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 10/31/01
Minimum Investment of $5,000 At Par
Minimum Offering: $1,000,000
ST 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 "Business."
For information concerning special risks by reason of the fact that the
Manager of the Company was previously management of Coronet Capital Company, a
similar company that filed for protection under the bankruptcy laws and that the
Manager, Norman Dansker is currently involved in related litigation and
litigation involving the Federal Deposit Insurance Corporation ("FDIC") that may
result in substantial monetary penalties.
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 October 31, 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: October 31 October 31
Interest Rate: 9% 11%
The Debentures are unsecured debt obligations of the Company and
will be subordinated to all Senior Indebtedness (as hereinafter
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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. 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 with personal funds 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."
Prospective investors will not have the opportunity to evaluate any
mortgages to be the subject of loans by the Company because the Company has not
identified any specific property it intends to make loans to and does not have
an operating history. See "Risk Factors".
Prior to this Offering, there has been no public market for the
Debentures and no active trading market for the Debentures is expected to
develop. To the extent that there is limited trading, the Debentures may sell at
a substantial discount. The Debentures offered herein will not be rated. For
information regarding the factors considered in determining the initial public
offering price of the Debentures see "The Offering". 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.
AN INVESTMENT IN THE DEBENTURES DESCRIBED HEREIN INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS", PAGE 8
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."
July 10, 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 January 1, 1996, unless extended for an
additional six month period by the Company, with notice to subscribers to July
9, 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 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
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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.
Prior Bankruptcy and Litigation Affecting the Manager. Norman Dansker,
the Manager of the Company was previously a co-general partner of Coronet
Capital Company ("Coronet"), 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 Coronet as well as with
the Federal Deposit Insurance Corporation ("FDIC").
(I) Coronet Litigation. On November 2, 1992, Coronet's
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.
Adversary Proceeding N. 92-1078A (FGC)(the "Trustee`s Action"). The Trustee's
complaint alleged eight fraudulent conveyance claims seeking the avoidance of
$8,605,198 in pre-petition cash distributions made by Coronet to its general and
limited partners in 1989 and 1990 and seeking to recover these amounts from
their respective recipients; one count each of common law fraud, waste and
mismanagement against Norman Dansker and three others (the "Dansker Defendants")
seeking to recover an amount exceeding $30 million on each claim for the losses
sustained by Coronet beginning in 1989; and all direct and indirect compensation
paid by Coronet to the Dansker Defendants in 1989 and 1990 in the amounts of
$582,500 and $74,000, respectively, or $656,500 in the aggregate. On August 25,
1993, the Trustee filed an amended complaint asserting four additional
fraudulent conveyance claims against two of the Dansker Defendants, although not
against Norman Dansker, seeking the avoidance of the post-bankruptcy petition
cancellation of a promissory note by these
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defendants.
On February 4, 1993, five of Coronet's limited partners (the "Naporano
Defendants") jointly filed an answer to the Trustee's Complaint and asserted
cross-claims against the Dansker Defendants for fraud, breach of fiduciary duty
and indemnification and contribution. All five of these limited partners
subsequently voluntarily dismissed their claims against the Dansker Defendants.
Also, on February 4, 1993, another group of nineteen of Coronet's
limited partners (the "Beir Defendants") jointly filed an answer to the
Trustee's Complaint and asserted cross-claims against the Dansker Defendants for
indemnification, fraud, waste and mismanagement and breach of contract. On
February 24, 1993, the Beir Defendants filed amended cross-claims against the
Dansker Defendants, by which three limited partners were dropped as cross-claim
plaintiffs and three other limited partners were added as cross-claim
plaintiffs. As discussed below, the cross-claims of four of the Beir Defendants
were dismissed in June 1996, and a motion to dismiss the remaining cross-claims
is pending.
Pursuant to a stipulation of settlement entered into on March 30, 1993,
the Trustee settled all claims against the Beir Defendants, for which the Beir
Defendants paid the Trustee $1,006,542 in the aggregate.
