold by the
Termination Date, all investor funds will be returned promptly with interest.
The Company may close this Offering from time to time after the minimum has been
sold with respect to unsold Debentures and until the Termination Date. Until the
minimum is sold, all payments received will be held in escrow in an
interest-bearing account established by the Company through its attorneys
McLaughlin & Stern, LLP, as Escrow Agent with Chase Manhattan Bank, N.A., an
unaffiliated commercial bank. Interest earned, if any, on payments from
purchasers accepted by the Company will be remitted to such purchasers following
the closing with respect to the Debentures purchased by them. Interest earned,
if any, on payments from purchasers whose subscriptions are rejected will be
remitted to such purchasers promptly along with a refund of their payment. It is
expected that a purchaser will be issued the Debentures subscribed for within
five business days following the acceptance of a subscription by the Company. It
shall be a condition to the remittance of interest earned, if any, to a
subscriber that the subscriber furnish a completed and executed Form W-9 so that
any interest earned can be distributed to such subscriber may be properly
reported.
RISK FACTORS
The securities offered hereby are speculative in nature and involve a
high degree of risk. Prospective investors should thoroughly consider the
following factors, in addition to the other information contained in the
Prospectus.
Litigation Affecting the Manager. Norman Dansker, the Manager of the
Company was previously a co-general partner of Coronet Capital Company, a
company which was engaged in the mortgage finance business, which filed for
protection under the Federal bankruptcy laws and was subsequently discharged
in the bankruptcy proceeding. Mr. Dansker is currently one of several parties
involved in litigation related to said company as well as with the Federal
Deposit Insurance Corporation ("FDIC").
On November 2, 1992, Coronet Capital Company`s ("Coronet")bankruptcy
Trustee commenced an adversary proceeding in the United States Bankruptcy Court
for the Southern District of New York styled Arnold Haber, as Chapter 7 Trustee,
of Coronet Capital Company v. Norman Dansker,et al. (the "Trustee`s Action"),
Case No.
92-1078A FGC).
The Trustee's eleven-count complaint (the "Trustees Complaint")
alleged:
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(1) eight fraudulent conveyance claims (seven claims against
all defendants and one claim against Norman Dansker only and Royal Resources
Corporation ("Royal")) seeking the avoidance of $8,605,198 in pre-petition cash
distributions made by Coronet to its general partners, Norman Dansker and to its
limited partners in 1989 and 1990, and seeking to recover these amounts from
their respective direct and indirect recipients; (2) one count each of common
law waste and mismanagement, fraud, and breach of fiduciary duty against Norman
Dansker and others collectively the "Dansker Defendant.") seeking to recover "an
amount exceeding $30 million" on each claim for the losses that they allegedly
caused Coronet to sustain begining in 1989; and (3) all direct and indirect
compensation paid by Coronet to the Dansker Defendants in 1989 and 1990, in the
alleged amounts of $582,500 and $74,000, respectively, or $656,500 in the
aggregate.
Pursuant to a stipulation of settlement entered into on or about September
17, 1993, the Trustee settled all claims against the Dansker Defendants), for
which the Dansker Defendants paid the Trustee the aggregate amount of
$2,650,000.
In authorizing the stipulation of settlment and consenting to its terms,
the Dansker Defendants expressly did not acknowledge either liability for any of
the amounts claimed or the validity of any claims or allegations asserted by the
Trustee. Likewise, the Trustee did not acknowledge either the validity of any of
the defenses asserted by the Dansker Defendants or liability in respect of any
of their counterclaims or the validity of any of their claims or allegations.
On February 4, 1993, several groups of limited partners in Coronet jointly
filed an answer to the Trustee's Complaint and asserted cross-claims against the
Dansker Defendants.
On or about November 30, 1994, the Bankruptcy Court granted the Trustee's
application seeking an order severing and dismissing all claims asserted by and
against the Trustee or Coronet in the Trustee's Action from the Cross-Claims
and, inter alia, dismissed all claims asserted by the Trustee (including in the
Trustee's original Complaint and Amended Complaint) against all parties to the
Trustee's Action, including the Dansker Defendants.
With respect to the Cross-Claims remaining by certain investors in
Coronet, Mr. Dansker has informed the Company that he believes the claims to be
unfounded and intends to vigorously defend the action.
Norman Dansker is the sole Manager of the Company. He may not be removed
except for cause upon the unanimous consent of all three members of the Company.
Under New York Law, the Manager of a limited liability company is not subject to
attack by creditors,
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although his salary may be garnished in accordance with law.
In the event that a judgment is executed against any of the members of the
Company, the judgment creditor is solely entitled, upon application to court, to
a charging lien which does not provide any equitable rights against the Company
as set forth in the New York Limited Liability Company Act at section 607(b).
Federal Deposit Insurance Corporation ("FDIC")Litigation. In January 1996
The Federal Deposit Corporation, as receiver of First New York Bank for
Business, commenced an action in the United States District Court, Southern
District of New York against certain former directors, including Norman Dansker
as a director, alleging, among other things, breach of fiduciary duty, gross
negligence, negligence, negligence per se and other wrongful and improper
conduct which resulted in significant losses to First New York Bank for
Business. (Federal Deposit Insurance Corporation ("FDIC"), as Receiver of First
New York Bank for Business v. Bober, et al., 95 Civ. 9529, Southern District of
New York.) The Complaint alleges that the defendants breached their fiduciary
duty in connection with certain loans approved by the directors for the benefit
of insiders and their related interests. FDIC speculates this conduct, which it
claims continued despite regulator warnings, gave rise to losses exceeding
$25,000,000.00. The complaint includes allegations that improper loans were made
to entities related to Mr. Dansker, including Coronet Capital Co., Coronet
Properties Co. and others. Each count seeks in excess of twenty-five million
dollars, and the prayer for relief asks that each defendant be assessed his/her
appropriate share. Mr. Dansker has informed the Company that he believes the
claims to be unfounded and intends to vigorously defend the action. The time for
defendants to answer or respond to the complaint has not yet expired.
Risk Associated with Coronet Litigation. Even if a judgment is executed
against Mr. Dansker, the judgment creditor is solely entitled, upon application
to court, to a charging lien which does not provide any equitable rights against
the Company as set forth in the New York Limited Liability Company Act. Under
New York Law, the Manager of a limited liability company is not subject to
attack by creditors, although his salary may be garnished in accordance with
law.See "Risk Factors", page 7.
Lack of Operating History. The Company was formed in February,
1996. The Company was funded by a $250,000 cash investment and a
$4,000 receivable from its Members. Substantially all its capital,
together with the net proceeds of this Offering, will be used to
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make real estate loans and to acquire existing mortgages. See "Use of Proceeds."
Accordingly, the Company has no operating history on the basis of which
operating results can be predicted. There can be no assurance that the Company
will be capable of generating sufficient revenues to meet its debt service
requirements under the Indenture.
Lack of Operating Procedures. The Company does not have any formalized
operating procedures with respect to its business which could affect the way the
company does business in that it may make loans that do not follow a consistant
formulation.
General Risks of Financing on Real Estate. All Mortgage Loans are subject
to some degree of risk, including the risk of a default by the borrower on the
Mortgage Loans and the added responsibility on the part of the Company of
operating the property and/or foreclosing in order to protect its investment.
The borrower's ability to make payments due under a Mortgage Loan and the amount
the Company may realize after a default will be dependent upon the risks
generally associated with real estate investments, which are beyond the control
of the Company, including, without limitation, general or local economic
conditions, neighborhood values, interest rates, real estate tax rates, other
operating expenses, the supply of and demand for properties of the type
involved, the inability of the borrower to obtain or maintain full occupancy of
the property, zoning laws, rent control laws, environmental laws and
regulations, other governmental rules and fiscal policies and acts of God.
Proceeds Not Committed to Specific Investments. None of the net proceeds
of the Offering have yet been committed to specific investments by the Company.
Rather, the Company intends to use the proceeds to make Mortgage Loans and to
acquire Mortgage Loans in conformity with its mortgage investment policies. All
determinations concerning the use and investment of the proceeds will be made by
management of the Company. The specific characteristics of any such investments
are presently unknown and there is a greater degree of uncertainty concerning
the return on any such investments than would be the case if specific
investments were identified. The holders of Debentures will not have the
opportunity to evaluate any mortgages that may be acquired with the proceeds.
See "Use of Proceeds."
Reservation of Right to Purchase Debentures to Meet Minimum Offering.
Management of the Company has reserved the right to purchase up to 25%
($250,000) of the Debentures in order to meet the Minimum Offering required in
this offering. If Management exercises this option such purchase will be for
investment purposes only and not for resale.
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Risks of Non-Recourse Mortgages. Certain of the mortgages that may be made
or acquired by the Company with the proceeds of this Offering (and those it
expects to acquire or make in the future) may be either non-recourse or limited
recourse. Under the terms of a non-recourse mortgage, the Company must look
solely to its interest in the real property in the event of a default, and the
owner of the property subject to the mortgage has no personal obligation to pay
the debt which the mortgage secures. Thus, upon default, the Company's ability
to recover its investment is dependent solely upon the value of the property
which it sells upon foreclosure of its mortgage and the amount of Senior
Mortgages and liens, if any, which must be paid from the net proceeds. Under the
terms of a limited recourse mortgage, the owner has only a limited personal
obligation to pay the debt which the mortgage secures. Thus, upon default, the
Company could only hold the owner personally liable for a limited amount of any
deficiency after foreclosure.
Risks of Junior Mortgages and Wraparound Mortgages. Certain of the
mortgages that may be originated or acquired by the Company and Mortgage Loans
that may be made by the Company may be Junior Mortgages, including Wraparound
Mortgages, which will be subordinate to the liens of Senior Mortgages. If the
owner of a mortgaged property fails to make a payment due on a Senior Mortgage
where the Company is the owner of the Junior Mortgage, the holder of the Senior
Mortgage may commence foreclosure proceedings. There can be no assurance that
the Company will have funds available to cure a default on the Senior Mortgage
in order to prevent foreclosure on such Senior Mortgage. In the event of a
foreclosure on the Senior Mortgage, the Company as the owner of the Junior
Mortgage will only be entitled to share in the proceeds after satisfaction of
the amounts due to senior lienholders. The proceeds realized on such foreclosure
may be insufficient to pay all sums due on the Senior Mortgage, other senior
liens and on the Junior Mortgage held by the Company. It is also possible that
in some cases the "due-on-sale" clause included in the Senior Mortgage, which
accelerates the amount due under the Senior Mortgage in case of the sale of the
property, may be deemed to apply to the sale of the property upon foreclosure by
the Company of its Junior Mortgage, and may accordingly increase the risks to
the Company in the event of a default by the borrower on its Junior Mortgages.
Certain of the mortgages to be made or acquired by the Company may be
Wraparound Mortgages, under which the outstanding principal balance of the
Wraparound Mortgage includes the outstanding principal balance of one or more
mortgages owed to another party or parties, with the Company required to make
any payments due on such Senior Mortgages from the payments received on the
Wraparound Mortgage. Wraparound Mortgages may entail greater risk than if they
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were first mortgages. If the owner of the mortgaged property fails to make a
payment on the Wraparound Mortgage owned by the Company with the result that the
Company in turn fails to make the corresponding payment due on the Senior
Mortgages, the holder of the Senior Mortgage may commence foreclosure
proceedings. In such event, if the proceeds realized on such foreclosure are
insufficient to pay all sums due on the Senior Mortgages and on the Wraparound
Mortgage held by the Company, the Company could lose part or all of its
investment.
Risks of Balloon Payments. Certain of the mortgages that may be acquired
by the Company or Mortgage Loans made by the Company may have balloon payments
due at the time of their maturity which must be repaid in full by refinancing or
otherwise. Volatile interest rates and/or erratic credit conditions and supply
of mortgage funds at the time such balloon payments are due may cause
refinancing by the borrowers to be difficult or impossible, regardless of the
market value of the collateral at that time. In the event that the borrowers are
unable to pay such balloon payments (by refinancing or otherwise), the holders
of any Senior Mortgages can foreclose.
Default by Mortgagor and Foreclosure. In the event of a default on a
mortgage which requires the Company to foreclose upon the property or otherwise
pursue its remedies in order to protect its investment, the Company may seek to
obtain a purchaser for the property upon such terms as it deems reasonable.
However, there can be no assurance that the amount realized upon any such sale
of the underlying property will result in financial profit or prevent loss to
the Company.
