Amendment No. 2 to Form S-1
Table of Contents

As filed with the Securities and Exchange Commission on July 31, 2006.

Registration No. 333-134087

 


SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


Amendment No. 2

to

FORM S-1

REGISTRATION STATEMENT

Under

THE SECURITIES ACT OF 1933

 


EVERCORE PARTNERS INC.

(Exact name of Registrant as specified in its charter)

 

Delaware

(State or other jurisdiction of

incorporation or organization)

 

6199

(Primary Standard Industrial

Classification Code Number)

 

20-4748747

(I.R.S. Employer

Identification No.)

55 East 52nd Street

43rd Floor

New York, NY 10055

Telephone: (212) 857-3100

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 


Adam B. Frankel, Esq.

General Counsel

Evercore Partners Inc.

55 East 52nd Street

43rd Floor

New York, NY 10055

Telephone: (212) 857-3100

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

 

Vincent Pagano, Jr., Esq.

Joshua Ford Bonnie, Esq.

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, NY 10017-3954

Telephone: (212) 455-2000

Facsimile: (212) 455-2502

 

Mark G. Borden, Esq.

Stuart R. Nayman, Esq.

Wilmer Cutler Pickering Hale and Dorr LLP

399 Park Avenue

New York, NY 10022

Telephone: (212) 230-8800

Facsimile: (212) 230-8888

 


Approximate date of commencement of the proposed sale of the securities to the public:    As soon as practicable after the Registration Statement becomes effective.

 


If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    ¨

 


CALCULATION OF REGISTRATION FEE

 

 

Title Of Each Class Of

Securities To Be Registered

  

Amount to be

Registered(1)

   Proposed Maximum
Offering Price Per
Share
  

Proposed Maximum
Aggregate Offering

Price(2)

  

Amount of

Registration Fee(3)

Class A Common Stock, par value

    $.01 per share

   4,542,500 shares    $ 20.00    $ 90,850,000    $ 9,720.95
 
(1) Includes 592,500 shares subject to the underwriters’ option to purchase additional shares.
(2) Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(a) under the Securities Act of 1933.
(3) $9,228.75 of which has been previously paid.

 


The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 



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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, dated July 31, 2006

PROSPECTUS

3,950,000 Shares

LOGO

Class A Common Stock

 


This is Evercore Partners Inc.’s initial public offering of Class A common stock. Evercore Partners Inc. is selling all of the shares in this offering.

We expect the public offering price to be between $18.00 and $20.00 per share. Currently, no public market exists for the shares. Our Class A common stock has been approved for listing on the New York Stock Exchange under the symbol “EVR”.

Investing in our Class A common stock involves risks. See “ Risk Factors” beginning on page 14.

 

    

Per Share

  

Total

Initial public offering price

   $                        $                    

Underwriting discount

   $                        $                    

Proceeds, before expenses, to Evercore Partners Inc. 

   $                        $                    

We have granted the underwriters a 30-day option to purchase up to 592,500 additional shares at the public offering price less the underwriting discount if the underwriters sell more than 3,950,000 shares of Class A common stock in this offering.

We intend to use a portion of the proceeds from this offering to repay all of our outstanding borrowings under our credit agreement. Affiliates of some of the underwriters are the lenders under our credit agreement and will, accordingly, receive the proceeds used to repay those borrowings.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Lehman Brothers, on behalf of the underwriters, expects to deliver the shares on or about                      , 2006.

 


 

LEHMAN BROTHERS

 

GOLDMAN, SACHS & CO.   JPMORGAN
KEEFE, BRUYETTE & WOODS  
  FOX-PITT, KELTON  
  E*TRADE FINANCIAL

                     , 2006.


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LOGO

 

    Founded in 1996

 

    Advisory and Investment Management businesses

 

    32 Senior Managing Directors*

 

    Offices in New York, Los Angeles, San Francisco, Mexico City and Monterrey*

 

  Selected Advisory Transactions  

LOGO

 

  Private Equity Funds  
  as of March 31, 2006  
             
1997   2001   2000   2003
Evercore Capital
Partners I
  Evercore Capital
Partners II
  Evercore Ventures   Discovery Americas*
$512 million committed   $663 million committed   $62 million committed   $68 million committed

 

* Gives effect to our combination with Protego Asesores prior to this offering.
In the majority of the transactions presented, Evercore provided financial advisory services in conjunction with one or more other investment banking firms.
†† We do not consolidate these funds in our financial statements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures—Revenue” for a discussion of how we generate revenue from the private equity funds we manage.


Table of Contents

Table of Contents

 

    Page

Summary

  1

Risk Factors

  14

Forward-Looking Statements

  28

Organizational Structure

  29

Use of Proceeds

  34

Dividend Policy

  34

Capitalization

  35

Dilution

  36

Unaudited Pro Forma Financial Information

  37

Selected Historical Financial and Other Data

  46

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  51
    Page

Business

  71

Management

  88

Related Party Transactions

  102

Principal Stockholders

  107

Description of Capital Stock

  108

Shares Eligible for Future Sale

  111

Material U.S. Federal Tax Considerations for Non-U.S. Holders of Class A Common Stock

  113

Underwriting

  116

Legal Matters

  122

Experts

  122

Where You Can Find More Information

  122

Index to Financial Statements

  F-1

 

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus.

 


Through and including                      , 2006 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 


In this prospectus, references to “Evercore”, “Evercore Partners”, the “Company”, “we”, “us” or “our” refer (1) prior to the consummation of the reorganization into a holding company structure as described under “Organizational Structure”, to Evercore Holdings, which is comprised of certain consolidated and combined entities under common ownership by Evercore’s Senior Managing Directors, and (2) after such reorganization, to Evercore Partners Inc. and its subsidiaries. Unless the context otherwise requires, references to (1) “Evercore Partners Inc.” refer solely to Evercore Partners Inc., a Delaware corporation, and not to any of its subsidiaries and (2) “Evercore LP” refer solely to Evercore LP, a Delaware limited partnership, and not to any of its subsidiaries. As part of the reorganization, Evercore will be combined with Protego Asesores S.A. de C.V., a Mexican sociedad anónima de capital variable, and its related subsidiaries, and Protego SI, S.C., a Mexican sociedad civil (an associated company), such entities being collectively referred to in this prospectus as “Protego”, unless the context otherwise requires. Completion of the reorganization, including the combination with Protego, will occur prior to this offering.

Unless indicated otherwise, the information included in this prospectus assumes no exercise by the underwriters of the option to purchase up to an additional 592,500 shares of Class A common stock from us and that the shares of Class A common stock to be sold in this offering are sold at $19.00 per share, which is the midpoint of the price range indicated on the front cover of this prospectus.

 

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SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including the section entitled “Risk Factors” and the historical financial statements and related notes, before you decide to invest in our Class A common stock.

Evercore Partners

Evercore Partners is the leading investment banking boutique in the world, based on the dollar volume of announced worldwide merger and acquisition transactions on which we have advised since 2001. When we use the term “investment banking boutique”, we mean an investment banking firm that does not underwrite public offerings of securities or engage in commercial banking activities. We provide advisory services to prominent multinational corporations on significant mergers, acquisitions, divestitures, restructurings and other strategic corporate transactions. Evercore also includes a successful investment management business through which we manage private equity funds for sophisticated institutional investors. We serve a diverse set of clients around the world from our offices in New York, Los Angeles and San Francisco.

Our senior leadership is comprised of Roger Altman, the former U.S. Deputy Treasury Secretary and Vice Chairman of The Blackstone Group; Austin Beutner, a former General Partner of The Blackstone Group; and Eduardo Mestre, the former head of Citigroup’s Global Investment Bank. On May 12, 2006, we agreed to combine our business with that of Protego Asesores, a leading investment banking boutique in Mexico founded by Pedro Aspe. Following our combination with Protego, Mr. Aspe, the former Minister of Finance of Mexico, will join our management team.