Pursuant to a stipulation of settlement entered into on September 17,
1993, the Trustee settled all claims against the Dansker Defendants, for which
the Dansker Defendants paid the Trustee $2,650,000 in the aggregate.
Pursuant to a stipulation of settlement entered into on April 7, 1994,
the Trustee settled all claims against the Naporano Defendants.
On November 30, 1994, upon the Trustee's application, the Bankruptcy
Court issued an order dismissing all claims asserted by the Trustee in the
Trustee's Action and severing them from the remaining cross-claims against the
Dansker Defendants.
On March 21, 1995, the United States District Court for the Southern
District of New York withdrew the reference of the remaining cross-claims from
the Bankruptcy Court and, on May 19, 1995, assigned them to the District Court
as Case No. 95 Civ. 3691 (DAB).
On February 21, 1996, fifteen of the Beir Defendants, plus an
additional limited partner of Coronet, filed amended cross-claims against the
Dansker Defendants and others. On May 9, 1996, the Dansker Defendants filed a
motion to dismiss these amended cross-claims, which is pending before the
District Court.
Also, on May 9, 1996, the Dansker Defendants filed a motion to dismiss
the cross-claims of (1) the only one of the Naporano Defendants remaining and
(2) the four Beir Defendants who did not join in the February 21, 1996 amended
cross-claims, which cross-claims were dismissed by the District Court on May 22,
1996 and in
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June 1996, respectively.
(ii) FDIC Litigation. In January 1996 the FDIC, as receiver of
First New York Bank for Business, commenced an action in the United States
District Court, Southern District of New York 95 Civ. 9529, Southern District of
New York against certain former directors, including Norman Dansker, the Manager
of the Company, as a director, alleging, among other things, breach of fiduciary
duty, gross negligence, and other wrongful and improper conduct which resulted
in significant losses to First New York Bank for Business. 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 claims this conduct, which it claims continued despite regulator
warnings, gave rise to losses exceeding $25,000,000. The complaint includes
allegations that improper loans were made to entities related to Mr. Dansker,
including Coronet, Coronet Properties Co. and others. Each count seeks in excess
of twenty-five million dollars. The time for defendants to answer or respond to
the complaint has not yet expired.
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 make real estate loans and to acquire existing
mortgages. 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. See "Use of Proceeds."
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. Such lack of procedures could result in the Company
making loans that do not have adequate cash flow which could cause the Company
to have inadequate funds to meet its obligations under the Indenture and
possible bankruptcy if the Company cannot meet its obligations.
See "Business - Coronet Capital Distinguished".
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. See "Desciption of Debentures".
Management and Control of Company. 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
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Company's success is also dependent on its ability to recruit and retain
additional experienced personnel of which there can be no assurance. Mr.
Dansker, as Manager of the Company, may not be removed except for cause upon
unanimous consent of all members of the Company. The time required to defend the
lawsuits to which Mr. Dansker is subject could interfere with the time available
to him to manage the affairs of the Company. See "Management".
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. See
"Business".
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."
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. See
"Business".
Risks of Junior Mortgages and Wraparound Mortgages. Certain of
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the mortgages that may be originated or acquired by the Company may be Junior
Mortgages, including Wraparound Mortgages, which will be subordinate to the
liens of First Mortgages. If the owner of a mortgaged property fails to make a
payment due on a First Mortgage where the Company is the owner of the Junior
Mortgage, the holder of the First Mortgage may commence foreclosure proceedings.
There can be no assurance that the Company will have funds available to cure a
default on the First Mortgage in order to prevent foreclosure on such First
Mortgage. In the event of a foreclosure on the First 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
First 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 First Mortgage, which accelerates the amount due under the First
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 with the Company required to make any payments
due on such other mortgages from the payments received on the Wraparound
Mortgage. Wraparound Mortgages may entail greater risk than if they 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 First Mortgage, the
holder of the First 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. See "Business".
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. 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 First Mortgages can foreclose. See
"Business".
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
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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 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.See "Business".