In the event of a default under the mortgagor's obligation to the Company,
the Company may experience delays in enforcing its rights as mortgagee and may
incur substantial costs associated with protecting its investment or may renew
or extend a loan if the Company decides it is in its best interest. The Company
may be required to acquire title to or reacquire possession of a property and
thereafter to make substantial improvements or repairs in order to maximize the
property's value. In such circumstances, the Company may not ultimately be able
to recover its investment.
Risk of Renovation Lending . The Company may make loans relating to
properties that will be renovated. In connection with such properties, the
Company may advance on a secured basis a portion or all of the costs of
renovations and will be dependent upon the owner of the property to fulfill its
obligations, including the completion of the renovations. Such owner's ability
to carry out its obligations may be affected by financial and other conditions
beyond the control of the Company, in which case it is possible that all or part
of the funds advanced by the Company to the owner
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would be lost.
Risks of Joint Ventures. Instead of making loans directly, the Company
may, as a co-venturer or partner with other persons or entities, contribute
funds to a joint venture or partnership which makes loans. Such investments may
under certain circumstances involve risks not otherwise present, including the
possibility that the Company's co-venturers or partners in a loan might die or
become insolvent or bankrupt, that such co-venturers or partners may from time
to time have economic or business interests or goals which are inconsistent with
the business interests or goals of the Company, or that such co-venturers or
partners may be in a position to take action contrary to the instructions or the
requests of the Company or contrary to the Company's objectives.
Risks of Leverage. The Company intends to borrow to leverage its
investments, either on a recourse or non-recourse basis, with such debt to be
senior to the Debentures. The Company intends to do so by entering into and
drawing down upon bank lines of credit, short-term and/or long-term loans and,
if feasible, in the future may do so through the issuance of additional debt
securities of the Company. No bank lines currently exist. There can, however, be
no assurance as to the terms or availability of credit. As a general pattern,
the Company intends to borrow funds on a short-term variable rate basis. Such
short-term interest rates, which are subject to great fluctuation, are a cost of
borrowing over which the Company has no control, and any increase therein could
materially adversely affect the Company's earnings or increase losses and thus
affect the Company's ability to meet its obligations under the Debentures as
they become due. As of the date hereof the Company does not have any
understandings or arrangements for borrowing. No assurance can be given that the
Company will be able to borrow any funds. THE EFFECT OF BORROWING BY THE COMPANY
IN GENERAL WILL BE TO INCREASE THE COMPANY'S EXPOSURE TO RISK OF LOSS.
Economic Conditions. The real estate industry in general and the kinds of
investments which will be made by the Company in particular may be affected by
prevailing interest rates, the availability of funds and the generally
prevailing economic environment. During the past few years, there have been wide
fluctuations in money market conditions and interest rates charged on loans,
including real estate loans. Because of the high interest rates and tight money
conditions in the early 1980's, returns on mortgage loans were substantially
higher than they are now. The potential returns available on the types of
investments to be made by the Company are lower during periods such as the
present one when funds are more readily available for financing. However, the
direction of future interest rates is difficult to predict. The
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properties underlying the Company's mortgage loans will also be affected by
prevailing economic conditions and the same factors noted in "Risks of Ownership
of Real Property" below which may affect the borrower's ability to repay. The
Company is unable to predict what effect, if any, the prevailing economic
conditions will have on its ability to make Mortgage Loans or on the operations
of the properties subject to its investments or its own real property.
Event Risks. There are certain economic risks associated with investing in
the Debentures, including the risk of default by the borrower on Mortgage Loans
resulting in foreclosure or other uncertainties regarding the availability of
financing therefor. Moreover, there are risks associated with debt instruments
as well as the risks of cross-default on the obligations of the Issuer resulting
from an indenture default.
Concentration of Risks. The mortgages the Company intends to make or
purchase with the proceeds of this Offering will likely be concentrated in the
New York metropolitan area. The relative lack of diversification of the
Company's expected loan portfolio could have a serious detrimental effect on the
value of such portfolio in the event of a downturn in this area's market causing
the properties underlying the Mortgages not to have sufficient value to provide
for repayment of the Mortgage Loans upon a foreclosure.
Competition. In connection with the making of investments, the Company may
experience significant competition from banks, insurance companies, savings and
loan associations, mortgage bankers, pension funds, real estate investment
trusts, limited partnerships and other lenders, mortgage brokers and investors
engaged in purchasing mortgages or making real property investments with
investment objectives similar in whole or in part to those of the Company
including competition with certain related entities. Many of these competitors
have substantially greater resources than the Company and some have
substantially greater experience than the Company and their affiliates. An
increase in the general availability of funds may increase competition in the
making of investments in mortgages and real property and may reduce the yields
available therefrom.
Usury Laws. In many states, loans (including mortgage loans) are subject
to statutory restrictions limiting interest charges which, if such statutory
restrictions are exceeded, may impose penalties in amounts substantially in
excess of interest received and, in some cases, may affect enforceability of the
obligation to pay principal and interest and/or constitute a criminal offense.
Such laws may prevent the Company from collecting on loans at rates as high as
the rate the mortgagor agreed to pay.
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Moreover, it is possible that a Mortgage Loan which the
Company believes is governed by the laws of a particular state with a liberal
usury law or no usury law (where, for example, no interest ceiling is imposed)
would be held by a court in litigation concerning the loan to be governed by the
laws of another state with a much more restrictive usury law. In such a case, if
the rate of interest on the loan exceeded the allowable rate in the latter
state, the Company might be subject to penalties such as those described above.
The law in this area is complex and legal uncertainties may arise in determining
the application of or compliance with usury laws of many states. Accordingly,
there can be no assurance that some of the interest, charges and fees which the
Company receives on its investments may not be held to be usurious.
Risks of Ownership of Real Property. The Company will also be subject to
the risks inherent in the ownership of interests in any commercial, industrial,
retail and residential properties which it acquires in the foreclosure process,
including, without limitation, fluctuations in occupancy rates and operating
expenses, variations in rental schedules, the character of the tenancy and the
possible effect on the cash flow from a property if its tenants incur financial
difficulties. Such events may, in turn, be adversely affected by general and
local economic conditions, the supply of and demand for properties of the type
in which the Company invests, zoning laws, federal and local rent controls,
federal and local environmental protection laws, including, without limitation,
laws relating to the use and maintenance of asbestos and lead paint, other laws
and regulations, real property tax rates and water and sewer charges. Certain
expenditures associated with real estate equity investments (principally real
estate taxes and maintenance and operating costs) are not necessarily decreased
by events adversely affecting the Company's income from such investments. Thus,
the cost of operating a real property may exceed the rental income earned
thereon, and the Company may have to advance funds in order to protect its
investment or may be required to dispose of the real property at a loss. The
Company's ability to meet its debt and other obligations will depend in part on
these factors, and for these and other reasons, there is no assurance that the
Company will be able to meet its obligations under the Debentures as they become
due.
Hazardous Waste and Environmental Liens. Federal and state statutes impose
liability on property owners or operators for the clean-up or removal of
hazardous substances found on their property. Courts have extended this
liability in some cases to lenders who have obtained title to such properties
through foreclosure. Additionally, such statutes allow the government to
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place liens for such liability against affected properties which liens will be
senior in priority to other liens, including mortgages against the properties.
Although courts have yet to assess direct liability against lenders prior to
foreclosure for environmental hazards and present federal law expressly exempts
such assessment, state laws in this area are constantly evolving, and
legislation imposing direct liability against lenders could possibly be enacted
in the future. The Company intends to monitor such laws and take commercially
reasonable steps to protect itself from the impact thereof including conducting
environmental tests and other due diligence requirements; however, there can be
no assurance that the Company will be fully protected from the impact of such
laws.
Percentage of Funds Invested in Mortgages. The success of the Company, in
large part, will depend on its ability to keep its assets invested in mortgages.
The Company may be unable to keep the optimum percentage of its assets so
invested, which may result in lower income from the investment of its assets in
other investments and thus diminish its ability to meet its commitments on the
Debentures.
Reserves. Initially the Company proposes to reserve 1% of the loans
originated. To the extent that reserves maintained by the Company are not
sufficient to defray expenses and carrying costs which exceed the income of the
Company, it will be necessary to attempt to borrow such amounts. In the event
financing is not available on acceptable terms, the Company may be forced to
liquidate certain investments on terms which may not be favorable to it. In
either event it may diminish the Company's ability to meet its obligations under
the Debentures as they become due.
Reliance on Management: Unspecified Investments. All decisions with
respect to the management of the Company will be made exclusively by the
Executives and Manager of the Company. Holders of the Debentures have no right
or power to take part in the management of the Company. Accordingly, no person
should purchase Debentures unless one is willing to entrust all aspects of the
management of the Company to its Executives and Manager. The Executives and
Manager of the Company will have complete discretion in making investments. Even
though the Company intends to make loans based on an income stream as opposed to
the market value of assets, there is nothing in the governing instruments which
prohibit the Company from investing in mortgages based on market asset
value.Prospective investors will, therefore, be entirely reliant on the
Executives and Manager of the Company and will not be able to evaluate for
themselves the merits of proposed mortgage investments. See "Management."
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Management and Control of Company. The Company is controlled by
Norman Dansker. Mr. Dansker may not be removed except for cause
upon unanimous consent of all members of the Company. Mr.
Dansker's ownership of the Company is not at risk by reason of the
pending litigation under the New York Limited Liability law.
However, the time required to defend these lawsuits could interfere with the
time available to him to manage the affairs of the Company. See
"Management".
Conflicts of Interest. To the extent that there are conflicts of interest
inherent in dealings between the Company, its Management and its Affiliates,
such conflicts will not be resolved by arm's-length bargaining. At the present
time the Company does not intend to engage in transactions with affiliates. If
it should do so the Company shall engage in such activities on a competitive
basis in accordance with industry standards. No assurance can be given that such
conflicts, if any, will be resolved in the manner most favorable to the Company
or that the Company will pursue any rights or remedies which it may have against
its Management or such Affiliate. See "Certain Transactions."
The Management of the Company may not be spending full time, in connection
with the Company activities and they may be actively engaged in other ventures,
some which may be in competition with the Company. Management will devote such
time as it determines will be necessary for the operation of the Company's
business. It is anticipated that each of the Key Executives will devote the
following percentage of their time to the operation of the Company's business:
Norman Dansker - 50%, Barry M. Bloom - 90%, and Mitchell H. Gordon - 30%. See
"Management."
In connection with the origination and purchase and/or servicing
of the mortgages, the Company may be paying brokerage and mortgage
servicing fees to Affiliates of the Company. See "Certain
Transactions."
Subordination. The indebtedness evidenced by the Debentures is unsecured
and is subordinate to the prior payment when due of the principal of, and
premium, if any, and interest on, all Senior Indebtedness (as defined in the
Debentures), whether outstanding prior to their issuance or thereafter incurred
or created. There is no limitation on the Company's ability to incur Senior
Indebtedness. Upon any distribution of assets of the Company in any dissolution,
winding up, liquidation or reorganization of the Company, payment of the
principal of and interest on the Debentures will be subordinated to the prior
payment in full of all Senior Indebtedness. By reason of such subordination, in
the event of the Company's insolvency, holders of Senior Indebtedness may
receive more, ratably, and holders of the Debentures may receive less,
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ratably, than the other creditors of the Company. See "Description
of Debentures -- Subordination."
Dependence on Key Personnel. The Company is dependent on the
services of Norman Dansker, its Manager. The loss of his services
could have a material adverse effect upon the Company. The
Company's success is also dependent on its ability to recruit and
retain additional experienced personnel of which there can be no
assurance. See "Management".
No Sinking Fund or Security. There is no sinking fund for retirement of
the Debentures at or prior to their maturity. The Company anticipates that it
will redeem the Debentures at maturity, at par, from the Company's working
capital, or from the proceeds of a refinancing of the Debentures, but no
assurance can be given that the Company will have sufficient available funds to
make such redemption. Debenture holders may not look to profit distributions to
members of the Company if any are made in prior years as a source for redemption
of Debentures unless the Company can be shown to have been insolvent at the time
of such prior distributions. The Debentures are unsecured obligations of the
Company.
Best Efforts Offering. No commitment exists on the part of any
person to purchase all or any part of the Debentures offered hereby
and, therefore, no assurance can be given that any such Debentures
will be sold. If at least $1,000,000 of Debentures are not sold by
the Termination Date, all subscription funds will be promptly
refunded to subscribers, with interest in proportion to the amount
paid and without regard to the date paid. See "Plan of Offering."
Absence of Public Market. Prior to this Offering, there has been no public
market for the Company's Debentures. There can be no assurance, and it is not
expected, that an active trading market for such securities will develop or be
sustained. The Debentures have not been and will not be rated. Investors must
anticipate that they may have an ill-liquid investment for the term of the
Debentures.