From the time of our founding in 1996, we have grown by expanding the range of our advisory and investment management services. In our advisory business, we have thirteen Senior Managing Directors with expertise and client relationships in a number of industry sectors, including telecommunications, technology, media, energy, general industrial, consumer products and financial institutions. In addition, we have augmented our advisory business by adding professionals with extensive restructuring experience. In our investment management business, we have eight Senior Managing Directors with expertise and client relationships in a variety of industries. We have raised three private equity funds, with capital commitments as of March 31, 2006 of over $1.2 billion. Our revenue has grown to $125.6 million in 2005 from $46.0 million in 2001, a compound annual growth rate of 28.5%.

We have grown from three Senior Managing Directors at our inception to 25 today. With the pending Protego combination, we will add another seven Senior Managing Directors. We expect to continue our growth by hiring additional highly qualified professionals with a broad range of product and industry expertise, expanding into new geographic areas, raising additional private equity funds and diversifying our investment management services.

Advisory

Our advisory business provides confidential, strategic and tactical advice to both public and private companies, with a particular focus on large, multinational corporations. By virtue of their prominence, size and sophistication, many of our clients are more likely to require expertise relating to larger and more complex situations. We have advised on numerous noteworthy transactions, including:

 

•      General Motors on its pending sale of a 51% interest in GMAC to an investor group

  

•      Credit Suisse on its pending sale of Winterthur

 

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•      AT&T on its pending acquisition of BellSouth

  

•      VNU on its sale to a private equity consortium

•      CVS on its acquisition of certain assets of Albertsons

  

•      Swiss Re on its acquisition of General Electric’s reinsurance business

•      Tyco on its pending split-up

  

•      Cendant on its split-up

•      E*Trade on its acquisitions of Harrisdirect and Brown & Co.

  

•      StorageTek on its sale to Sun Microsystems

•      SBC on its acquisition of AT&T

  

•      SBC on Cingular’s acquisition of AT&T Wireless

•      General Mills on its acquisition of Pillsbury

  

•      CBS on its sale to Viacom

Our approach is to work as a trusted senior advisor to top corporate officers and boards of directors, helping them determine and devise strategies for enhancing shareholder value. We believe this relationship-based approach to our advisory business gives us a competitive advantage in serving a distinct need in the market today. Furthermore, we believe our advisory business is differentiated from that of our competitors in the following respects:

 

    Objective Advice with a Long-Term Perspective. We seek to recommend shareholder value enhancement strategies or other financial strategies that we would pursue ourselves were we acting in management’s capacity. This approach often includes advising our clients against pursuing transactions that we believe do not meet that standard.

 

    Transaction Excellence. Since the beginning of 2004, we have advised on more than $300 billion of announced transactions, including acquisitions, sale processes, mergers of equals, special committee advisory assignments, recapitalizations and restructurings. We have provided significant advisory services on multiple transactions for Accenture, Dow Jones, EDS, General Mills and AT&T (including a predecessor company, SBC), among others.

 

    Senior Level Attention and Experience. The Senior Managing Directors in our advisory business participate in all facets of client interaction, from the initial evaluation phase to the final stages of executing our recommendations. Our advisory Senior Managing Directors have, on average, more than 22 years of relevant experience.

 

    Independence and Confidentiality. We do not underwrite securities, publish securities research, or act as a lender. This enables us to avoid the potential conflicts that may arise from these activities at larger, more diversified competitors. In addition, we believe our commitment to discretion and the smaller size of our firm enhances our ability to provide our clients with strict confidentiality.

Our advisory business generates revenue from fees for providing advice and investment banking services on mergers, acquisitions, restructurings and other strategic transactions. In 2005 our advisory business generated $110.8 million, or 88.2%, of our revenue and earned advisory fees from 58 clients. In the first quarter of 2006 our advisory business generated $32.4 million, or 71.0%, of our revenue and earned advisory fees from 20 clients.

Investment Management

Our investment management business manages three private equity funds with aggregate capital commitments of over $1.2 billion as of March 31, 2006. Mr. Beutner is the Chief Investment Officer of Evercore and a majority of the investment team’s Senior Managing Directors has worked together since 1999. Our team brings a diverse set of skills and experiences to the investment process and includes experienced investors, former senior executives from Fortune 100 companies, buy-side research analysts and strategic consultants. Our investment management business principally manages and invests capital on behalf of third parties. A broad

 

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range of institutional and high net worth investors, including corporate and public pension funds, endowments, foundations, insurance companies and family offices, have committed capital to the funds we manage. The investments made by our Evercore Capital Partners private equity funds are typically control or significant influence investments while the investments made by our Evercore Ventures private equity fund are typically minority investments.

Evercore Capital Partners I and Evercore Capital Partners II are value-oriented, middle-market private equity funds. We believe Evercore Capital Partners differentiates itself from other middle-market private equity funds by the breadth, depth, quality and stability of its investment team. As of March 31, 2006, the Evercore Capital Partners I and Evercore Capital Partners II private equity funds have invested $897.4 million in 18 companies. The funds typically hold investments for three to seven years and systematically evaluate exit opportunities. Evercore Ventures is an early stage private equity fund formed to invest in emerging technology companies in specific growth sectors. As of March 31, 2006, Evercore Ventures has invested $34.1 million in 19 companies.

We seek to generate attractive risk-adjusted returns in all of our funds by adhering to the following investment approach:

 

    Employing the Evercore Relationship Network. We employ the Evercore relationship network throughout the investment process to originate investments, evaluate potential opportunities thoroughly, and add value after an investment is made. We enhance the breadth and depth of our advisory relationship network with our investment management business’ advisory board, in-house operating executives and the collective experience of our investment team.

 

    Value Discipline: Focus on Risk-Adjusted Returns. We focus on the fundamentals of the underlying business rather than relying on stock market arbitrage, future acquisitions or valuation multiple expansion to achieve returns.

 

    Focus on Post-Investment Value Creation. We devote considerable time and resources to working closely with the funds’ portfolio companies to determine business strategy, allocate capital and other resources, evaluate expansion and acquisition opportunities and participate in implementing these plans.

Our investment management business primarily generates revenue from (1) fees earned for our management of the funds, (2) portfolio company fees, (3) incentive fees, referred to as carried interest, earned when specified financial returns are achieved over the life of a fund and (4) gains (or losses) on investments of our own capital in the funds. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures—Revenue—Investment Management”. Our investment management business generated $14.6 million, or 11.6%, of our revenue in 2005, which was comprised of $15.6 million of management and portfolio company fees and $(1.0) million of carried interest and investment losses. Our investment management business generated $13.1 million, or 28.7%, of our revenue in the first quarter of 2006, which was comprised of $8.0 million of management and portfolio company fees and $5.1 million of carried interest and investment gains.

The Evercore entities entitled to the management and portfolio company fees from the private equity funds we manage are being contributed to us as part of our reorganization prior to this offering. Accordingly, we will continue to receive these fees from all of the funds we manage following this offering. However, with the exception of a non-managing minority equity interest in the general partner of the Evercore Capital Partners II fund, the general partners of the private equity funds we currently manage and certain other entities through which Messrs. Altman and Beutner have invested capital in the Evercore Capital Partners I fund are not being contributed to us and will continue to be owned by our Senior Managing Directors and other third parties. Accordingly, following this offering we will no longer receive any carried interest from the Evercore Capital Partners I or Evercore Venture funds or any gains or losses arising from investments in those funds. However,

 

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through our equity interest in the general partner of the Evercore Capital Partners II fund, we will receive 8% to 9% (depending on the particular fund investment) of any carried interest realized from that fund following this offering, as well as gains (or losses) on investment based on the amount of capital in that fund which is contributed to, or is subsequently funded by, us. We also expect to receive a portion of the carried interest realized from any future private equity funds we manage and gains (or losses) on investment based on the amount of capital we contribute in respect of any such future fund. Please see “Unaudited Pro Forma Financial Information” for a presentation of our income and financial condition adjusted to give pro forma effect to the elimination of carried interest and investment gains or losses associated with uncontributed investments, the elimination of $19.4 million of the investments recorded on our statement of financial condition and other items.

We recently formed a traditional, institutional asset management business, Evercore Asset Management, that seeks to make value investments in small- and mid-capitalization publicly-traded companies for institutional and high net worth investors, and to manage individual client accounts for these types of sophisticated investors. See “Business—Evercore Asset Management”.