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."
Absence of Public Market. Prior to this Offering, there has been no
public market for the Company's Debentures. It is not expected, that an active
trading market for such securities will develop. The Debentures will not be
rated. Investors must anticipate that they may have an ill-liquid investment for
the term of the Debentures. See "Plan of Offering".
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. See "Business".
Competition. In connection with the making of investments, the
Company may experience significant competition from banks,
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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. See "Business".
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
business , 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 customary 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, ratably,
than the other creditors of the Company. See "Description
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of Debentures -- Subordination."
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 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. See "Business".
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.
See "Business".
Default by Mortgagor and Foreclosure. 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
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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. See "Business".
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. See "Business".
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. See "Business".
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 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
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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. See "Business".
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. See "Use of Proceeds".
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. See "Business".
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."
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. See
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"Description of Debentures".
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 October 31, 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: October 31 October 31
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 from
personal funds 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, May 31,
1996 1996
(unaudited)
ASSETS
Cash $ 220,947 $152,611
Organization costs 13,053 24,553
Offering costs 25,000 86,273
---------- --------
$ 259,000 $263,437
LIABILITIES AND
MEMBERS' EQUITY
Liabilities
Accounts payable and
accrued expenses $ 9,000 $13,437
----------
Members' equity
Total members' equity 254,000 254,000
Less - Receivable
from members 4,000 4,000
---------- -------
250,000 250,000
$ 259,000 $263,437
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 8% 680,000 6.8%
(ii) Costs and Expenses 140,000 14% 150,000 1.45%
-------- ----------
Of Offering
NET PROCEEDS FROM
SALE OF DEBENTURES $ 780,000 78% $9,170,000 91.75%
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
May 31, 1996, and as adjusted to reflect the sale by the Company of the
$10,000,000 principal amount of Debentures being offered hereby.
May 31, 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
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close a transaction; who may not come within the credit or current 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
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include a right to receive an amount equal to a share of the profit on the sale
of the real 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.
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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. 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.
The failure of Coronet was primarily caused by the economic
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depression and downturn in the real estate industry. Coronet was an asset based
lender/borrower that lent or borrowed money based primarily on the resale value
of thousands of cooperative, condominium, residential apartment units that
collateralized the loans it either made to others or borrowed against. These
loans would be paid down as the collateral in question was sold in the normal
course of business. Accordingly, these loans were not deemed income stream loans
(unlike the proposed lending of the Company), and were made at a time that
turned out to be the peak of a then healthy real estate market. With the
subsequent collapse of the real estate market in the Northeast (and in
particular in those geographic areas in which Coronet did business), the value
of the collateral that secured these loans likewise dropped in value thereby
resulting in insufficient cash proceeds from the routine sale of such assets.
Accordingly, Coronet went into default on loans owned by it. Additionally,
Coronet was involved in new luxury single family home construction. Such
residences were planned, financed and built in a healthy real estate market.
With the onset of the decline in the real estate market in the Northeast, prices
plummeted causing Coronet to be unable to sell its homes at amounts sufficient
to satisfy borrowings.
The Company will make its loans based on a present income stream to
maintain current loan payments and will not depend on the prepayment of such
loans based solely upon the future resale value of the collateral that secures
them. The Company believes that its lending approach will enable it to be less
affected by market fluctuations. No assurance can be given however that the
income stream supporting the Company's mortgages will be maintained sufficient
to support the payments required under the loans made by the Company. In the
event the income stream is not sufficient to satisfy principal and interest
payments on the Company's mortgages, the Company could be faced with similar
problems as Coronet. In the event that were to occur investors would likely
loose their investment.
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
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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 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. No indemnification will be provided for any
actions or transactions affecting or involving Coronet.
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
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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.
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
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
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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.