Possible Volatility of Market Price. The market price of the Company's
Debentures following this Offering may be volatile. The purchase price for the
Debentures and other terms of the Debentures were determined arbitrarily by the
Company, are not necessarily related to the assets, book value, earnings or net
worth of the Company or any other established criterion of value, and should in
no event be regarded as an indication of any future market price of the
securities offered hereby.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements (including the Notes thereto) appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety.
The Company
East Coast Capital Company, LLC (the "Company") is a New York Limited
Liability Company formed on February 1, 1996 for the principal purpose of making
real estate loans and purchasing real estate mortgages. The Company has had no
operations to date. The Company maintains its office at 110 East 59th Street,
New York, New York 10022, and its telephone number is (212) 909-0500.
In general, the loans that the Company will acquire or make will be
short-term bridge loans of one to three years secured primarily by mortgages on
income producing multi-family residential or income producing commercial
properties. The Company's mortgage loans may include: (i) wraparound mortgage
loans; (ii) junior mortgage loans; and (iii) first mortgage loans.
The Company's investments in Mortgages are selected by the management of
the Company ("Management"). The Company has not adopted any formal policy
regarding the percentage of the Company's assets which may be invested in any
single mortgage, or type of mortgage, or regarding the geographic location of
properties which constitute security for the mortgages. The Company will
determine the suitability of the making or acquisition of a particular loan
after reviewing, on a loan-by-loan basis, such factors as the loan-to-value
ratio, the loan's expected yield and the borrower's experience and financial
ability. See "Business."
The initial mortgages the Company intends to make or purchase on income
producing properties with the net proceeds of this Offering will likely be
concentrated in the New York metropolitan area. In the future, the Company may
attempt to diversify its mortgage portfolio by expanding into additional
geographical areas and markets, but there can be no assurance that the Company
will be successful in this objective.
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The Company intends to leverage its investments by borrowing additional
funds. It is contemplated that such borrowing will be under lines of credit that
the Company will seek to obtain from banks. The Company has not yet established
any line of credit with any banks at this time and the Company cannot anticipate
what the terms of such credit lines will be. See "Business."
There are certain economic risks associated with investing in the
Debentures, including the risk of default by the borrower on certain Mortgage
Loans resulting in foreclosure, or other uncertainties regarding the
availability of financing therefor. Moreover, there are risks associated with
debt instruments as well as the risks of cross-default on the obligations of the
Issuer resulting from an indenture default. See "Risk Factors."
Securities Offered
The Company is offering, through its Executives and Manager and
participating broker/dealers on an "all or none" basis as to $1,000,000 and on a
"best efforts" basis, $9,000,000 aggregate principal amount of its Series A
Registered Subordinated Debentures (the "Debentures"). As more fully described
under "Description of Debentures," the Debentures will be issued in two
maturities: $4,000,000 due October 31, 1998 (the "1998 Debentures") and
$6,000,000 due June 30, 2001 (the "2001 Debentures"). Interest on the Debentures
will be payable quarterly within five (5) business days following the end of
each calendar quarter from the date of issue of the Debentures, at the rate set
forth in the following table:
1998 Debentures 2001 Debentures
Due Date Due Date
Maturity: _____ _____
Interest Rate: 9% 11%
The Debentures are unsecured debt obligations of the Company and
will be subordinated to all Senior Indebtedness (as hereinafter
defined). There is no limit to the amount of Senior Indebtedness to
which the Debentures may be subordinated. The Debentures will be
issued in fully registered form only in denominations of $1,000 and
in multiples thereof. See "Description of Debentures."
Debentures outstanding prior to Offering....... -0-
Debentures to be outstanding after Offering.... $10,000,000
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Reservation of Debentures to Meet Minimum
Management of the Company has reserved the right to purchase up to 25%
($250,000) of the Debentures in order to meet the Minimum Offering. If
Management exercises this option such purchases will be for investment purposes
only and not for resale.
Use of Proceeds
The Company intends to apply the net proceeds of this Offering
to make short-term mortgage loans and to purchase existing
mortgages. See "Use of Proceeds."
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Summary Financial Information
The summary financial information set forth below is derived from the
Company's Financial Statements appearing elsewhere in this Prospectus. This
information should be read in conjunction with such financial statements,
including the notes thereto.
BALANCE SHEET
FEBRUARY 28, 1996
ASSETS
Cash $ 220,947
Organization costs 13,053
Offering costs 25,000
----------
$ 259,000
LIABILITIES AND MEMBERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 9,000
----------
Members' equity
Total members' equity 254,000
Less - Receivable from members 4,000
250,000
$ 259,000
The accompanying notes are an integral part of this balance sheet.
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USE OF PROCEEDS
Minimum Percentage Maximum Percentage
Offering of Proceeds Offering of Proceeds
GROSS PROCEEDS FROM
SALE OF Debentures $ 1,000,000 100% $10,000,000 100%
LESS:
(i) Commissions 80,000 6.8% 680,000 8%
(ii) Costs and Expenses
of Offering 140,000 1.45% 150,000 14%
-------- ----------
NET PROCEEDS FROM
SALE OF DEBENTURES $ 780,000 91.75% $9,170,000 78%
No allocation can be made between amounts allocated for Mortgage Loans and
purchasing of exiting mortgages as that will be in the sole discretion of the
Management.
Pending investment of the net proceeds as specified above, the Company
plans to invest such proceeds which are not invested in Mortgage Loans, in
highly liquid sources, such as interest-bearing bank accounts, bank certificates
of deposit or other short term money market instruments. It is presently
anticipated that such short term investments would be for a period not in excess
of six months, although such time could be extended if appropriate mortgages are
not identified for investment.
In the event that any mortgage is subsequently refinanced, any proceeds
received therefrom will become part of the working capital of the Company and
will be available for reinvestment.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of
February 28, 1996, and as adjusted to reflect the sale by the Company of the
$10,000,000 principal amount of Debentures being offered hereby.
February 28, 1996
Actual As Adjusted
Long-term debt - Outstanding debentures $ - $ 1,000,000(1)
Members' equity, net of $4,000
receivable from Members 250,000 250,000
---------- ----------
Total capitalization $ 250,000 $ 1,250,000
========== ===========
- -----------------------
(1) Assumes only the minimum Offering of Debentures offered hereby are
sold. See "Description of Debentures" for the terms hereof.
DIVIDEND POLICY
No distributions (dividends) have been declared by the Company to date and
the Manager has no current intention to declare or pay dividends in the
foreseeable future. Management intends to reinvest earnings, if any, in the
development and expansion of the Company's business. Any future declaration of
cash distributions (dividends) will be at the discretion of the Manager and will
depend upon the earnings, capital requirements and financial position of the
Company, general economic conditions and other pertinent factors. Dividends or
distributions, if any, will have no effect on Debentures or Debenture Holders.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Operations
The Company has not as yet had any operations and will be dependent upon
proceeds realized from the sale of Debentures to carry on any activity. The
Company intends to apply the net proceeds of this offering to make short-term
mortgage loans and to purchase existing mortgages.
Liquidity and Capital Resources
The success of the Company will depend on its ability to keep its assets
invested in mortgages. To the extent that the income from the investments of the
Company is unable to satisfy the cash requirements of the Company, it is
anticipated that additional funds may be borrowed.
BUSINESS
General
The Company is a recently formed Limited Liability Company under the laws
of the State of New York, which was formed for the principal purpose of making
real estate mortgage loans and purchasing real estate mortgages. The Company
proposes to take advantage of the market opportunity to make primarily small
balance (generally below $1 million) short-term bridge loans secured by
mortgages on income producing multi-family residential and income producing
commercial properties in the New York metropolitan area. Although the Company
presently anticipates that its average loan will be in the $500,000 range, it
may commit to make loans in excess of that amount. The Company may originate
loans in excess of $1 million and fund all or a portion of such loans if
Management believes that participations in such loans to the extent deemed
advantageous, can be sold. The Company has not yet commenced its business
operations. The Company has not conducted any market research or feasibility
studies concerning its proposed business activities. The Company believes
however that there is a market for its proposed business based on inquiries it
has received from individuals and companies seeking short-term financing.
The Company intends to purchase mortgages and make Mortgage Loans on
income producing properties using the net proceeds of this Offering, the
proceeds of institutional borrowing, internally generated funds and existing
capital.
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Policy with Respect to Certain Activities
The Company shall have the right to issue additional securities senior to
the Debentures as set forth in the Indenture.
The Company proposes to borrow based upon bank lines of credit as such
lines may be established in the future. No bank lines currently exist and no
assurance can be given that the Company will be able to borrow or borrow on
commercially feasible terms. The Company estimates that such future lines of
credit will be based on the amount of money raised through the sale of the
Debentures. No assurance can be given that the Company will be able to borrow
any funds.
The Company expects to make only mortgage loans as set forth herein, See
"Types of Loans", and does not expect to invest in securities of other issuers
for the purpose of exercising control or to underwrite the securities of other
issuers. Additionally, the Company does not expect to offer securities in
exchange for property or to engage in the purchase and sale or turnover of
investments, except as such would be incidental to selling, originating, or
liquidating the Mortgage Loans made by the Company.
Except as provided in the Indenture with respect to redemption, the
Company does not intend to repurchase or otherwise reacquire the Debentures
offered herein. The Company intends to furnish annual reports to Debenture
Holders containing audited financial statements certified by independent
certified public accountants.
The Company has the right to change its policies with respect to the
foregoing activities without a vote of the Debenture Holders except as provided
in the Indenture.
Types of Loans
In general, the loans that the Company will acquire or make will be
short-term bridge loans of one to three years secured primarily by mortgages on
income producing multi-family residential or income producing commercial
properties. The Company may make loans to co-op properties if there is adequate
collateral and/or income to support such loans. The Company's Mortgage Loans
will include: (i) wraparound mortgage loans; (ii) junior mortgage loans; and
(iii) first mortgage loans.
Typical bridge loan borrowers are owners and purchasers of residential and
commercial income producing properties who cannot qualify for institutional
funding within the time necessary to close a transaction; who may not come
within the credit or current
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income guidelines for institutional financing; or who need funds for temporary
business or property improvements before refinancing with an institutional
lender.
Nature of Loans
The Company's Mortgage Loans will be secured by either First Mortgages,
Junior Mortgages or Wraparound Mortgages. A First Mortgage is a lien on real
property which must be satisfied prior to the repayment of all other Mortgages
on such property. A Junior Mortgage is a Mortgage which is satisfied only after
the satisfaction of at least one other Mortgage which possesses a superior lien
on such property. The Mortgage which has a prior lien on such property is known
as a Senior Mortgage. A Wraparound Mortgage is a Junior Mortgage which includes
and wraps around all Senior Mortgages on the property and pursuant to which the
Wraparound Mortgage lender agrees to service the Senior Mortgages on the
property.
Some of the mortgages that may be made or acquired by the Company with the
net proceeds of this Offering may be either non-recourse or limited recourse.
Under the terms of a non-recourse mortgage, the borrower has no personal
obligation to pay the debt which the mortgage secures and under the terms of a
limited recourse mortgage, the borrower has only a limited personal obligation
to pay the debt which the mortgage secures. Thus, upon default, the Company's
ability to recover its investment is dependent upon the value of the property
which the mortgage secures. In some instances the Company may make or acquire
both long-term and short-term Mortgage Loans. The Company anticipates its
Mortgage Loans will typically mature in approximately one to three years.
However, the Company may also invest in Mortgage Loans with shorter or longer
maturities and then reinvest the proceeds from such Mortgage Loans to acquire or
make additional Mortgage Loans. The Company anticipates that generally its
Mortgage Loans will provide for balloon payments due at the time of maturity.
In certain instances the Company may make or acquire an Accrual Mortgage
Loan. Under an Accrual Mortgage Loan a portion, or all, of the interest thereon
is accrued, but not paid, until maturity or other specified events. In certain
instances the Company may make or acquire Mortgage Loans with contingent
interest. These loans provide for a contingent interest to the Company which is
in addition to repayment of principal and ordinary interest calculated solely on
the outstanding principal balance of such Mortgage Loan. For example, the
contingent interest may include a right to receive an amount equal to a share of
the profit on the sale of the real
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estate which is the subject of the Mortgage Loan with contingent
interest.
Mortgage Investment Policy
The Company's investments in Mortgages are selected by the management of
the Company ("Management"). The Company has not adopted any formal policy
regarding the percentage of the Company's assets which may be invested in any
single mortgage, or type of mortgage, or regarding the geographic location of
properties which constitute security for the mortgages. The Company will
determine the suitability of the making or acquisition of a particular loan
after reviewing, on a loan-by-loan basis, such factors as the loan-to-value
ratio, the loan's expected yield and the borrower's experience and financial
ability. The importance given to any particular factor varies from loan to loan.