Our Combination with Protego

On May 12, 2006, we agreed to combine our business with that of Protego Asesores, a leading investment banking boutique in Mexico founded by Mr. Aspe. Protego approaches its advisory business in much the same way as Evercore, by building long-standing relationships and acting as a trusted advisor to company management free from the conflicts that larger institutions may encounter.

The Protego team founded its advisory business in 1996 and currently has offices in Mexico City and Monterrey, Mexico. Protego’s advisory services include mergers and acquisitions, energy project finance, sub-national public finance and infrastructure, real estate financial advisory and restructurings. Protego has advised on a number of innovative financing transactions that have had a meaningful role in developing Mexico’s financial markets. For example, Protego advised on the development and financing of Cemex’s power self-generation project, which was the first and largest project financing for a private project of its kind in Mexico, on the sale of HomeMart to Home Depot and on several innovative real estate transactions, including one of the largest sales of commercial property in Mexico to a group of international investors. Protego also served as advisor to the government of the State of Mexico on its $2.5 billion debt restructuring and fiscal adjustment plan. In 2003, Protego launched a private equity fund jointly with Discovery Capital Partners LLC and, in 2005, Protego formed an asset management business focused on investing in peso-denominated money market and fixed income securities for institutional and high net worth investors in Mexico.

Protego generated revenue of $19.5 million in 2005 and $3.2 million in the first quarter of 2006. On a pro forma basis giving effect to our reorganization, including our combination with Protego, revenue from Protego represented approximately 13.4% of our revenue in 2005 and 7.4% of our revenue in the first quarter of 2006. We will complete our combination with Protego prior to this offering.

Our Growth Strategy

We believe this offering will allow us to grow and diversify our advisory and investment management businesses and further enhance our profile and position. We seek to achieve these objectives through three primary strategies:

 

    Continue to Build Evercore’s Advisory Team by Adding Highly Qualified Professionals with Industry and Product Expertise. We intend to continue to recruit high-caliber professionals into our advisory practice to add depth in industry sectors in which we believe we already have strength, to extend the reach of our advisory focus to industry sectors we have identified as particularly attractive and to further strengthen our restructuring business.

 

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    Expand Into New Geographic Markets. We plan to expand into new geographic markets where we believe the business environment will be receptive to the strengths of our advisory and investment management business models or where our clients have or may develop a significant presence. Our combination with Protego is an important step in this strategy. In addition, we have recently entered into an agreement to acquire Braveheart Financial Services Limited, an English company which was formed to provide corporate finance and private equity advisory services in Europe. We have also recently entered into a strategic alliance with Mizuho Securities to provide joint advisory services for U.S.-Japan cross-border merger, acquisition and restructuring transactions. We may hire groups of talented professionals or pursue additional strategic acquisitions of or alliances with highly-regarded regional or local firms in new markets whose culture and operating principles are similar to ours.

 

    Raise New Private Equity Funds and Diversify Into New Investment Management Services. We intend to raise additional private equity funds and diversify our business into new investment management services. We are currently planning to raise a new private equity fund, Evercore Capital Partners III, and have recently formed Evercore Asset Management to offer public equity asset management services for institutional and high net worth investors.

Preliminary Results for the Second Quarter of 2006

Our combined financial statements and those of Protego for the second quarter of 2006 are not yet available. Our expectations with respect to our results and those of Protego discussed below are based upon management estimates and are subject to quarterly review procedures and final reconciliations and adjustments. Actual results may differ from these estimates, and those differences may be material.

Total Evercore revenue is estimated at $41 to $43 million in the second quarter of 2006, compared to total revenue of $14 million in the second quarter of 2005. Our Advisory segment revenue is estimated at $38 to $40 million of our revenue in the second quarter of 2006, compared to $12 million of our revenue in the second quarter of 2005. Our Investment Management segment generated approximately $2.5 to $3 million of our revenue in the second quarter of 2006, compared to $2 million of our revenue in the second quarter of 2005.

Total Evercore operating expenses are estimated at $18 to $20 million in the second quarter of 2006, compared to total operating expenses of $12 million in the second quarter of 2005.

Evercore operating income is estimated to be in the range of approximately $21 to $25 million in the second quarter of 2006, compared to operating income of $2 million in the second quarter of 2005.

Protego’s revenue is estimated at $4 million in the second quarter of 2006, with estimated advisory revenue of $3 million and estimated investment management revenue of $1 million. Protego’s operating expenses were estimated at $3 million in the second quarter of 2006.

The foregoing discussion of our expectations regarding our results and those of Protego for the second quarter of 2006 are not indicative of expected future results following this offering. These results do not reflect the Reorganization described in “Organizational Structure” or the additional employee compensation and benefits expense, minority interest and income taxes that we expect to record following this offering.

 


Evercore Partners Inc. was incorporated in Delaware on July 21, 2005. Our principal executive offices are located at 55 East 52nd Street, 43rd Floor, New York, New York 10055, and our telephone number is (212) 857-3100.

 

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Organizational Structure

Prior to this offering we will effect the reorganization described in “Organizational Structure” beginning on page 29. Following the reorganization and this offering, Evercore Partners Inc. will be a holding company and its sole asset will be a controlling equity interest in Evercore LP. As the sole general partner of Evercore LP, Evercore Partners Inc. will operate and control all of the business and affairs of Evercore LP and, through Evercore LP and its operating entity subsidiaries, it will conduct the business conducted prior to this offering by the operating entities included in our historical combined financial statements (excluding the general partners of the private equity funds we currently manage and certain other entities through which Messrs. Altman and Beutner have invested capital in the Evercore Capital Partners I fund), as well as the business of Protego. Evercore Partners Inc. will consolidate the financial results of Evercore LP and its subsidiaries. Our Senior Managing Directors and their estate planning vehicles will be the only limited partners of Evercore LP at the time of this offering and their ownership interest in Evercore LP will be reflected as minority interest in Evercore Partners Inc.’s consolidated financial statements. The diagram below depicts our organizational structure following this offering.

LOGO

 


* Includes certain former stockholders of Protego

 

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Immediately following this offering, Evercore Partners Inc. will hold partnership units in Evercore LP representing 14.7% of the total number of vested and unvested Evercore LP partnership units, or 16.6% if the underwriters exercise in full their option to purchase additional shares and our Senior Managing Directors and their estate planning vehicles will hold partnership units in Evercore LP representing 85.3% of the total number of vested and unvested Evercore LP partnership units, or 83.4% if the underwriters exercise in full their option to purchase additional shares. Accordingly, immediately following this offering public stockholders will own 14.7% of the equity in our business (or 22.9% if unvested Evercore LP partnership units are excluded) and our Senior Managing Directors will own 85.3% of the equity in our business (or 77.1% if unvested Evercore LP partnership units are excluded). If the underwriters exercise in full their option to purchase additional shares, immediately following this offering public stockholders will own 16.6% of the equity in our business (or 25.5% if unvested Evercore LP partnership units are excluded) and our Senior Managing Directors will own 83.4% of the equity in our business (or 74.5% if unvested Evercore LP partnership units are excluded). In addition, our public stockholders will have 14.7% of the voting power in Evercore Partners Inc., or 16.6% if the underwriters exercise in full their option to purchase additional shares, and Messrs. Altman, Beutner and Aspe will have 85.3% of the voting power in Evercore Partners Inc. (of which 68.1% will be held by Messrs. Altman and Beutner), or 83.4% if the underwriters exercise in full their option to purchase additional shares (of which 66.6% will be held by Messrs. Altman and Beutner).

 

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The Offering

 

Class A common stock offered by Evercore Partners Inc.

3,950,000 shares.

 

Class A common stock outstanding immediately after the offering

4,000,000 shares (or 27,136,829 shares if all vested and unvested Evercore LP partnership units, other than those held by Evercore Partners Inc., are exchanged for newly-issued shares of Class A common stock on a one-for-one basis).

 

Use of proceeds

We estimate that our net proceeds from this offering, at an assumed initial public offering price of $19.00 per share and after deducting estimated underwriting discounts, commissions and offering expenses, will be approximately $62.9 million. We intend to use $30.0 million of these proceeds to repay all of our outstanding borrowings under our credit agreement, $6.05 million to repay the non-interest bearing notes to be issued as a portion of the consideration for the combination with Protego and the remainder to expand and diversify our advisory and investment management businesses and for general corporate purposes. Affiliates of Lehman Brothers Inc., J.P. Morgan Securities Inc. and Goldman, Sachs & Co. are the lenders under our credit agreement and will, accordingly, receive the proceeds used to repay those borrowings.