On January 7, 1991 100 Fairfield Avenue Corporation ("Corporation") a
Connecticut corporation of which Norman Dansker and Mitchell Gordon were
President and Vice-President respectively, and 100 Fairfield Avenue Associates
("Associates") a New York limited partnership of which Norman Dansker was a
principal, each filed a voluntary petition for reorganization under Chapter 11
of the bankruptcy Code in the United States Bankruptcy Court for the District of
Connecticut. The Corporation was the fee owner of an office building, as nominee
for Associates, in this single asset bankruptcy. On June 21, 1991, the Court
entered an order converting each case to Chapter 7 under the Bankruptcy code and
appointed a Trustee and oversee the liquidation. The stipulation settling all
the forgoing proceedings was approved by the Bankruptcy Court on August 30,
1995. All sums due under the stipulation have been paid and the matter has been
finalized.
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Key Executives
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 workout 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.
On February 25, 1993, Hudson Ridge Owners Corp. ("HRDC") a New Jersey
cooperative housing corporation in which Mitchell H. Gordon was the Vice
President, filed a voluntary petition for reorganization under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the district of New
Jersey. The stipulation settling all the forgoing proceedings was approved by
the Bankruptcy Court on December 7, 1993. No sums were due under the settlement.
See "Management - Norman Dansker".
Executive Compensation
Mr. Norman Dansker as the Manager will receive annual
compensation of $75,000.
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
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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, 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.
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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 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.
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:
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
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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 class will
share in profits, if any, since Class I members have a
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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.
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.
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(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.
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 October 31, 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
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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 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 October 31, 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%. Interest on the Debentures will be
payable quarterly within five (5) business days following the end of each
calander quarter from the date of issue of the Debentures.
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
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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
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
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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 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
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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 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 May 31, 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
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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.
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 Debenture Holder stating that such Debenture Holder desires to
communicate with other Debenture Holders with respect to such holders rights
under the Indenture or under the Debentures, and upon providing the Trustee with
the form of proxy or other communication which the Debenture Holder proposes to
transmit, and upon receipt by the Trustee from the Debenture Holder of
reasonable proof that 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 Holder 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 Holder 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 Holder 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
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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 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
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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 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
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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.
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 with
personal funds 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 January 9, 1997, unless
extended for an additional six month period by the Company, with notice to
subscribers to July 9, 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
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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.
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
excluding home furnishings and automobiles. 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.
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(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.
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.
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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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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.
Friedman Alpren & Green LLP
New York, New York
March 1, 1996
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EAST COAST CAPITAL COMPANY, LLC
Balance Sheet
February 28, May 31,
1996 1996
(Unaudited)
ASSETS
Cash $220,947 $152,611
Organization costs 13,053 24,553
Offering costs 25,000 86,273
-------- -------
$259,000 $263,437
LIABILITIES AND MEMBERS' EQUITY
Liabilities
Accounts payable and
accrued expenses $ 9,000 $ 13,437
Members' equity
Total members' equity 254,000 254,000
Less Receivable from
members 4,000 4,000
------- -------
250,000 250,000
------- --------
$259,000 $263,437
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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 May 31, 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 ortized 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.
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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.
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TABLE OF CONTENTS
Page
Risk Factors..........................4
Prospectus Summary...................14
Use of Proceeds......................18
Capitalization.......................19
Management's Discussion and
Analysis of Financial
Condition and Results
of Operations.......................20
Business.............................20
Management...........................27
Certain Transactions.................31
Members..............................33
Description of Debentures............34
Plan of Offering.....................42
Additional Information...............44
Legal Matters........................45
Experts..............................45
Glossary.............................46
Financial Statements.................48
Until August 5, 1996 (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
----------------------------
July 10, 1996
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Securities and Exchange Commission
Washington, D.C. 20549
Attention: Ms. Goldie B. Walker
Financial Analsyt
Re: East Coast Capital Company, LLC
Form 424(b)
Filed July 12, 1996
Dear Ms. Walker:
Pursuant to your letter dated August 1, 1996, pursuant to Rule 424(b),
we submit herewith Prospectus of East Coast Capital Company, LLC. Please
advise if there is any further documentation required.
Thank you.
Very truly yours,
David W. Sass