The loan-to-value ratio of a loan is the ratio between the principal amount of
the Loan and the value of the property which the Mortgage secures. The Company
may make loans having loan-to-value ratios generally of up to 85%, but in some
cases the ratio may be higher.
When deemed necessary, before making a Mortgage Loan or purchasing a
Mortgage, Management may obtain a third party appraisal of the property to be
secured by the Mortgage. These appraisals will normally be conducted by members
of the Appraisal Institute and will be of the type required by institutional
lenders prior to making or purchasing a participation in a Mortgage Loan.
Management also will normally conduct on-site inspections prior to making or
purchasing Mortgage Loans.
The initial mortgages the Company intends to make or purchase on income
producing properties with the net proceeds of this Offering will likely be
concentrated in the New York metropolitan area. In the future, the Company may
attempt to diversify its mortgage portfolio by expanding into additional
geographical areas and markets, but there can be no assurance that the Company
will be successful in this objective.
There is no limitation on the dollar amount of loans that may be made by
the Company. The Company's present expectation is that its average loan will be
in the $500,000 range, but it may make larger loans. In some instances, the
Company may make or acquire Mortgage Loans as a participant in a joint venture,
partnership, tenancy in common or similar arrangements in order to spread the
risk associated with large loans.
The Company intends to leverage its investments by borrowing
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additional funds. It is contemplated that such borrowing will be under lines of
credit that the Company will seek to obtain from banks. The Company has not yet
established any line of credit with any banks at this time and the Company
cannot anticipate what the terms of such credit lines will be. No assurance can
be given that the Company will be able to leverage its investments by borrowings
or otherwise.
The Company has no established restrictions on the loans it may make or
acquire.
Operation and Business Policies
The Company`s proposed loans will be concentrated on existing income
producing properties and will be based on amounts which existing debt service
coverage can support. The Company will focus on the existing income of a
particular property, not the projected income, when determining whether or not
to make a loan.
The basis and criteria upon which loans will be made is as follows: The
Company will process each loan application to determine if location, net
operating income ("NOI"), and building condition justify the loan request. The
criteria to be evaluated will be income and expenses, engineer's reports,
environmental audits, market value assessment, method of proposed repayment,
credit and experience of borrower, and the availability of additional
collateral. The Company will make its loans in an amount which it believes can
be repaid either from refinancing or sale.
Even though the Company intends to make loans based on income stream as
opposed to the market value of assets, there is nothing in the governing
instruments which prohibit the Company from investing in mortgages based on
market asset value.
Coronet Capital Distinguished
The operation and the business of the Company and Coronet are not similar.
Approximately 65% of the total principal of the Coronet partnership was invested
in co-op conversion, unsold share, sponsor-financing loans, and single family,
land, construction, and non-real estate loans. The ability of borrowers to repay
these loans was not supported by the existing cash flow of the property
financed. Rather, repayment was made through interest reserves funded by the
lender and principal repayment was based upon the sale of the mortgaged asset at
projected market values set forth in appraisals.
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Effect of Government Regulation
Investment in mortgages on real properties presently may be impacted by
government regulation in several ways. Residential properties may be subject to
rent control and rent stabilization laws. As a consequence, the owner of the
property may be restricted in its ability to raise the rents on apartments. If
real estate taxes, fuel costs and maintenance of and repairs to the property
were to increase substantially, and such increases could not be offset by
increases in rental income, the ability of the owner of the property to make the
payments due on the mortgage as and when they are due might be adversely
affected.
Laws and regulations relating to asbestos and lead paint have been adopted
in many jurisdictions, including New York City, which require that whenever any
work is undertaken in a property in an area in which asbestos is present, the
asbestos must be removed or encapsulated in accordance with such applicable
local and federal laws and regulations and proper disclosure of lead paint must
be made if the same is present. The cost of asbestos removal or encapsulation
may be substantial, and if there were not sufficient cash flow from the
property, after debt service on mortgages, to fund the required work, and the
owner of the property fails to fund such work from other sources, the value of
the property could be adversely affected, with consequent impairment of the
security for the Mortgage Loan.
Laws regulating the storage, disposal and clean up of hazardous or toxic
substances at real property have been adopted at the federal, state and local
levels. Such laws may impose a lien on the real property superior to any
mortgages on the property. In the event such a lien were imposed on any property
which serves as security for a mortgage owned by the Company, the security for
such loan could be impaired.
Indemnification
Pursuant to the Operating Agreement of the Company, the Company may
indemnify certain employees and manager of the Company against judgments, fines,
amounts paid in settlement and reasonable expenses, including attorney's fees,
actually and necessarily incurred by such certain employees or manager as a
result of any action or proceeding, or any appeal therein, to the extent such
indemnification is permitted under the laws of the State of New York (in which
the Company is incorporated). Insofar as indemnification for liabilities under
the Securities Act of 1933 may be permitted to manager, officers or persons
controlling the
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Company pursuant to the foregoing provisions, the Company has been informed 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.
The Company believes that the proceeds from this offering will satisfy
cash requirements for at least the period through the first six months of the
next fiscal year. It does not believe it will be necessary to raise additional
funds to meet the expenditures required for operating the business in the next
six months. However, the Company may decide to sell additional debentures within
the next six months to meet a market demand for its short-term mortgage product.
The Company believes that it is in the position to control certain expenses,
internal legal fees, and bank borrowing costs relating to the business operation
at levels which will be in line with projected revenue from interest and income
earned from mortgage brokerage fees.
The Company does not plan to pursue any material product research or
development. Its business plan is based on the financial condition of the
general economy as it affects the demand for short-term loans for income
producing properties. The Company proposes to maintain a presence in the local
market with real estate brokers and other professionals in the real estate
lending industry.
The Company does not anticipate any material acquisition of any plant or
equipment, nor does it anticipate any material change in the number of employees
in its various departments. However, depending on the volume of loans originated
the Company may consider expanding its mortgage origination or other similar
departments.
The Company's plan of operation for the remainder of this fiscal year and
for the first six months of next year is conditioned on its ability to close
under the proposed offering of debentures.
MANAGEMENT
General
The business of the Company will be managed by the Management which has
full authority to act on behalf of the Company in all matters relating to
Company activities.
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The following are the Manager and Key Executives of the Company:
Manager
Name Age Position
Norman Dansker 71 Chief Executive
and Financial
Executive and
Manager
Key Executives
Barry M. Bloom 59 Chief Operating Executive
Mitchell H. Gordon 46 Senior Administrator
The Management of the Company may not be spending full time, in
connection with the Company activities and they may be actively engaged in other
ventures, some which may be in competition with the Company. Management will
devote such time as it determines will be necessary for the operation of the
Company's business. It is anticipated that each of the Key Executives will
devote the following percentage of their time to the operation of the Company's
business: Norman Dansker - 50%, Barry M. Bloom - 90%, and
Mitchell H. Gordon - 30%.
The background and experience of the Manager and Key Executives of the
Company are as follows:
Norman Dansker has been a principal in real estate investments throughout
the United States for over 50 years. During this time, his business activities
have included buying and/or selling residential apartment buildings, office
buildings, shopping centers and undeveloped land and, to a limited extent, the
operation of companies engaged in real estate construction. His companies have
converted numerous apartment buildings into cooperatives and condominiums
encompassing thousands of apartment units. In connection with all such
activities, he has had extensive experience in the creation of various forms of
real estate financing. Such experience includes mortgage lending activities,
such as conventional mortgage loans, mortgage loans with contingent interest,
conversion and/or accrual features, first mortgage loans, junior mortgage loans,
and wraparound mortgage loans, as well as various forms of unsecured real estate
financing. Mr. Dansker received an honorary Doctor of Laws degree from Molloy
College in 1990. He has served as a member of the Board of Trustees of Molloy
College and on the Board of The American Friends of The Rambam Medical Center in
Haifa, Israel.
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Key Executives
Barry M. Bloom received his Bachelor of Arts degree from Cornell
University and his law degree from the Harvard law School and is admitted to
practice as an attorney in the State of New York. Over the past 30 years he has
specialized in real estate, commercial mortgage lending and liquidation
procedures both as an attorney and in executive positions with mortgage finance
companies. He was a former Assistant United States Attorney and an associate of
the law firm of Rosenman Colin Kaye Petschek & Freund. Mr. Bloom founded Bloom
Funding Co., Inc. in 1970, an approved Federal Housing Administration mortgage
company which originated mortgages for institutional and private investors.
During the past five years Mr. Bloom has been actively involved in the
acquisition, liquidation and workout of residential and commercial mortgage
loans. From 1990 to June 1994, Mr. Bloom was counsel to Stockschlaeder &
McDonald, a law firm representing banks, insurance companies and private
lenders. He formed mortgage workout companies since 1991 which purchased over
$20 million in non-performing mortgages in the tri-state New York area. From
June 1994 until joining the Company, Mr. Bloom was a director and general
counsel of the mortgage finance- workout division of Simon Rudd Associates Inc.,
a New York based real estate management firm. Mr. Bloom is a trustee of
Kingsbrook Jewish Medical Center and a director of the Henry Street Settlement.
Mitchell H. Gordon received his Bachelor of Arts degree in 1972 from the
University of Denver and his J.D. in 1976 from Chicago- Kent College of Law.
From 1979 until 1981, Mr. Gordon was an associate with the law firm of Doran,
Buckley, Kremer, O'Reilly & Pieper. He served as in-house general counsel to
Coronet Properties Company and related entities from 1981 to 1991 and
specialized in the buying and selling of residential apartment buildings,
cooperative and condominium conversions and the sale of thousands of individual
units, and end-loan and mortgage financing. From 1991 to date, he has served as
a loan and real property work-out specialist in conjunction with his own real
estate law practice and has been involved in various business enterprises
related to office leasing, the buying and selling of real estate, mortgage
origination and commercial and residential financing. Mr. Gordon is licensed to
practice law in the States of New York and Illinois and has been licensed as a
New York State real estate broker since 1991.. He is the nephew of Norman
Dansker.
Executive Compensation
Mr. Norman Dansker as the Manager will receive annual
compensation of $75,000.
Mr. Barry M. Bloom will receive a base salary of $50,000 if
$3,000,000 is raised in the offering contemplated hereby, which
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base will increase by $5,000 for each additional $1,000,000 raised for a total
base of no more than $90,000.
Mr. Mitchell H. Gordon will be compensated at the annual rate of
$30,000.
Any Executive or employee may be granted bonuses as determined from time
to time by the Manager in his sole discretion.
Executive Boards: The Company has established a Mortgage
Origination Board and an Investment Advisory Board.
Members of the Mortgage Origination Board will provide underwriting and
property analysis, property inspections, review of loan applications and
servicing of accounts, as required by the Company. Compensation for these
services will generally be payable from fees chargeable to the Company's
borrowers. Service on this Board may be terminated at the option of either the
Company or any member.
Members of the Investment Advisory Board will review current policies with
the Company's Management as well as programs to implement the Company's growth
and future business development. It is anticipated that this Board will have
regular meetings during the course of each year. The initial first year's
aggregate compensation to the members is projected at $30,000. Service on this
Advisory Board may be terminated at the option of either the Company or any
member.
The Mortgage Origination Board consists of the following persons:
Sidney Klotz, 53, received his Bachelor of Science degree in Real Estate
and Finance in 1968 from New York University. From 1968 to 1976, Mr. Klotz was a
Real Estate Broker, licensed in New Jersey and New York, where he specialized in
the sales, financing, and management of investment real estate. From 1976 to
1979, Mr. Klotz was director of O.R.E.O. for National Bank of North America (now
Nat West USA), where he directed the management and disposition of a nationwide
portfolio of foreclosed properties. Mr. Klotz was also responsible for the
restructuring of problem real estate loans, and served on the Real Estate Loan
Committee. From 1979 to 1991, Mr. Klotz was with the Coronet group of companies
where he served in several capacities, and as Director of Mortgage Servicing
where he supervised the servicing of more than 1,000 loans secured by
commercial, multi-family, and residential real estate interests with a total
value in excess of $100 million. From 1991 to date,
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Mr. Klotz has divided his time between directing mortgage servicing
for Sovereign Servicing Corporation and heading up the commercial
loan department for Mercury, Inc. of Fairfield, New Jersey.