 

Voting rights

Each share of our Class A common stock will entitle its holder to one vote on all matters to be voted on by stockholders generally.

 

 

Each limited partner of Evercore LP will be issued one or more shares of our Class B common stock. The shares of Class B common stock have no economic rights but will entitle the holder, without regard to the number of shares of Class B common stock held, to a number of votes that is determined pursuant to a formula that relates to the number of Evercore LP partnership units held by such holder. As a result of this formula, the limited partners of Evercore LP will collectively have a number of votes in Evercore Partners Inc. that is equal to the aggregate number of vested and unvested partnership units that they hold. Under the formula, until such time as Messrs. Altman, Beutner and Aspe and certain trusts benefiting their families collectively cease to beneficially own, in the aggregate, at least 90% of the Evercore LP partnership units they hold on the date of this offering, these three individuals will have all of the voting power of the Class B common stock and the other limited partners of Evercore LP will have no voting power. See “Description of Capital Stock—Class B Common Stock”.

 

 

Holders of our Class A common stock and Class B common stock will vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law.

 

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Dividend policy

Following this offering and subject to legally available funds, we intend to pay a quarterly cash dividend initially equal to $0.07 per share of Class A common stock, commencing with the fourth quarter of 2006. However, there is no assurance that sufficient cash will be available to pay such dividends.

 

 

The declaration and payment of any future dividends will be at the sole discretion of our board of directors. Our board of directors will take into account general economic and business conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries (including Evercore LP) to us, and such other factors as our board of directors may deem relevant.

 

 

Evercore Partners Inc. will be a holding company and will have no material assets other than its ownership of partnership units in Evercore LP. We intend to cause Evercore LP to make distributions to Evercore Partners Inc. in an amount sufficient to cover dividends, if any, declared by us. If Evercore LP makes such distributions, our Senior Managing Directors will be entitled to receive equivalent distributions from Evercore LP on their vested partnership units.

 

Risk factors

See “Risk Factors” for a discussion of risks you should carefully consider before deciding to invest in our Class A common stock.

 

New York Stock Exchange symbol

EVR


Class A common stock outstanding and other information based thereon in this prospectus does not reflect:

 

    592,500 shares of Class A common stock issuable upon exercise of the underwriters’ option to purchase additional shares;

 

    2,300,000 shares of Class A common stock underlying 200,000 vested and 2,100,000 unvested restricted stock units we expect to grant to our non-Senior Managing Director employees at the time of this offering. See “Management—IPO Date Restricted Stock Unit Awards.” The vested restricted stock units are included in the calculation of our basic and diluted net income per share;

 

    17,700,000 additional shares of Class A common stock reserved for issuance under our 2006 Stock Incentive Plan; or

 

    1,181,213 shares of Class A common stock issuable as initial consideration and 590,607 to 1,181,213 additional shares of Class A common stock that may be issuable as deferred consideration as part of our acquisition of Braveheart Financial Services Limited. See “Business—Acquisition of Braveheart Financial Services Limited”.

 

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Summary Historical and Pro Forma Financial and Other Data

The following summary historical combined financial information and other data of Evercore Holdings and summary pro forma consolidated financial information of Evercore Partners Inc. should be read together with “Unaudited Pro Forma Financial Information”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and related notes included elsewhere in this prospectus.

We derived the historical combined statement of income data of Evercore Holdings for each of the years ended December 31, 2003, December 31, 2004 and December 31, 2005, respectively, from our historical combined financial statements audited by Deloitte & Touche LLP which are included elsewhere in this prospectus. We derived the historical combined statement of financial condition and statement of income data of Evercore Holdings as of March 31, 2006 and for the three months ended March 31, 2005 and 2006 from our unaudited interim historical combined financial statements which are included elsewhere in this prospectus.

We derived the unaudited condensed consolidated pro forma statement of financial condition data of Evercore Partners Inc. as of March 31, 2006 and unaudited condensed consolidated pro forma statement of income data for the year ended December 31, 2005 and the three months ended March 31, 2006 by applying pro forma adjustments to our historical combined statement of financial condition data as of March 31, 2006 and our historical combined statement of income data for the year ended December 31, 2005 and the three months ended March 31, 2006. The unaudited condensed consolidated pro forma financial data present the consolidated results of operations and financial position of Evercore Partners Inc. assuming that the Reorganization described in “Organizational Structure” had been completed as of January 1, 2005 with respect to the unaudited condensed consolidated pro forma statement of income data and at March 31, 2006 with respect to the unaudited condensed consolidated pro forma statement of financial condition data.

The Evercore LP pro forma adjustments principally give effect to the following matters:

 

    the Formation Transaction described in “Organizational Structure”, including the elimination of the financial results of the general partners of the Evercore Capital Partners I, Evercore Capital Partners II and Evercore Ventures funds and certain other entities through which Messrs. Altman and Beutner have invested capital in the Evercore Capital Partners I fund, which will not be contributed to Evercore LP, and the cash distribution of pre-offering profits to our Senior Managing Directors; and

 

    the Protego Combination described in “Organizational Structure”, including certain purchase accounting adjustments such as the allocation of the purchase price to acquired assets and assumed liabilities.

The Evercore Partners Inc. pro forma adjustments principally give effect to the Formation Transaction and the Protego Combination described in “Organizational Structure” as well as the following matters:

 

    in the case of the unaudited condensed consolidated pro forma statement of income data, total compensation and benefits expenses at 50% of our total revenue, which gives effect to our policy following this offering to set our total compensation and benefits expenses at a level not to exceed 50% of our total revenue each year (excluding for purposes of this calculation, any revenue or compensation and benefits expense relating to gains or losses on investments or carried interest), and we initially expect to accrue compensation and benefits expense equal to 50% of our total revenue following this offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Operating Expenses—Employee Compensation and Benefits Expense”;

 

    in the case of the unaudited condensed consolidated pro forma statement of income data, a provision for corporate income taxes at an effective tax rate of 44%, which assumes the highest statutory rates apportioned to each state, local and/or foreign tax jurisdiction and reflected net of U.S. federal tax benefit; and

 

    this offering and our use of a portion of the proceeds to repay debt as described in “Use of Proceeds”.

 

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The summary pro forma financial data are included for informational purposes only and should not be considered indicative of actual results that would have been achieved had these events actually been consummated on the dates indicated and do not purport to indicate results of operations as of any future date or for any future period.

 

                         

Evercore

Partners Inc.

 
    Evercore Holdings     Pro Forma(a)  
    Year Ended December 31,    

Three Months
Ended

March 31,

   

Year Ended

December 31,

    Three Months
Ended
March 31,
 
    2003     2004   2005     2005     2006     2005     2006  

($ in thousands, except per share data)

             

Statement of Income Data

             

Revenues:

             

Advisory

  $ 26,302     $ 69,205   $ 110,842     $ 18,270     $ 32,397     $ 127,230     $ 34,686  

Investment Management

    33,568       16,967     14,584       4,120       13,108       18,415       8,781  

Interest Income and Other

    250       145     209       44       121       487       284  
                                                     

Total Revenues

    60,120       86,317     125,635       22,434       45,626       146,132       43,751  
                                                     

Expenses:

             

Employee Compensation and Benefits(b)

    12,448       17,084     24,115       5,410       8,759       73,067       21,876  

Other Operating Expenses

    12,432       17,389     34,988       5,176       9,947       44,848       11,424  
                                                     

Total Operating Expenses

    24,880       34,473     59,103       10,586       18,706       117,915       33,300  
                                                     

Other Income

    —         76     —         —         —         —         —    
                                                     

Operating Income

    35,240       51,920     66,532       11,848       26,920       28,217       10,451  

Minority Interest

    (9 )     29     8       2       (7 )     20,681       7,700  
                                                     

Income Before Taxes

    35,249       51,891     66,524       11,846       26,927       7,536       2,751  
                                                     

Provision for Income Taxes(c)

