Line three greased 9-in. round baking pans with waxed paper. Grease waxed paper and set aside. In small saucepan, melt chocolate with water over low heat; cool.
Preheat oven to 350°. In a large bowl, cream butter and sugar until light and fluffy. Beat in 4 egg yolks, 1 at a time, beating well after each addition. Blend in melted chocolate and vanilla. Combine flour, baking soda and salt; add to the creamed mixture alternately with buttermilk, beating well after each addition.
In a small bowl and with clean beaters, beat the 4 egg whites until stiff peaks form. Fold a fourth of the egg whites into creamed mixture; fold in remaining whites.
Pour batter into prepared pans. Bake 24-28 minutes or until a toothpick inserted in center comes out clean. Cool 10 minutes before removing from pans to wire racks to cool completely.
For frosting, in a small saucepan, heat sugar, milk, butter and egg yolks over medium-low heat until mixture is thickened and golden brown, stirring constantly. Remove from heat. Stir in coconut, pecans and vanilla extract. Cool until thick enough to spread. Spread a third of the frosting over each cake layer and stack the layers.
In a microwave, melt chocolate and shortening; stir until smooth. Drizzle over cake.