Lawrence M. Shapiro, 41, received his Bachelor of Arts degree in
Architecture in 1977 from Syracuse University. From 1977 to 1981, Mr. Shapiro
managed construction and architectural development at D.W. Campanga Development
Corporation, where he directed the development of a 400 unit residential
condominium (new construction) in Staten Island, New York. From 1981 to 1983, he
served as Vice-President of Preferred Licenses Ltd. heading up a range of
architectural and construction projects including residential, commercial,
office, gallery, hotel and religious facilities. From 1983 to 1991, Mr. Shapiro
was Director of Construction for Coronet Properties Company and related entities
overseeing a variety of residential and commercial projects totalling over $1
billion in value. From 1991 to date he managed his own company, Lawrence M.
Shapiro, Inc. where he is a real estate work-out specialist and consultant to
major lending institutions, property manager and property owners. Mr. Shapiro
has also been instrumental in the development and expansion of an executive
suite business facility in New York City.
The Investment Advisory Board consists of the following persons:
Richard L. Farren, 48, is a graduate of Yale University and Harvard Law
School. He has practiced law for approximately 24 years in the City of New York.
He is a member of the law firm of McLaughlin & Stern, LLP. For a number of years
he specialized primarily in real estate, representing developers, lenders,
owners, tenants, landlords and investors. He has acted as general partner for a
number of real estate partnerships owning shopping centers, residential
complexes and office buildings. He has represented both public and private
lenders in connection with mortgage loans and revolving credit loans. In 1994 he
acted as Chairman of the Committee on Environmental Affairs for Governor George
E. Pataki's Transition Team in New York State.
Bruce F. Henderson, 65, became President and CEO of the Arab American Bank
in New York in 1985; in 1987 he became President and CEO of Union Chelsea
National Bank, and in 1991 became President and CEO of the International Bank
for Investment and Development in Sofla, Bulgaria. From 1992 to the present he
has been an advisor to the Central Bank of Indonesia and Coordinator of a World
Bank Financial Sector Development Project to assist in resolving the problem
loans in the portfolios of the Indonesian banking Sector. He founded Manhattan
Asia Pacific International Inc., a bank consulting company. Mr. Henderson is on
the International Advisory
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Board of the American Management Association, Treasurer of The Near East
Foundation and a Director of the American Indonesia Chamber of Commerce in New
York. He is the author of several published articles and has lectured on credit,
regulatory compliance and internal controls at seminars sponsored by the South
East Asian Central Bank Institute.
Jenesta E. Marlin, 56, received her undergraduate degree from the
University of Southern California and a Masters in Business Administration from
The Wharton School. Her career covers almost 30 years in senior level positions
in the banking industry. At Citibank she was a Division Chief of Staff,
Marketing Director, Regional Manager responsible for a 35 branch region and
Business Manager in charge of new business acquisitions. From 1987 to 1995 she
was a Senior Vice President at The Dime Savings Bank of New York. At the Dime
she was General Manager, Consumer Financial Services from 1987-1992 where she
managed an $8 billion retail and consumer lending portfolio. From 1992 to 1995
she was the chief executive in charge of managing and liquidating the Dime's
non-performing mortgage assets of $1 billion. She is currently President of
Marlin Enterprises, Inc., a consulting company. Ms. Marlin is president of the
board of directors of Friends for the Arts, a leading non-profit organization
presenting performing arts programs to the Long Island, New York community.
Bruce M. Merchant, 61 graduated from Harvard College in 1956 and entered
Irving Trust Company's corporate banking training program in New York City. In
1965 he became a Vice President with Morgan Guaranty Trust Company in the
corporate area in New York. In 1974 he assumed responsibility for Morgan's
non-conforming commercial real estate assets. In 1977 he transferred to Morgan's
London Office to establish a commercial real estate lending operation for
Europe. In 1982 he joined the London based Hammerson Property Group and as
President of their Western United States operations developed commercial
properties in California. When the properties were sold in 1990 he became a real
estate consultant and has provided consulting services to institutional lenders.
CERTAIN TRANSACTIONS
Various conflicts of interest may arise out of the relationships between
and among the Company, its Management and their Affiliates.
Among the most significant conflicts of interest which may arise are the
following:
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Other Activities of the Management and Affiliates. Management and its
Affiliates are and will continue to be engaged in other business activities and
will devote only so much time to the business of Management as they deem
necessary. Management and/or their Affiliates may in the future own or have an
interest in properties or businesses which compete directly or indirectly with
the Company.
Decisions. Management will be the only party entitled to make decisions
regarding the business of the Company. Such decisions including whether or not
to institute a foreclosure proceeding in the event of a default under a mortgage
could have adverse effects on the Debenture Holders.
Affiliates of the Company may enter into other transactions with or render
services for the benefit of the Company. For example, an affiliate of the
Company may provide mortgage servicing to the Company. Any future transactions
between the Company and any of its affiliates will be entered into on terms at
least as favorable as could be obtained from unaffiliated independent third
parties.
In February 1996, Tri-State Capital Company LLC became an owner of the
Company by investing $250,000 and becoming the sole Class I Member of the
Company. The principals of Tri-State Capital Company,LLC are Mitchell H. Gordon,
who has a 49% interest in Tri-State, and Robert S. Dansker, who has a 51%
interest in Tri-State. Robert S. Dansker is the sole manager of Tri-State.
Tri-State, as the Class I member of the Company, is entitled to a preferred
return equal to 9% per annum, subordinate to payments due to Debentureholders.
Norman Dansker is the sole Manager of the Company. The structure of the Company
was created to satisfy certain estate planning objectives for Mr. Dansker and
his family. At the same time, The ECC Irrevocable Trust became the sole Class II
Member of the Company by investing $1,000. In addition, Norman Dansker, the sole
Manager of the Company, invested $900 along with his son Robert S. Dansker, who
invested $1,500 and, his nephew, Mitchell H. Gordon, who invested $600 to become
the Class III Members of the Company. The ECC Irrevocable Trust is a trust for
the benefit of family members of Norman Dansker, including his wife, children,
grandchildren and sister, sister-in-law and nephew, Mitchell H. Gordon. The
primary beneficiary is his wife, Gloria Dansker.
All profit distributions to members of the Company are subordinate to the
rights of the Debentureholders. In the event that a judgment is executed against
any of the members of the Company, the judgment creditor is solely entitled,
upon application to court, to a charging lien which does not provide any
equitable rights against the Company as set forth in the New York Limited
Liability Company Act. There can be no way to determine how each
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class will share in profits, if any, since Class I members have a priority over
the other two classes and, the Class II members are entitled to a greater return
on their equity than the Class III members.
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MEMBERS
The following table sets forth information concerning the ownership of the
Company, all of which is beneficially owned by the persons listed below:
Name and Address Percent
of Beneficial Owners Owned
Class I Members
Tri-State Capital Company, LLC 100% of Class I Interest
110 East 59th Street
New York, New York 10022
Class II Members
The ECC Irrevocable Trust 100% of Class II Interest
c/o Robert S. Dansker
33 Liberty Street
Montpelier, VT 05607
Class III Members
Robert S. Dansker(1) 50% of Class III Interest
33 Liberty Street
Montpelier, VT 05607
Norman Dansker 30% of Class III Interest
200 East 62nd Street
New York, New York 10021
Mitchell H. Gordon(2) 20% of Class III Interest
400 East 77th Street
New York, New York 10021
- ----------------------------
(1) The son of Norman Dansker and a principal of Tri-State Capital Company,
LLC, the Class I Member of the Company and Trustee and a beneficiary of
the Class II member.
(2) The nephew of Norman Dansker and a principal of Tri-State Capital
Company, LLC, the Class I Member of the Company and a beneficiary of
the Class II member.
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DESCRIPTION OF DEBENTURES
The Company will issue the Debentures under an Indenture to be dated as of
March 1, 1996 (the "Indenture"), between the Company and United States Trust
Company of New York (the "Trustee"). The terms and provisions of the Debentures
are stated in the Indenture. Such terms and provisions also include certain
provisions of the Trust Indenture Act of 1939 (as in effect on the date of the
Indenture) which are incorporated by reference into the Indenture. Debenture
Holders are referred to the Indenture and the Trust Indenture Act of 1939 for a
more complete statement of such terms and provisions. The following summary of
certain provisions of the Indenture does not purport to be complete, and where
particular provisions of the Indenture are referred to, such particular
provisions are incorporated herein by reference, and such summary is qualified
in its entirety by such incorporated provisions. The form of the Indenture is on
file as an exhibit to the Registration Statement. The following is a complete
description of the material terms of the Indenture.
General
The Debentures will be limited to $10,000,000 aggregate principal amount
and will be issued in fully registered form without coupons in denominations of
$1,000 and in integral multiples thereof. The Debentures will be issued in two
series of maturities, $4,000,000 will mature on October 31, 1998 and $6,000,000
will mature on June 30, 2001. The Debentures will be unsecured obligations of
the Company, subordinated in right of payment to Senior Indebtedness of the
Company, as described under "Subordination" below. The Debentures will be
transferable at United States Trust Company of N.Y. in New York City, provided
that payment of interest may be made at the option of the Company by check
mailed to the address of the registered holder indicated on the records of the
Company.
The Debentures are transferable on the books of the Company by the
registered holders thereof upon surrender of the Debentures to the Registrar
appointed by the Company and, if requested by the Registrar, shall be
accompanied by a written instrument of transfer in form satisfactory to the
Registrar. The Company has appointed United States Trust Company of New York as
the "Trustee", "Registrar" and "Paying Agent" for the Debentures. The person in
whose name any Debenture is registered shall be treated as the absolute owner of
the Debenture for all purposes, and shall not be affected by any notice to the
contrary. Upon transfer, the Debentures will be cancelled, and one or more new
registered
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Debentures, in the same aggregate principal amount, of the same maturity and
with the same terms, will be issued to the transferee in exchange therefor.
The Indenture does not contain any covenants or provisions that may afford
the Debenture Holders protection in the event of highly leveraged transactions.
Once the Company has received orders for at least $1,000,000 of
Debentures, the Company may close as to those Debentures (the "First Closing").
With respect to Debentures sold at the First Closing, interest on the Debentures
for the initial period will accrue from the fifth day following the First
Closing. With respect to Debentures sold after the First Closing, interest for
the initial period will accrue from the day of sale. The first payment of
interest on any Debenture will be due on the first day of the next calendar
quarter, if the Debenture is sold on or before the fifteenth day of the second
month of the quarter, or the first day of the second calendar quarter, if sold
thereafter. Debentures sold after the First Closing will be deemed sold on the
date the Company receives payment therefor.
Maturities: Interest
The Debentures will be issued in two maturities: $4,000,000 due October
31, 1998 ("1998 Debentures"); and $6,000,000 due June 30, 2001 ("2001
Debentures"). The Debentures will bear simple interest from the date of issuance
at differing rates depending on the date of maturity. The 1998 Debentures are
offered at par with an interest rate per annum of 9% and the 2001 Debentures are
offered at par with an interest rate of 11%.
The Company will pay interest on the Debentures to the persons who are
registered holders of the Debentures ("Debenture Holder"). A determination of
the registered holders of the Debentures will be made at the close of business
on the fifteenth day of the month of preceding applicable interest payment date.
Principal and interest may be paid by check. Payments of interest made by check
may be mailed to a Debenture Holder at the address shown on the records of the
Company for such holder. Upon maturity of the Debentures, or upon earlier
redemption, Debenture Holders must surrender the Debentures to any paying agent
appointed by the Company (including itself), to collect principal payments and
payments of accrued interest on the Debentures. The Company will maintain an
office or agency where the Debentures may be presented for payment (the "Paying
Agent") and an office or agency where the Debentures may be
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presented for registration of transfer or for exchange (the
"Registrar").
Debentures of one Maturity may not be exchanged for Debentures of another
Maturity. The term "Maturity" is defined in the Indenture to mean either of the
two maturities of Debentures offered hereby and issued pursuant to the
Indenture.
Duties of the Trustee
The Indenture provides, in part, that in case an Event of Default (as
defined) therein shall occur and continue, the Trustee will be required to
exercise such of the rights and powers vested in it by the Indenture and use the
same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of his own affairs. While
the Trustee may pursue any available remedies to enforce any provision of the
Indenture or the Debentures, the holders of a majority in principal amount of
all outstanding Debentures may direct the time, method, and place of conducting
any proceeding for exercising any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. The Trustee will not be required to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties under the Indenture, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
Authentication and Delivery of Debentures
The Registrar shall authenticate Debentures for original issue in the
aggregate principal amount of up to $10,000,000 upon receipt of a written order
of the Company, specifying the amount of Debentures to be authenticated and the
date of authentication, which is signed by a Manager of the Company.
Certificates representing the Debentures will be delivered to the purchasers of
the Debentures promptly after Closing.