    905       2,114     3,372       670       979       3,984       1,454  
                                                     

Net Income

  $ 34,344     $ 49,777   $ 63,152     $ 11,176     $ 25,948     $ 3,552     $ 1,297  
                                                     

Pro Forma Basic Net Income Per Share of Class A Common Stock

            $ 0.85 (d)   $ 0.31 (d)

Pro Forma Diluted Net Income Per Share of Class A Common Stock

            $ 0.85 (d)   $ 0.31 (d)

Pro Forma Basic Weighted Average Shares of Class A Common Stock

              4,200 (d)     4,200 (d)

Pro Forma Diluted Weighted Average Shares of Class A Common Stock

              4,200 (d)     4,200 (d)

($ in thousands)

             

Operating Metrics

             

Advisory:

             

Number of Advisory Clients

    35       45     58       26       20      

Advisory Senior Managing Director Headcount (as of the end of each period)

    6       8     11       8       11      

Advisory Revenue per Advisory Senior Managing Director

  $ 4,384     $ 8,651   $ 10,077     $ 2,284     $ 2,945      

Investment Management:

             

Capital Commitments (as of the end of each period)(e)

  $ 1,237,188     $ 1,237,188   $ 1,237,188     $ 1,237,188     $ 1,237,188      

Capital Invested(f)

    206,823       15,076     179,509       32,820       124,969      

Gross Realized Proceeds(g)

    308,050       35,087     85,488       5,422       122      

Investment Management Senior Managing Director Headcount

    6       6     6       6       7      

Investment Management Revenue:

             

Management and Portfolio Company Fees(h)

  $ 20,846     $ 13,829   $ 15,560     $ 5,262     $ 7,992      

Carried Interest and Investment Income(i)

    12,722       3,138     (976 )     (1,142 )     5,116      
                                         

Total Investment Management Revenue

  $ 33,568     $ 16,967   $ 14,584     $ 4,120     $ 13,108      
                                         

 

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    As of March 31, 2006
   

Evercore
Holdings

Historical

   Evercore LP
Pro Forma(a)
  Evercore
Partners Inc.
Pro Forma(a)

($ in thousands)

      

Statement of Financial Condition Data

      

Total Assets

  $ 73,476    $ 73,602   $ 105,477

Total Liabilities

    44,772      52,530     20,530

Minority Interest

    267      1,000     21,072

Members’ Equity

    28,437      20,072     —  

Stockholder’s Equity

    —        —       63,875

(a) See “Unaudited Pro Forma Financial Information”.
(b) Because the entities that form Evercore have been limited liability companies, partnerships or sub-chapter S entities, payments for services rendered by our Senior Managing Directors generally have been accounted for as distributions of members’ capital rather than as compensation expense. Following this offering, we will include all payments for services rendered by our Senior Managing Directors in compensation and benefits expense. Accordingly, our historical operating expenses are not comparable to, and are lower than, the operating expenses we expect to incur after this offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures—Operating Expenses—Employee Compensation and Benefits Expense”.
(c) We have historically operated as a partnership or, in the case of certain combined subsidiaries, an S corporation, for U.S. federal income tax purposes. As a result, our income has not been subject to U.S. federal and state income taxes. Following this offering, Evercore Partners Inc. will be subject to additional entity-level taxes that will be reflected in our consolidated financial statements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures—Provision for Income Taxes”.
(d) For the purposes of the Evercore Partners Inc. pro forma net income per share of Class A common stock calculation, the weighted average shares of Class A common stock outstanding, basic and diluted, are calculated based on:

 

   

Year Ended

December 31, 2005

Pro Forma

  Three Months
Ended March 31,
2006 Pro Forma
      Basic       Diluted     Basic   Diluted

Evercore Partners Inc. Shares of Class A Common Stock

  50,000   50,000   50,000   50,000

Evercore Partners Inc. Restricted Stock Units – vested

  200,000   200,000   200,000   200,000

Evercore LP Partnership Units – vested(1)

  —     —     —     —  

New Shares from Offering

  3,950,000   3,950,000   3,950,000   3,950,000
               
       

Weighted Average Shares of Class A Common Stock Outstanding

  4,200,000   4,200,000   4,200,000   4,200,000
               
 
  (1) 13,430,500 vested Evercore LP partnership units are not included in the calculation of Weighted Average Shares of Class A Common Stock outstanding as they are antidilutive.

 

     Of the 23,136,829 Evercore LP partnership units to be held by parties other than Evercore Partners Inc. immediately following this offering, 13,430,500 will be fully vested and 9,706,329 will be unvested. We have concluded that at the current time it is not probable that the conditions relating to the vesting of these unvested partnership units will be achieved or satisfied and, accordingly, these unvested partnership units are not reflected as outstanding for purposes of calculating the minority interest for the economic interest in Evercore LP held by the limited partners. Any vesting of these unvested partnership units would significantly increase minority interest and reduce our net income and net income per share. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures—Operating Expenses—Employee Compensation and Benefits Expense”.

 

     Evercore Partners Inc. pro forma basic and diluted net income per share of Class A common stock are calculated as follows:

 

   

Year Ended

December 31, 2005

Pro Forma

  Three Months
Ended
March 31, 2006
Pro Forma

Basic and Diluted Net Income Per Share

   

Net Income Available to Holders of Shares of Class A Common Stock

  $ 3,552   $ 1,297

Basic and Diluted Weighted Average Shares of Class A Common Stock Outstanding

    4,200,000     4,200,000

Basic and Diluted Net Income Per Share of Class A Common Stock

  $ 0.85   $ 0.31
           

 

     The vested Evercore LP partnership units that could potentially dilute basic net income per share were not included in the computation of diluted net income per share because to do so would have been antidilutive for the periods presented.

 

The shares of Class B common stock have no right to receive dividends or a distribution on liquidation or winding up of Evercore Partners Inc. The shares of Class B common stock do not share in the earnings of Evercore Partners Inc. and no earnings are allocable to such class. Accordingly, pro forma basic and diluted net income per share of Class B common stock have not been presented.

 

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(e) Capital commitments represent the total amount that has been committed by investors to the private equity funds we manage. We closed our last fund, Evercore Capital Partners II, in 2003 and, therefore, there has been no change in capital commitments subsequent to that period.
(f) Capital invested represents the amount invested during the period by the private equity funds we manage in the portfolio companies. Capital invested varies significantly from period to period. The decrease in capital invested in 2004 reflects a decrease in investment activity during that period.
(g) Gross realized proceeds represent the amount received during the period from the disposition of, or income received from, the underlying investments made by the private equity funds we manage. Gross realized proceeds vary significantly from period to period and decreased from 2003 to 2004 due to a decrease in the number and size of investments sold by the funds during 2004.
(h) Management fees are contractually based and are derived from investment management services provided in originating, recommending and consummating investment opportunities to the private equity funds. Portfolio company fees include monitoring, director and transaction fees associated with services provided to the portfolio companies of the private equity funds we manage.
(i) Carried interest is an incentive fee earned by the general partners of the private equity funds we manage when certain financial return targets and hurdles are met. Carried interest and investment income decreased over the three year period ending in 2005 due to a decrease in the number and amount of realizations of investments and in the carrying value of portfolio investments of the private equity funds we manage. Please see “Unaudited Pro Forma Financial Information” for presentation of our results of operations adjusted to give pro forma effect to the elimination of carried interest and investment gains or losses associated with the general partners of the private equity funds we currently manage.

 

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RISK FACTORS

An investment in our Class A common stock involves risks. You should carefully consider the following information about these risks, together with the other information contained in this prospectus, before investing in our Class A common stock.

Risks Related to Our Business

We depend on Mr. Altman, Mr. Beutner, Mr. Mestre, and other key personnel and the loss of their services would have a material adverse effect on us.

We depend on the efforts and reputations of Roger Altman, our Chairman and Co-Chief Executive Officer, Austin Beutner, our President, Co-Chief Executive Officer and Chief Investment Officer, and Eduardo Mestre, our Vice Chairman. Our senior leadership team’s reputations and relationships with clients and potential clients are critical elements in expanding our businesses, and we believe our performance is strongly correlated to the performance of Messrs. Altman, Beutner and Mestre. The loss of the services of any of them would have a material adverse effect on our operations, including our ability to attract advisory clients and raise new private equity funds.