Redemption
The Debentures may not be called for redemption in whole or in part for
six months after their issuance. Thereafter the Debentures will be redeemable as
follows: If the 1998 Debentures are called for redemption after six months
following their issuance for a one year period, the registered holder will be
entitled to a premium of 0.5% of the principal amount. If the 1998 Debentures
are called for redemption thereafter no redemption premium will be paid. If the
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2001 Debentures are called for redemption after six months following issuance
for a one year period, the registered holder will be entitled to a premium of
1.5% of the principal amount. If the 2001 Debentures are called for redemption
thereafter, no redemption premium will be paid.
If less than all the Debentures of a given maturity are to be redeemed,
the Company shall select the Debentures to be redeemed by such method as the
Registrar shall deem fair and appropriate or, if the Debentures are listed on a
national securities exchange in accordance with the rules of such exchange. The
accrued and unpaid interest on the Debentures to be redeemed shall be paid to
the redemption date. No interest will be paid on the Debentures after the
redemption date unless there is a default in payment.
Preference
All holders of Debentures of the same maturity shall be treated alike with
respect to payment of interest, principal and redemption premium, if any,
thereon.
No Sinking Fund or Security
The Company will not provide for the retirement or redemption of
any Debentures through the operation of a sinking fund. The
Debentures are unsecured.
Subordination
The Debentures will be subordinated in payment of principal and interest
to all Senior Indebtedness. The term "Senior Indebtedness" is defined to mean
all indebtedness of the Company, whether outstanding on the date hereof or
thereafter created, which (i) is secured, in whole or in part, by any asset or
assets owned by the Company or by a corporation, a majority of whose voting
stock is owned by the Company or a subsidiary of the Company ("Subsidiary"), or
(ii) arises from unsecured borrowings by the Company from commercial banks,
institutional lenders, savings banks, savings and loan associations, insurance
companies, companies whose securities are traded in a national securities
market, or any wholly-owned subsidiary of any of the foregoing, or (iii) arises
from unsecured borrowings by the Company from any pension plan (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended), or (iv) arises from borrowings by the Company which are evidenced by
commercial paper, or (v) is a guarantee or other liability of the Company of or
with respect to Indebtedness of a Subsidiary of a type described in any of
clause (ii), (iii), (iv) or (v) above, or (vi) arises from other lenders to the
Company
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whether on a secured or unsecured basis. Senior Indebtedness does not include
Indebtedness which is characterized as pari parsu with or subordinate to the
Debentures. As of February 29, 1996, the Company had no Senior Indebtedness.
There is no limitation or restriction on the creation of Senior Indebtedness by
the Company or on the amount of such Senior Indebtedness to which the Debentures
may be subordinated. There is also no limitation on the creation or amount of
indebtedness which is pari passu with (i.e. having no priority of payment over
and not subordinated in right of payment to) the Debentures.
Upon any distribution of assets of the Company in connection with any
dissolution, winding up, liquidation or reorganization of the Company, the
holders of all Senior Indebtedness will first be entitled to receive final and
indefeasible payment in full of the principal and premium, if any, thereof and
any interest due thereon, before the holders of the Debentures are entitled to
receive any payment upon the principal of or interest on the Debentures, and
thereafter payments to Debenture Holders will be pro rata. In the absence of any
such events, the Company is obligated to pay principal of and interest on the
Debentures in accordance with their terms.
Limitation on Payments
The Indenture will provide that the Company will not make any distribution
on its ownership interests or purchase, redeem or otherwise acquire or retire
for value ownership interests of the Company, if at the time of such payment, or
after giving effect thereto, an Event of Default, as hereinafter defined, shall
have occurred and be continuing or a default shall occur as a result thereof;
provided, however, that the foregoing limitation shall not prevent the
acquisition or retirement of any ownership interests by exchange for, or out of
the proceeds of the sale of ownership interests.
Discharge Prior to Redemption or Maturity
If the Company at any time deposits with the Trustee money or U.S.
Government Obligations or equivalents sufficient to pay principal and interest
on the Debentures prior to their redemption or maturity, the Company will be
discharged from the Indenture, provided certain other conditions specified in
the Indenture are satisfied. In the event of such deposit, which is irrevocable,
Debenture Holders must look only to the deposited money and securities for
payment. U.S. Government Obligations are securities backed by the full faith and
credit of the United States.
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Access of Information to Security Holders
Debenture Holders may obtain from the Trustee information necessary to
communicate with other Debenture Holders. Upon written application to the
Trustee by any three or more Debenture Holders stating that such Debenture
Holders desire to communicate with other Debenture Holders with respect to their
rights under the Indenture or under the Debentures, and upon providing the
Trustee with the form of proxy or other communication which the Debenture
Holders propose to transmit, and upon receipt by the Trustee from the Debenture
Holders of reasonable proof that each such Debenture Holder has owned a
Debenture for a period of at least six months preceding the date of such
application, the Trustee shall, within five business days after the receipt of
such information, either (a) provide the applicant Debenture Holders access to
all information in the Trustee's possession with respect to the names and
addresses of the Debenture Holders; or (b) provide the applicant Debenture
Holders with information as to the number of Debenture Holders and the
approximate cost of mailing to such Debenture Holders the form of proxy or other
communication, if any, specified in the applicant Debenture Holders'
application, and upon written request from such applicant Debenture Holders and
receipt of the material to be mailed and of payment, the Trustee shall mail to
all the Debenture Holders copies of the form of proxy or other communication so
specified in the request.
Compliance with Conditions and Covenants
The Company shall deliver to the Trustee within 45 days after the end of
each fiscal quarter a (i) Manager's Certificate of the Company stating that all
conditions and covenants in the Indenture relating to the proposed action have
been complied with and (ii) an opinion of counsel stating that, in the opinion
of such counsel, all such conditions and covenants have been complied with.
Amendment, Supplement and Waiver
Subject to certain exceptions, the Indenture or the Debentures may be
amended or supplemented, and compliance by the Company with any provision of the
Indenture or the Debentures may be waived, with the consent of the Trustee.
Without notice to or consent of any of the holders of Debentures, the Company
may amend or supplement the Indenture or the Debentures to cure any ambiguity,
omission, defect or inconsistency, or make any change that does not adversely
affect the rights of any holders of Debentures. However, the Company, with the
consent of the Trustee, may amend or
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supplement this Indenture or the Debentures without notice to any
Debentureholder, but with the written consent of the Holders of at least a
majority in principal amount of the outstanding Debentures. Subject to the
immediately succeeding sentence, the Holders of a majority in principal amount
of the outstanding Debentures may waive compliance by the Company with any
provision of this Indenture or the Debentures without notice to any
Debentureholder. Without the consent of each Debentureholder affected, however,
an amendment, supplement or waiver may not: (i) reduce the amount of Debentures
whose Holders must consent to an amendment, supplement or waiver; (ii) reduce
the rate of or extend the time for payment of interest on any Debenture (except
that Holders of not less than 75% in principal amount of all outstanding
Debentures may consent, on behalf of the Holders of all of the outstanding
Debentures, to the postponement of any interest payment for a period not
exceeding three years from its due date); (iii) reduce the principal of or
extend the fixed maturity of any Debenture; (iv) waive a default in the payment
of the principal of or interest on, or redemption payment with respect to, any
Debenture, (v) make any Debenture payable in money other than that stated in the
Debenture; (vi) make any change in the subordination provisions that adversely
affects the rights of any Debentureholder; or waive a default in payment of
principal of or interest on, or other redemption payment on any Debentures.
Defaults and Remedies
Each of the following is an "Event of Default" under the Indenture: (a)
failure by the Company to pay any principal on the Debentures when due; (b)
failure by the Company to pay any interest installment on the Debentures within
thirty days after the due date; (c) failure to perform any other covenant or
agreement of the Company made in the Indenture or the Debentures, continued for
sixty days after receipt of notice thereof from the Trustee or the holders of at
least 25% in principal amount of the Debentures; and (d) certain events of
bankruptcy, insolvency or reorganization. If an Event of Default (other than
those described in clause (d) above) occurs and is continuing, the Trustee or
the holders of at least 25% in principal amount of the Debentures, by notice to
the Company, may (but shall not be obligated to) declare the principal of and
accrued interest on all of the Debentures to be due and payable immediately. If
an Event of Default of the type described in clause (d) above occurs, all unpaid
principal and accrued interest on the Debentures shall automatically become due
and payable without any declaration or other act on the part of the Trustee or
any holder. The Trustee may refuse to enforce the Indenture or the Debentures
unless it receives indemnity and
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security satisfactory to it. Subject to certain limitations, the holders of a
majority in principal amount of the Debentures may direct the Trustee in its
exercise of any trust or power conferred on the Trustee, and may rescind an
acceleration of the Debentures. The Trustee may withhold from holders of
Debentures notice of any continuing default (except a default in payment of
principal or interest) if it determines that withholding notice is in their
interest.
The Indenture requires the Company to furnish to the Trustee an annual
statement, signed by a specified Manager of the Company, stating whether or not
such Manager has knowledge of any Default under the Indenture, and, if so,
specifying each such Default and the nature thereof.
Federal Income Tax Consequences
Payment of Interest. Payments of interest on the Debentures will generally
result in taxable interest income to the recipient of such payments and the
recipient will be required to pay the tax on such income.
Sale or Redemption of Debentures. A holder of Debentures will recognize
gain or loss on the sale or redemption of the Debentures equal to the difference
between the sale price (exclusive of any amount paid for accrued interest) and
the holder's tax basis in the Debenture (generally the purchase price to the
holder). Any gain or loss generally will be capital gain or loss and long-term
if the Debenture is held for more than one year.
In General. The tax consequences referred to in the preceding paragraphs
are based on the current provisions of the Internal Revenue Code of 1986, as
amended, and the currently applicable regulations promulgated thereunder. The
Internal Revenue Code of 1986, as amended, currently provides that gain from the
sale of long-term capital assets will be taxed at a maximum federal rate of 28%
There can be no assurance, however, that any such provisions may not change in
the future, either retroactively or prospectively, resulting in changes in such
tax consequences. Several proposals are presently pending in Congress to change
the capital gains tax. It is uncertain as to which, if any, of such proposals
will be acted on and no assurance can be given with respect to any proposed
changes in the law affecting taxation of capital gains.
There may, in addition, be other federal, state, local or foreign tax
considerations applicable to the circumstances of a prospective holder.
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Holders who hold the Debentures for investment purposes should treat all
reportable interest (whether actually received or constituting original issue
discount under the Code) as portfolio income under applicable Code provisions.
The Company's deposit of funds with the Trustee to effect the discharge of
the Company's obligations under the Debentures and the Indenture prior to
redemption or maturity of the Debentures, will have no effect on the amount of
income realized or recognized (gain or loss) by the Debenture Holders or the
timing of recognition of gain or loss for federal income tax purpose.
The foregoing discussion is a complete discussion of all material tax
consequences of holding, owning and disposing of the Debentures.
PLAN OF OFFERING
The Company is offering through its Management and participating
broker/dealers which may be appointed by the Management, on a all or none basis
with respect to the Minimum Offering of Debentures and on a "best efforts"
basis, as to the Maximum Offering of its Series A Registered Redeemable
Subordinated Debentures (the "Debentures"). The Company will pay participating
broker dealers a commission on the purchase price of each Debenture sold equal
to 5% on the 1998 Debentures and 8% with respect to the 2001 Debentures.
The Management of the Company reserves the right to purchase up to 25%
($250,000) of the Debentures in order to meet the Minimum Offering. If the
Management exercises this option such purchases will be for investment purposes
only and not for resale.
This offering will terminate on or before , 1996, unless extended for an
additional six month period by the Company, with notice to subscribers to
___________ 1997, (the "Termination Date"). No minimum number of Debentures must
be purchased after completion of the minimum offering of $1,000,000 of
Debentures in order for a closing under this Offering to occur. The Company may
close this Offering from time to time after the minimum is sold with respect to
those subscribers whose subscriptions are accepted and continue the Offering of
unsold Debentures until the Termination Date. Until accepted, all subscription
payments received from subscribers will be held in escrow in an interest-bearing
account established by the Company through its attorney's McLaughlin & Stern,
LLP, as Escrow Agent established with Chase Manhattan Bank, N.A., an
unaffiliated commercial bank. A subscriber will not have the right to withdraw
his subscription, except as provided by certain state laws.
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Suitability Standard
Each investor in this Offering shall have a minimum annual gross income of
$35,000 and a net worth of $35,000 or alternatively, a net worth of $100,000.
Interest earned, if any, on subscription payments from subscribers whose
subscriptions are accepted by the Company will be remitted to such subscriber
following the closing with respect to the Debentures purchased. Interest earned,
if any, on subscription payments from subscribers whose subscriptions are
rejected will be remitted to such subscriber promptly along with a refund of the
subscription payment. Interest on returned subscriptions, if any, shall be at
the rate earned where the investment funds are deposited, which rate may
fluctuate. It is expected that a subscriber will be issued the Debentures
subscribed for within five business days following the acceptance of the
subscription by the Company. It shall be a condition to the remittance of
interest earned, if any, to a subscriber that the subscriber furnish a completed
and executed Form W-9 so than any interest earned and to be distributed to such
subscriber may be properly reported.
Only the Management of the Company and certain NASD registered
broker-dealers designated by Management are authorized to offer the Debentures
for sale and to effect sales of the Debentures. The Company currently has no
broker-dealers committed to sell the Debentures. The Company reserves the right
to reject any subscription in whole or in part for any reason and to terminate
this Offering at any time in its sole discretion. The Company may also allot
Debentures of a particular maturity among subscribers for the Debentures of that
maturity if such Debentures are over-subscribed. No sales literature or other
material of any kind except this Prospectus has been authorized for use in
connection with this Offering.
How to Subscribe
Any subscriber who wishes to purchase one or more Debentures should
deliver the following items to the Company:
(a) One completed, dated, executed and notarized Subscription
Agreement.
(b) One completed, dated and executed Form W-9.
(c) A check payable to the order of McLaughlin & Stern, LLP, as
Escrow Agent in the amount of $1,000 or multiples thereof for
the Debentures subscribed for. Such payment shall be due upon
presentation of an executed Subscription Agreement.
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ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the Debentures offered hereby. Such
Registration Statement is complete in all material respects. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits thereto, certain portions having been omitted from this
Prospectus in accordance with the rules and regulations of the Commission. For
further information with respect to the Company, the securities offered by this
Prospectus and such omitted information, reference is made to the Registration
Statement, including any and all exhibits and amendments thereto. Statements
contained in this Prospectus concerning the provisions of any document filed as
an exhibit are of necessity brief descriptions thereof and are not necessarily
complete, and in each instance reference is made to the copy of the document
filed as an exhibit to the Registration Statement, each such statement being
qualified in its entirety by this reference.
Following the sale of the securities offered by this Prospectus, the
Company will file reports, proxy statements and other information requirements
of the Exchange Act, and in accordance therewith the Company will file reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected and copied at public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
500 West Madison Street, Suite 1400, Chicago, Illinois 60601 and 7 World Trade
Center, New York, New York 10048. Copies of such material, including the
Registration Statement, can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon
for the Company by McLaughlin & Stern, LLP, New York, New York.
EXPERTS
The financial statements included herein at February 28, 1996 have been
included herein in reliance on the report of Friedman Alpren & Green LLP,
independent auditors, given on the authority of that firm as experts in
accounting and auditing.
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GLOSSARY
Accrual Mortgage Loan: A Mortgage Loan that provides for the accrual of a
portion, or all, of the base interest until maturity or another specified event.
Acquisition/Refinancing Loans: Loans acquired or made by the Company to
borrowers for the purpose of acquiring and/or refinancing commercial or
multi-family residential properties.
Affiliate: Generally, a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by,
or is under common control with, the person specified.
Code: The Internal Revenue Code of 1986, as amended.
First Mortgage: A Mortgage which must be satisfied prior to all
other Mortgages on the property. A First Mortgage Loan is a
Mortgage Loan secured or collateralized by a First Mortgage.
Junior Mortgage: A Mortgage which must be satisfied after at least one
other Mortgage on the property. A Junior Mortgage Loan is a Mortgage Loan
secured or collateralized by a Junior Mortgage.
Loan-to-Value Ratio: The amount of a loan as a percentage of the
value of the property securing the loan.
Mortgage: A security interest in real property granted to secure
a Mortgage Loan.
Mortgage Loan: A note, bond or other evidence of indebtedness or
obligation, the repayment of which is secured or collateralized by
an interest in real property.
Person: A corporation, an association, a partnership, a joint
venture, an estate, a trust, or any other legal entity, or an
individual.
Wraparound Mortgage Loan: A Junior Mortgage Loan which includes and wraps
around all prior Mortgage Loans pursuant to which the Wraparound Mortgage lender
agrees to service all prior Mortgage Loans.
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FRIEDMAN
ALPREN & 1700 BROADWAY
GREEN NEW YORK, NY 10019
212-582-16001600
FAX 212-265-4761
CERTIFIED PUBLIC ACCOUNTANTS
TO THE MEMBERS OF EAST COAST CAPITAL COMPANY, LLC
We have audited the accompanying balance sheet of EAST COAST
CAPITAL COMPANY, LLC (a limited liability company) as of February 28,
1996. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the balance
sheet is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in
the balance sheet. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that
our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents
fairly, in all material respects, the financial position of EAST COAST
CAPITAL COMPANY, LLC as of February 28, 1996, in conformity with
generally accepted accounting principles.
New York, New York
March 1, 1996
<PAGE>
EAST COAST CAPITAL COMPANY, LLC
BALANCE SHEET
FEBRUARY 28, 1996
ASSETS
Cash $ 220,947
Organization costs 13,053
Offering costs 25,000
$ 259,000
LIABILITIES AND MEMBERS' EQUITY
Liabilities
Accounts payable and accrued
expenses $9,000
Members' equity
Total members' equity 254,000
Less - Receivable from members 4,000
250,000
$ 259,000
The accompanying notes are an integral part of this balance sheet.
<PAGE>
EAST COAST CAPITAL COMPANY, LLC
NOTES TO BALANCE SHEET
1 - ORGANIZATION
East Coast Capital Company, LLC (the 'Company') is a New York
limited liability company formed in February 1996 principally to
make real estate loans and purchase real estate mortgages. The
Company may also act as a mortgage broker if necessary licenses are
applied for and obtained.
Pursuant to a public offering, the Company is offering up to an
aggregate principal amount of $10,000,000 of its Series A Registered
Subordinated Debentures (the 'Debentures'). The Debentures will be
issued in two maturities as follows: $4,000,000 due October 31, 1998
and $6,000,000 due June 30, 2001. Interest payable on the
Debentures will be at 9% and 11%, respectively. The Debentures are
unsecured obligations of the Company and will be subordinated to all
senior indebtedness, as defined.
The managing member of the Company is Norman Dansker.
As of February 28, 1996, the Company has not commenced operations.
A member's equity contribution of $250,000 was made by Tri-State
Capital Company, LLC.
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization Costs
Costs incurred to organize the Company, including, but not limited
to, legal and accounting fees, are considered organization costs,
and will be amortized over a 60-month period commencing with the
operations of the Company.
Offering Costs
Costs incurred in connection with the offering and issuance of the
Debentures will be amortized over the terms of the Debentures.
Income Taxes
The Company is not a taxpaying entity for income tax purposes and,
accordingly, no provision will be made for income taxes. The
members' allocable shares of the Company's taxable income or loss
are reportable on their income tax returns.
<PAGE>
- -----------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations in connection with this Offering
other than those contained in this Prospectus and, if given or made, such
information or representations must not be relied on as having been authorized
by the Company. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any security other than the securities offered
by this Prospectus, or an offer or a solicitation of an offer to buy any
securities by any person in any jurisdiction in which such offer or solicitation
is not authorized or is unlawful. The delivery of this Prospectus shall not,
under any circumstances, create any implication that the information herein is
correct as of any time subsequent to the date of this Prospectus.
-----------------------------------
TABLE OF CONTENTS
Page
Risk Factors..........................7
Prospectus Summary...................18
Use of Proceeds......................19
Capitalization.......................24
Management's Discussion and
Analysis of Financial
Condition and Results
of Operations.......................25
Business.............................26
Management...........................31
Certain Transactions.................38
Members..............................39
Description of Debentures............40
Plan of Offering.....................48
Additional Information...............49
Legal Matters........................50
Experts..............................50
Glossary.............................51
Financial Statements.................52
Until ___________, 199_ (25 days after the date of this Prospectus), all
dealers effecting transactions in the Debentures, whether or not participating
in the distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with regard to their unsold allotments or subscriptions.
$10,000,000 DEBENTURES
EAST COAST CAPITAL COMPANY, LLC
----------------------------
PROSPECTUS
-----------------------------
, 1996
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PART II
Information Not Required in Prospectus
ITEM 30. Other Expenses of Issuance and Distribution
The expenses payable by Registrant in connection with the issuance and
distribution of the securities being registered (other than underwriting
discounts and commissions) are estimated as follows:
Securities and Exchange Commission Fees.......... $ 3,448.28
Trustees Fees and Expenses....................... $ 7,500.00
Accounting Fees and Expenses..................... $ 5,000.00
Blue Sky Fees and Expenses....................... $ 2,500.00
Printing Expenses (including Securities)......... $ 10,000.00
Legal Fees....................................... $115,000.00
Miscellaneous.................................... $ 6,551.72
-----------
TOTAL.................................. $150,000.00
ITEM 31. Sales to Special Parties
Not Applicable
ITEM 32. Recent Sales of Unregistered Securities
In February 1996, the following persons became owners of the Company by
subscribing and paying for, in cash, ownership interest as follows:
CLASS I MEMBERS
Name and Address Contribution
Tri-State Capital Company, LLC $250,000
CLASS II MEMBERS
Name and Address Contribution
The ECC Irrevocable Trust $ 1,000
CLASS III MEMBERS
Name and Address Contribution
Norman Dansker $ 900
Mitchell H. Gordon $ 600
Robert S. Dansker $ 1,500
Neither the Company nor any person acting on its behalf offered or
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sold the securities described above by means of any form of general solicitation
or general advertising. Each purchaser represented in writing that he acquired
the securities for his own account. A legend was placed on the certificates
stating the restrictions on their transferability and sale. Each purchaser
signed a written agreement that the securities will not be sold without
registration under the Act or exemption therefrom. The Registrant believes such
issuances are exempt transactions not involving a public offering under Section
4(2) of the Securities Act of 1933, as amended.
ITEM 33. Indemnification of Officers and Directors
ITEM 34. Treatment of Proceeds from Stock Being Registered
Not Applicable
ITEM 35. Financial Statements and Exhibits
(a) Exhibits
3.1 Registrant's Articles of Organization
3.2 Registrant's Operating Agreement
4.1 Form of Debenture [Filed as part of
Exhibit 10.1]
5 Opinion of McLaughlin & Stern, LLP
8* Tax Opinion of McLaughlin & Stern, LLP
10.1 Form of Indenture between the Registrant
and United States Trust Company of New York
10.2 Form of Subscription Agreement for
purchase of Debentures.
10.3* Escrow Agreement
24.1 Consent of Friedman Alpren & Green LLP
24.2 Consent of McLaughlin & Stern, LLP
(b) Financial Statement Schedules
Schedules other than those listed above have been omitted since they
are either not required, are not applicable or
the required information is shown in the financial statements
or related notes.
* Filed herewith
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ITEM 36. Undertakings
The undersigned Registrant hereby undertakes to:
(a) (1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement
to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on
the plan of distribution;
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement for the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering;
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering; and
(b) If the Registrant requests acceleration of the effective date of the
Registration Statement under Rule 461 under the Securities Act, the Registrant
acknowledges that:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of
the small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
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as part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the Trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
The undersigned Registrant hereby undertakes to file a sticker
supplement pursuant to Rule 424(c) under the Act during the distribution period
describing each property not identified in the prospectus at such time as there
arises a reasonable probability that such property will be acquired and to
consolidate all such stickers into a post-effective amendment filed at least
once every three months, with the information contained in such amendment
provided simultaneously to the existing investors. Each sticker supplement shall
disclose all compensation and fees received by managers of the Company and its
affiliates in connection with any such acquisition. The post-effective amendment
shall include audited financial statements meeting the requirements of Rule 3-
14 of Regulation S-X only for properties acquired during the distribution
period.
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SIGNATURES
sb
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-11 and authorized this Amendment to the
registration statement to be signed on its behalf by the undersigned, in the
City of New York, State of New York, on June 4, 1996.
EAST COAST CAPITAL COMPANY, LLC
By: Norman Dansker
Manager
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following person in the capacities and
on the dates stated.