Our future success depends to a substantial degree on our ability to retain and recruit qualified personnel, including Senior Managing Directors in addition to Messrs. Altman, Beutner, and Mestre. We anticipate that it will be necessary for us to add financial professionals as we pursue our growth strategy. However, we may not be successful in our efforts to recruit and retain the required personnel as the market for qualified financial professionals is extremely competitive. Our financial professionals possess substantial experience and expertise and have direct contact with our advisory and investment management clients, which can lead to strong client relationships. As a result, the loss of these personnel could jeopardize our relationships with clients and result in the loss of client engagements. For example, if any of our Senior Managing Directors were to join or form a competing firm, some of our current clients could choose to use the services of that competitor rather than our services.

Our transition to a corporate structure may adversely affect our ability to recruit, retain and motivate our Senior Managing Directors and other key employees, which in turn could adversely affect our ability to compete effectively and to grow our business.

In connection with our transition to a corporate structure, our Senior Managing Directors may experience significant reductions in their compensation. Following this offering, we intend to use equity, equity-based incentives and other employee benefits rather than pure cash compensation to motivate and retain our Senior Managing Directors. Our compensation mechanisms as a public company may not be effective, especially if the market price of our Class A common stock declines.

In addition, we expect that our Senior Managing Directors will receive less overall compensation than they would have otherwise received prior to this offering as a result of target compensation levels following this offering. A key driver of our profitability is our ability to generate revenue while achieving our target compensation levels. Following this offering, our policy will be to set our total employee compensation and benefits expense at a level not to exceed 50% of our total revenue each year (excluding, for purposes of this calculation, any revenue or compensation and benefits expense relating to gains (or losses) on investments or carried interest), and we initially expect to accrue compensation and benefits expense equal to 50% of our total revenue following this offering. However, we may record compensation and benefits expense in excess of this percentage to the extent that such expense is incurred due to a significant expansion of our business or to any vesting of the partnership units to be received by our Senior Managing Directors in the Reorganization or the restricted stock units to be received by our non-Senior Managing Director employees at the time of this offering. Moreover, we retain the ability to change this policy in the future. As a result, our Senior Managing Directors will receive less compensation than they otherwise would have received prior to this offering and may receive less compensation than they otherwise would receive at other firms. Such a reduction in compensation (or the

 

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belief that a reduction may occur) could make it more difficult to retain our Senior Managing Directors. In addition, some current or potential Senior Managing Directors and other employees may be more attracted to the benefits of working at a private partnership and the prospects of becoming a partner at such a firm, or at one of our larger competitors.

We have experienced rapid growth over the past several years, which may be difficult to sustain and which may place significant demands on our administrative, operational and financial resources.

We expect our rapid growth to continue, which could place additional demands on our resources and increase our expenses. Our future growth will depend, among other things, on our ability to successfully identify practice groups and individuals to join our firm. It may take more than one year for us to determine whether new professionals will be profitable or effective. During that time, we may incur significant expenses and expend significant time and resources toward training, integration and business development. If we are unable to hire and retain profitable professionals, we will not be able to implement our growth strategy and our financial results may be materially adversely affected.

Sustaining growth will also require us to commit additional management, operational and financial resources to this growth and to maintain appropriate operational and financial systems to adequately support expansion. There can be no assurance that we will be able to manage our expanding operations effectively or that we will be able to maintain or accelerate our growth, and any failure to do so could adversely affect our ability to generate revenue and control our expenses.

Difficult market conditions can adversely affect our business in many ways, including by reducing the volume of the transactions involving our advisory business and reducing the value or performance of the investments made by our private equity funds, which, in each case, could materially reduce our revenue or income.

As a financial services firm, our businesses are materially affected by conditions in the global financial markets and economic conditions throughout the world. For example, revenue generated by our advisory business is directly related to the volume and value of the transactions in which we are involved. During periods of unfavorable market or economic conditions, the volume and value of mergers and acquisitions transactions may decrease, thereby reducing the demand for our advisory services and increasing price competition among financial services companies seeking such engagements. Our results of operations would be adversely affected by any such reduction in the volume or value of mergers and acquisitions transactions. In addition, in the event of a market downturn, the private equity funds that our investment management business manages also may be impacted by reduced opportunities to exit and realize value from their investments. Our profitability may also be adversely affected by our fixed costs and the possibility that we would be unable to scale back other costs within a time frame sufficient to match any decreases in revenue relating to changes in market and economic conditions. The future market and economic climate may deteriorate because of many factors beyond our control, including rising interest rates or inflation, terrorism or political uncertainty.

Our revenue and profits are highly volatile, which may make it difficult for us to achieve steady earnings growth on a quarterly basis and may cause the price of our Class A common stock to decline.

Our revenue and profits are highly volatile. We generally derive revenue from a limited number of engagements that generate significant fees at key transaction milestones, such as closing, the timing of which is outside of our control. As a result, our financial results will likely fluctuate from quarter to quarter based on the timing of when those fees are earned. It may be difficult for us to achieve steady earnings growth on a quarterly basis, which could, in turn, lead to large adverse movements in the price of our Class A common stock or increased volatility in our stock price generally.

We earn a majority of our revenue from advisory engagements, and, in many cases, we are not paid until the successful consummation of the underlying merger or acquisition transaction or restructuring. As a result, our

 

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advisory revenue is highly dependent on market conditions and the decisions and actions of our clients, interested third parties and governmental authorities. For example, a client could delay or terminate an acquisition transaction because of a failure to agree upon final terms with the counterparty, failure to obtain necessary regulatory consents or board or stockholder approvals, failure to secure necessary financing, adverse market conditions or because the target’s business is experiencing unexpected operating or financial problems. Anticipated bidders for assets of a client during a restructuring transaction may not materialize or our client may not be able to restructure its operations or indebtedness due to a failure to reach agreement with its principal creditors. In these circumstances, we often do not receive any advisory fees other than the reimbursement of certain out-of-pocket expenses, despite the fact that we have devoted considerable resources to these transactions.

The timing and receipt of carried interest generated by our private equity funds is uncertain and will contribute to the volatility of our investment management revenue. Carried interest depends on our funds’ investment performance and opportunities for realizing gains, which may be limited. In addition, it takes a substantial period of time to identify attractive private equity or venture capital opportunities, to raise all the funds needed to make an investment and then to realize the cash value of an investment through resale, recapitalization or other exit. Even if an investment proves to be profitable, it may be several years or longer before any profits can be realized in cash or other proceeds. We recognize revenue on investments in our funds based on our allocable share of realized and unrealized gains (or losses) reported by such funds, and a decline in realized or unrealized gain, or a realized or unrealized loss, would adversely affect our revenue, which could further increase the volatility of our quarterly results.

A general decline in the media or telecommunications sectors could have an adverse effect on our total revenue.

We generated 44.8% of our total revenue in 2005 and 21.9% of our total revenue in the first quarter of 2006 from advisory clients in the media or telecommunications sectors. Our clients in those industries continue to play an important role in the overall prospects of our business. Accordingly, the success of our business depends, at least in part, on the strength and level of economic activity in these sectors, particularly in the United States. Adverse market or economic conditions as well as a slowdown in activity in the media or telecommunications sectors could reduce the size and number of our fee engagements, which would have an adverse effect on our revenue.

Our management has identified material weaknesses in our internal control over financial reporting; failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and stock price.

Our internal control over financial reporting does not currently meet all the standards contemplated by Section 404 of the Sarbanes-Oxley Act that we will eventually be required to meet. Our management has identified material weaknesses in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board. Areas of material weaknesses in our internal control over financial reporting include a lack of an enterprise-wide, executive-driven internal control environment that documents key processes related to financial reporting and the lack of a formal, regular process designed to identify key financial reporting risks. The existence of such material weaknesses may indicate a heightened risk that our annual or interim financial statements will include a material misstatement. We are in the process of addressing these material weaknesses and, over the past year, have developed and begun implementation of a plan to improve our core accounting and finance processes. Specifically, we have hired a new Chief Financial Officer, Controller, Tax Director and Senior Private Equity Financial Officer as well as other requisite staff within our finance organization. We are also in the process of expanding our in-house legal capability and have recently hired a General Counsel and are in the process of filling the Compliance Officer position responsible for Section 404 compliance. With respect to financial reporting, we are in the process of establishing appropriate internal controls and have implemented a monthly close process and routine operating metrics and established budgets and periodic forecasts. In addition, we have established a number of formal

 

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committees to ensure proper protocols regarding control performance and changes to our risk profile, and have begun documenting our policies and processes related to financial reporting and are continuing to identify key financial reporting risks, assess their potential impact, and link those risks to specific areas and activities within the organization. The steps we have taken or intend to take, however, may not remediate these material weaknesses and additional significant deficiencies, and material weaknesses in our internal control over financial reporting may be identified in the future.