Manager, Principal June 4, 1996
Norman Dansker Executive Officer,
Principal and
Financial Officer
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EXHIBIT 8
May 20, 1996
East Coast Capital Company, LLC
110 East 59th Street, 6th Floor
New York, New York 10022
Gentlemen:
We have acted as counsel to East Coast Capital Company, LLC (the
"Company") in connection with the proposed public offering of $10,000,000
principal amount of debentures (the "Debentures") pursuant to a registration
statement on Form S-11 (the "Registration Statement") as filed with the
Securities and Exchange Commission. This opinion is being rendered pursuant to
your request. All capitalized terms herein, unless otherwise specified, have the
meaning assigned to them in the Registration Statement.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Registration Statement. In our examination, we have assumed the genuineness
of all signatures, the legal capacity of all natural persons, the authenticity
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such copies. This
opinion is subject to the receipt by counsel prior to the Effective Date of
certain written representations and covenants of the Company and upon which we
are relying in rendering this opinion.
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
issued thereunder, pertinent judicial authorities, interpretive rulings of the
Internal Revenue Service and such other authorities as we have considered
relevant.
Based upon and subject to the foregoing, we are of the opinion that:
(a) Payments of interest on the Debentures will generally result
in taxable interest income to the recipient of such payments
and the recipient will be required to pay the tax on such
income.
(b) A holder of Debentures will recognize gain or loss on the sale
or redemption of the Debentures equal to the difference
between the sale price (exclusive of any amount paid for
accrued interest) and the holder's tax basis in the Debenture
(generally the purchase price to the holder). Any gain or loss
generally will be capital gain or loss and long-tem if the
Debenture is held for more than one year.
(c) Holders who hold the Debentures for investment purposes should
treat all reportable interest (whether actually received or
constituting original issue discount under the Code) as
portfolio income under applicable Code provisions.
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(d) The Company's deposit of funds with the Trustee to effect the
discharge of the Company's obligations under the Debentures
and the Indenture prior to redemption or maturity of the
Debentures, will have no effect on the amount of income
realized or recognized (gain or loss) by the Debenture Holders
or the timing of recognition of gain or loss for federal
income tax purpose.
The tax consequences referred to in the preceding paragraphs are based
on the current provisions of the Internal Revenue Code of 1986, as amended, and
the currently applicable regulations promulgated thereunder. The Internal
Revenue Code of 1986, as amended, currently provides that gain from the sale of
long-term capital assets will be taxed at a maximum federal rate of 28%. There
can be no assurance, however, that any such provisions may not change in the
future, either retroactively or prospectively, resulting in changes in such tax
consequences. Several proposals are presently pending in Congress to change the
capital gains tax. It is uncertain as to which, if any, of such proposals will
be acted on and no assurance can be given with respect to any proposed changes
in the law affecting taxation of capital gains.
This opinion is being furnished only to you and is solely for your benefit in
connection with the Debenture Offering and may not be used or relied upon for
any other purpose and may not be circulated, quoted or otherwise referred to for
any other purpose without our express written consent.
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<PAGE>
We hereby consent to the reference to our firm under the caption " Federal
Income Tax Consequences" and to the caption "Experts" and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
McLaughlin & Stern, LLP
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<PAGE>
EXHIBIT 10.3
ESCROW AGREEMENT
ESCROW AGREEMENT made this ___ day of _____, 1996, by and between East
Coast Capital Company, LLC ("East Coast" or the "Company") with an office at 110
East 59th Street, 6th Floor, New York, New York 10022 and McLaughlin & Stern,
LLP (the "Escrow Agent") with an office at 380 Lexington Avenue, 43rd Floor, New
York, New York 10168.
W I T N E S S E T H :
WHEREAS, East Coast is offering, through its executives and manager and
participating broker/dealers on an "all or none" basis as to $1,000,000 and on a
"best efforts" basis, $9,000,000 aggregate principal amount of its Series A
Registered Subordinate Debentures (the "Debentures") pursuant to a Prospectus
dated May __, 1996 (the "Prospectus"); and
WHEREAS, in accordance with the Prospectus, the purchase price for the
Debentures (the "Escrow Funds") will be deposited in an escrow account with the
Escrow Agent;
WHEREAS, East Coast desires the Escrow Agent to hold in escrow the
Escrow Funds received until East Coast notifies the Escrow Agent in writing that
all conditions precedent to the release of such funds have been satisfied.
NOW THEREFORE, in consideration of the mutual covenants and promises
herein contained and subject to the conditions hereinafter set forth, the
parties agree as follows:
i. Escrow Deposits. The Company shall cause to be delivered for deposit with
the Escrow Agent checks made payable to "McLaughlin & Stern, LLP as Escrow
Agent" from individual subscribers. In compliance with the Interest and
Dividend Tax Compliance Act of 1983, East Coast has requested
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that each subscriber furnish to the Escrow Agent such subscriber's taxpayer
identification number and a statement certified under penalties of perjury that
(a) such taxpayer identification number is true and correct and (b) the
subscriber is not subject to the requirements of such Act providing for
withholding of 20% of reportable interest, dividends or other payments.
ii. Investment of Escrow Deposits. The Escrow Agent shall deposit the Escrow
Funds in an interest-bearing account for the benefit of the subscribers and
will invest the same from time to time as funds become available (subject to
the limitations on investments set forth in the Prospectus).
iii. Disposition of Subscriptions.
(1) Within 24 hours after receipt by the Escrow Agent of
written notification from the Company that all the
conditions precedent to the release of the Escrow
Funds by the Escrow Agent have been satisfied, the
Escrow Agent will release all funds held in escrow in
accordance with the written instructions of the
Company.
(2) Upon receipt of written instructions from the Company
stating that the application of any individual
subscriber has been rejected by the Company or
withdrawn by such subscriber, the Escrow Agent will
refund promptly the amount deposited with it by such
subscriber, together with such subscriber's pro-rata
share of any interest earned on the funds while in
the escrow account without deduction of any kind, by
mailing a check in such aggregate amount directly to
such subscriber. The Company agrees to furnish the
Escrow Agent with the names and addresses of the
subscribers and any other information which may be
required to satisfy the requirements of this
Agreement.
(3) In the event that the Escrow Agent has not received, for deposit
in escrow, the
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aggregate amount of $1,000,000 by _______, 1996,
(unless extended by the Company to ______, 1997) the
Escrow Agent will return promptly all Escrow Funds
held by it to the depositing subscribers, together
with each subscriber's pro-raga share of any interest
earned on the funds while in escrow without deduction
of any kind.
iv. Obligations of the Escrow Agent. It is agreed that the duties
and obligations of the Escrow Agent are those herein specifically
provided and no other, that the Escrow Agent shall have no
liability under, or duty to inquire into, the terms and provisions
of this Escrow Agreement, that its duties are purely ministerial
in nature, and that the Escrow Agent shall incur no liability
whatsoever for any error of judgment, or for any action taken or
omitted by it, or any action suffered by it to be taken or omitted,
or for any mistake of fact or law, except for willful misconduct or
gross negligence. The Escrow Agent may consult with counsel of
its choice, including in-house counsel, and shall be fully
protected by, and shall not be liable for, any action taken,
suffered or omitted by it in accordance with the advice of such
counsel, except for willful misconduct or gross negligence. The
Escrow Agent shall not be bound by any modification, amendment,
termination, cancellation, recision or supersession of this
Escrow Agreement unless the same shall be in writing and signed by
all of the other parties hereto and, if its duties as an Escrow
Agent hereunder are affected thereby unless it shall have given
prior written consent thereto. In the event that the Escrow Agent
shall be undertaken as to its duties or rights hereunder or shall
receive instructions, claims or demands from the parties hereto
which, in its opinion, are in conflict with any of the provisions
of this Escrow Agreement, it shall be entitled to refrain from
taking any action other than to keep safely all property held in
escrow until it shall be directed otherwise in writing by the
Company or by a final order of judgment of a court of competent
jurisdiction. The Escrow Agent shall have
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no liability for following the instructions herein contained
or expressly provided for, or written instructions given by
the Company. The Escrow Agent shall have no responsibility for
the genuineness or validity of any document or other item
deposited with it and no liability for acting in accordance
with any written instructions or certificates given to it
hereunder and believed by it to be signed by the proper
parties. The Escrow Agent shall not be required to institute
legal proceedings of any kind and shall not be required to
defend any legal proceedings which may be instituted against
it in respect of the subject matter of these instructions
unless requested to do so and indemnified to its satisfaction
against the cost and expense of such defense.
v. Release of Escrow Agent. The Company may remove the Escrow
Agent at any time upon 30 days prior written notice delivered
to the Escrow Agent at the address set forth below. The
Escrow Agent at any time may resign hereunder by giving
written notice of its resignation to the parties hereto at
their address set forth below, at least 30 days prior to the
date specified for such resignation to take effect. The
Escrow Agent's sole responsibility thereafter shall be to keep
safely all property then held by it and to deliver the same
to a person designated by the Company or in accordance with
the directions of a final order of judgment of a court of
competent jurisdiction, whereupon all of the Escrow Agent's
obligations hereunder shall cease and terminate.
vi. Indemnity of Escrow Agent; Reimbursement.
(1) The Company shall indemnify, defend
and hold the Escrow Agent harmless
from and against any and all loss,
damage, tax, liability and expenses
that may be incurred by the Escrow
Agent arising out of or in
connection with its acceptance of
appointment as Escrow Agent
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hereunder (including the reasonable
legal costs and expenses of
defending itself against any claim
or liability in connection with its
performance hereunder), except as
caused by its negligence or willful
misconduct. Promptly after the
receipt by the Escrow Agent of
notice of any demand or claim or the
commencement of any action, suit or
proceeding, the Escrow Agent shall
notify the Company thereof in
writing; but the failure by the
Escrow Agent to give such notice
shall not relieve the Company from
any liability which the Company may
have to the Escrow Agent hereunder,
unless such failure to notify the
Company prejudices the Company.
(2) If the Escrow Agent shall inform the Company that any
check or instrument has been entered for collection
by it hereunder and is uncollectible and payment of
the funds represented by such check or instrument has
been made pursuant to the terms of this Escrow
Agreement, then the Company shall promptly reimburse
the Escrow Agent for such payment, and the Escrow
Agent shall deliver the returned check or instrument
to the Company; provided, however, that nothing
contained herein shall require the Escrow Agent to
invest or pay out funds which it has reason to
believe are uncollectible.
vii. Construction of the Instruments by Escrow Agent. In accepting
the terms hereof, it is agreed and understood between the
parties hereto that the Escrow Agent will not be called upon
to construe any contract or instrument in connection herewith
and shall be required to act in respect of the deposits herein
made only as directed herein.
viii. Notices. All communications under or in connection with this Escrow
Agreement
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shall be in writing and shall be mailed by registered
or certified mail, return receipt requested, or
otherwise sent by telex, telegram, telecopy or other
similar form of rapid transmission confirmed by
mailing (in the manner stated below) written
confirmation at substantially the same time as such
rapid transmission, or personally delivered to an
officer of the receiving party. All such
communications shall be mailed, sent or delivered:
(1) If to the Company:
East Coast Capital Company, LLC
110 East 59th Street, 6th Floor
New York, New York 10022
Attention: Manager
or to such other address as it may furnish the other parties in writing.
(2) If to the Escrow Agent:
McLaughlin & Stern, LLP
380 Lexington Avenue, 43rd Floor
New York, New York 10168
Attention: David W. Sass, Esq.
or to such other address as it may furnish the other parties in writing.
Any notice so addressed and mailed by registered or certified
mail shall be deemed to be given when so mailed, and any notice so delivered in
person shall be deemed to be given when receipted for by, or actually received
by, an authorized officer of the Company or the Escrow Agent, as the case may
be.
ix. Compensation of Escrow Agent. The Escrow Agent shall serve without
compensation. The Company shall reimburse the Escrow Agent for all out-of-
pocket expenses incurred by the Escrow Agent in performing its duties hereunder.
x. Miscellaneous.
(1) Any Escrow Funds and interest earned thereon to be delivered to a
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subscriber shall be delivered to such
subscriber by check at the address set forth
in the list delivered to the Escrow Agent
pursuant to Section 3(b).
(2) This Escrow Agreement constitutes the
complete agreement of the Company and the
Escrow Agent with respect to the subject
matter hereof, and may not be modified or
amended except by written instrument
executed by the parties.
(3) This Escrow Agreement shall be binding upon
the Company and the Escrow Agent, and their
respective successors and assigns, and shall
inure to the benefit of the Company and the
subscribers, their respective heirs, legal
representatives, successors and assigns.
(4) This Escrow Agreement shall be governed by
and construed in accordance with, the laws
of the State of New York as the same are
applied to contracts executed and to be
performed entirely in such state.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Escrow Agreement as of the day and year first written above.
EAST COAST CAPITAL COMPANY, LLC
By: Norman Dansker
Title: Manager
McLAUGHLIN & STERN, LLP
By: David W. Sass, Esq.
Title: Partner