Additionally, we are in the process of documenting and testing our internal control procedures to satisfy the requirements of Section 404, which requires annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm addressing these assessments. As a public company, we will be required to complete our initial assessment by the filing of our Annual Report on Form 10-K for the year ended December 31, 2007. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered public accounting firm may not be able to certify as to the adequacy of our internal control over financial reporting. This result may cause us to be unable to report on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the Securities and Exchange Commission or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in the reliability of our financial statements. We could also suffer a loss of confidence in the reliability of our financial statements if our independent registered public accounting firm reports a material weakness in our internal control over financial reporting. We will incur incremental costs in order to improve our internal control over financial reporting and comply with Section 404, including increased auditing and legal fees and costs associated with hiring additional accounting and administrative staff. This could harm our operating results and lead to a decline in our stock price.

Employee misconduct, which is difficult to detect and deter, could harm us by impairing our ability to attract and retain clients and subjecting us to significant legal liability and reputational harm.

Recently, there have been a number of highly-publicized cases involving fraud or other misconduct by employees in the financial services industry, and there is a risk that our employees could engage in misconduct that adversely affects our business. For example, our advisory business often requires that we deal with confidential matters of great significance to our clients. If our employees were improperly to use or disclose confidential information provided by our clients, we could be subject to regulatory sanctions and suffer serious harm to our reputation, financial position, current client relationships and ability to attract future clients. We are also subject to a number of obligations and standards arising from our investment management business and our authority over the assets managed by our investment management business. The violation of these obligations and standards by any of our employees would adversely affect our clients and us. It is not always possible to deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in all cases. If our employees engage in misconduct, our business would be adversely affected.

The financial services industry faces substantial litigation risks, and we may face damage to our professional reputation and legal liability if our services are not regarded as satisfactory or for other reasons.

As a financial services firm, we depend to a large extent on our relationships with our clients and our reputation for integrity and high-caliber professional services to attract and retain clients. As a result, if a client is not satisfied with our services, such dissatisfaction may be more damaging to our business than to other types of businesses. Moreover, our role as advisor to our clients on important mergers and acquisitions or restructuring transactions involves complex analysis and the exercise of professional judgment, including, if appropriate, rendering “fairness opinions” in connection with mergers and other transactions.

In recent years, the volume of claims and amount of damages claimed in litigation and regulatory proceedings against financial advisors has been increasing. Our advisory activities may subject us to the risk of

 

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significant legal liabilities to our clients and third parties, including our clients’ stockholders, under securities or other laws for materially false or misleading statements made in connection with securities and other transactions and potential liability for the fairness opinions and other advice provided to participants in corporate transactions. In our investment management business, we make investment decisions on behalf of our clients that could result in substantial losses. This also may subject us to the risk of legal liabilities or actions alleging negligent misconduct, breach of fiduciary duty or breach of contract. These risks often may be difficult to assess or quantify and their existence and magnitude often remain unknown for substantial periods of time. Our engagements typically include broad indemnities from our clients and provisions designed to limit our exposure to legal claims relating to our services, but these provisions may not protect us or may not be adhered to in all cases. As a result, we may incur significant legal expenses in defending against litigation. Substantial legal liability could materially adversely affect our business, financial condition or results of operations or cause significant reputational harm to us, which could seriously harm our business.

Compliance failures and changes in regulation could adversely affect us.

Our advisory and investment management businesses are subject to regulation in the United States, including by the Securities and Exchange Commission and National Association of Securities Dealers, Inc. Our failure to comply or have complied with applicable laws or regulations could result in fines, suspensions of personnel or other sanctions, including revocation of the registration of us or any of our subsidiaries as an investment adviser or broker-dealer. Even if a sanction imposed against us or our personnel is small in monetary amount, the adverse publicity arising from the imposition of sanctions against us by regulators could harm our reputation and cause us to lose existing clients or fail to gain new advisory or investment management clients. Our broker-dealer operations are subject to periodic examination by the Securities and Exchange Commission and the National Association of Securities Dealers, Inc. We cannot predict the outcome of any such examinations.

As a result of recent highly-publicized financial scandals, investors have exhibited concerns over the integrity of the U.S. financial markets, and the regulatory environment in which we operate is subject to further regulation in addition to those rules already promulgated. We may be adversely affected as a result of new or revised legislation or regulations imposed by the Securities and Exchange Commission, other United States or foreign governmental regulatory authorities or self-regulatory organizations that supervise the financial markets. We also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations.

In addition, some of our subsidiaries are registered as investment advisors with the Securities and Exchange Commission. Registered investment advisors are subject to the requirements and regulations of the Investment Advisers Act of 1940. Such requirements relate to, among other things, recordkeeping and reporting requirements, disclosure requirements, limitations on agency cross and principal transactions between an advisor and advisory clients, as well as general anti-fraud prohibitions.

We have recently entered into an agreement to acquire Braveheart Financial Services Limited, an English company which was formed to provide corporate finance and private equity advisory services in Europe. Braveheart is subject to regulation by the Financial Services Authority in the United Kingdom.

Further, financial services firms are subject to numerous conflicts of interest or perceived conflicts. While we have adopted various policies, controls and procedures to address or limit actual or perceived conflicts, these policies and procedures carry attendant costs and may not be adhered to by our employees. Failure to adhere to these policies and procedures may result in regulatory sanctions or client litigation.

 

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Risks Related to Our Advisory Business

A majority of our revenue is derived from advisory fees, which are not long-term contracted sources of revenue and are subject to intense competition, and declines in our advisory engagements could have a material adverse effect on our financial condition and results of operations.

We historically have earned a substantial portion of our revenue from advisory fees paid to us by our advisory clients. These fees are typically payable upon the successful completion of a particular transaction or restructuring. Advisory services accounted for 88.2%, 80.2% and 43.7% of our revenue in 2005, 2004 and 2003, respectively and 71.0% and 81.4% of our revenue in the first quarters of 2006 and 2005, respectively.

Unlike diversified investment banks, we do not have multiple sources of revenue, such as underwriting or trading securities. We expect that we will continue to rely on advisory fees for a substantial portion of our revenue for the foreseeable future. A decline in our advisory engagements or the market for advisory services would adversely affect our business.

In addition, our advisory business operates in a highly competitive environment where typically there are no long-term contracted sources of revenue. Each revenue-generating engagement typically is separately solicited, awarded and negotiated. In addition, many businesses do not routinely engage in transactions requiring our services. As a consequence, our fee-paying engagements with many clients are not likely to be predictable and high levels of revenue in one quarter are not necessarily predictive of continued high levels of revenue in future periods. We also lose clients each year as a result of the sale or merger of a client, a change in a client’s senior management, competition from other financial advisors and financial institutions and other causes. As a result, our advisory fees could decline materially due to such changes in the volume, nature and scope of our engagements.

A high percentage of our total revenue is derived from a small number of clients and the termination of any one advisory engagement could reduce our revenue and harm our operating results.

Each year, we advise a limited number of advisory clients. Our top five advisory clients accounted for over 50.2%, 51.8% and 16.4% of our total revenue in 2005, 2004 and 2003, respectively. Our largest advisory client for each of 2005, 2004 and 2003 accounted for 16.5%, 27.3% and 4.3% of our total revenue, respectively. AT&T or SBC Communications (a predecessor to AT&T) has represented in excess of 10% of our total revenue in each of the last two years. With the exception of 2004 and 2005 when our largest advisory client was the same, the composition of the group comprising our largest advisory clients varies significantly from year to year. We expect that our advisory engagements will continue to be limited to a relatively small number of clients and that an even smaller number of those clients will account for a high percentage of revenue in any particular year. As a result, our results of operations may be significantly affected by even one lost mandate or the failure of one advisory assignment to be completed.

If the number of debt defaults, bankruptcies or other factors affecting demand for our restructuring advisory services declines, or we lose business to new entrants into the restructuring advisory business that are no longer precluded from offering such services due to recent changes to the U.S. Bankruptcy Code, our restructuring advisory business’ revenue could suffer.

We provide various financial restructuring and related advice to companies in financial distress or to their creditors or other stakeholders. A number of factors affect demand for these advisory services, including general economic conditions, the availability and cost of debt and equity financing and changes to laws, rules and regulations, including deregulation or privatization of particular industries and those that protect creditors.

The requirement of Section 327 of the U.S. Bankruptcy Code requiring that one be a “disinterested person” to be employed in a restructuring has recently been modified pursuant to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The “disinterested person” definition of the U.S. Bankruptcy Code has

 

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historically disqualified certain of our competitors, but has not often disqualified us from obtaining a role in a restructuring because we have not been an underwriter of securities or lender. However, a recent change to the “disinterested person” definition will allow underwriters of securities to compete for restructuring engagements as well as with respect to the recruitment and retention of professionals. If our competitors succeed in being retained in new restructuring engagements, our restructuring advisory business, and thereby our results of operations, could be adversely affected.

We face strong competition from other financial advisory firms, many of which have the ability to offer clients a wider range of products and services than we can offer, which could cause us to fail to win advisory mandates and subject us to pricing pressures that could materially adversely affect our revenue and profitability.

The financial advisory industry is intensely competitive, and we expect it to remain so. We compete on the basis of a number of factors, including the quality of our employees, transaction execution, our products and services, innovation and reputation, and price. We have experienced intense competition over obtaining advisory mandates in recent years, and we may experience pricing pressures in our advisory business in the future as some of our competitors seek to obtain increased market share by reducing fees.

We also face increased competition due to a trend toward consolidation. In recent years, there has been substantial consolidation and convergence among companies in the financial services industry. In particular, a number of large commercial banks, insurance companies and other broad-based financial services firms have established or acquired broker-dealers or have merged with other financial institutions. Unlike us, many of these firms have the ability to offer a wide range of products, from loans, deposit-taking and insurance to brokerage, asset management and investment banking services, which may enhance their competitive position. They also have the ability to support investment banking, including financial advisory services, with commercial banking, insurance and other financial services revenue in an effort to gain market share, which could result in pricing pressure in our businesses.

Risks Relating to Our Investment Management Business

If the investments we make on behalf of our funds perform poorly we will suffer a decline in our investment management revenue and earnings, we may be obligated to repay certain incentive fees we have previously received to the third party investors in our funds, and our ability to raise capital for future funds may be adversely affected.

Our revenue from our investment management business is derived from fees earned for our management of the funds calculated as a percentage of the capital committed to our funds, incentive fees, or carried interest, earned when certain financial returns are achieved over the life of a fund, gains or losses on investments of our own capital in the funds and monitoring, director and transaction fees. In the event that our investments perform poorly, our investment management revenues and earnings will suffer a corresponding decline and make it more difficult for us to raise new funds in the future. To the extent that, over the life of the funds, we have received an amount of carried interest that exceeds a specified percentage of distributions made to the third party investors in our funds, we may be obligated to repay the amount of this excess to the third party investors.

Our investment management activities involve investments in relatively high-risk, illiquid assets, and we may lose some or all of the principal amount we invest in these activities or fail to realize any profits from these activities for a considerable period of time.

We have made and expect to continue to make principal investments in the Evercore Capital Partners II private equity fund and in any new private equity funds we may establish in the future. These funds generally invest in relatively high-risk, illiquid assets. Contributing capital to these funds is risky, and we may lose some or all of the principal amount of our investments.

In addition, our private equity funds invest in businesses with capital structures that have significant leverage. The leveraged capital structure of such businesses increases the exposure of the funds’ portfolio

 

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companies to adverse economic factors such as rising interest rates, downturns in the economy or deteriorations in the condition of such business or its industry. If these portfolio companies default on their indebtedness, the lender may foreclose and we could lose our entire investment.

The investment management business is intensely competitive.

The investment management business is intensely competitive, with competition based on a variety of factors, including investment performance, the quality of service provided to clients, brand recognition and business reputation.

Our investment management business competes with a number of private equity and venture capital firms, traditional asset managers, commercial banks, investment banks and other financial institutions. A number of factors serve to increase our competitive risks:

 

    a number of our competitors have more relevant experience, greater financial and other resources and more personnel than we do;

 

    there are relatively few barriers to entry impeding new private equity and venture capital firms, including a relatively low cost of entering these businesses, and the successful efforts of new entrants into our various lines of business, including major banks and other financial institutions, have resulted in increased competition;

 

    certain investors may prefer to invest with private partnerships; and

 

    other industry participants will from time to time seek to recruit our investment professionals and other employees away from us.

This competitive pressure could adversely affect our ability to make successful investments and prevent us from raising any future funds, either of which would adversely impact our revenue and earnings.

The limited partners of the funds we manage may terminate their relationship with us at any time.

The limited partnership agreements of the funds we manage provide that the limited partners of each fund may terminate their relationship with us without cause with a simple majority vote of each fund’s limited partners. If the limited partners of the funds we manage terminate their relationship with us, we would lose fees earned for our management of the funds and carried interest from those funds. In addition, such an event would negatively impact our ability to raise capital for future funds.

The time and attention that our Senior Managing Directors and other employees devote to monetizing the investments of the Evercore Capital Partners I and Evercore Ventures funds will not financially benefit us and may reduce the time and attention these individuals devote to our business. The time and attention that these individuals devote to managing the Evercore Capital Partners II fund may not be as profitable to us as other business activities and opportunities to which they might otherwise have devoted their time and attention.

With the exception of a non-managing equity interest in the general partner of the Evercore Capital Partners II private equity fund, the general partners of the private equity funds we currently manage are not being contributed to us and will continue to be owned by our Senior Managing Directors and other third parties. Accordingly, following this offering we will no longer receive any carried interest from the Evercore Capital Partners I or Evercore Ventures funds or any gains (or losses) arising from investments in those funds. As a result, although the Evercore Capital Partners I and Evercore Ventures funds are in their realization, or harvesting, periods, the time and attention that our Senior Managing Directors and employees devote to monetizing the investments of these funds will not financially benefit us and may reduce the time and attention these individuals devote to our business. In addition, while we will receive 8% to 9% (depending on the

 

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particular fund investment) of the carried interest realized from the Evercore Capital Partners II fund following the date of this offering, the time and attention that our Senior Managing Directors and employees devote to managing this fund may not be as profitable to us as other business activities and opportunities to which these individuals might otherwise have devoted their time and attention.

Risks Related to Our Combination with Protego

Protego depends on Mr. Aspe and other key personnel and the loss of their services would have a material adverse effect on Protego.

Protego depends on the efforts and reputation of Mr. Aspe, who, following our combination with Protego, will become our Co-Chairman. Mr. Aspe’s reputation and relationship with clients and potential clients are critical elements in expanding Protego’s business. The loss of his services would have a material adverse effect on Protego’s operations, including its ability to attract advisory clients and market new private equity funds. Moreover, the private equity fund in which Protego participates also has a “key man” provision, which would be triggered if Mr. Aspe is no longer actively involved in the investment committee of the fund. In such an event, the fund’s commitment period may be terminated upon a vote of a majority in interest of the fund’s investors. If that were to occur, the fund would no longer be able to call upon its investors to provide additional cash necessary for the fund to make additional investments. In addition, if Mr. Aspe leaves the investment committee of the fund, Protego could lose a significant portion of its carried interest from such fund. In addition, Protego’s financial professionals have direct contact with Protego’s clients, which can lead to strong client relationships. As a result, the loss of these personnel could jeopardize Protego’s relationships with its clients and result in the loss of client engagements. For example, in June 2006 one of Protego’s Directors left Protego, which may adversely affect Protego’s business.

Our combination with Protego may adversely affect our business, and new acquisitions or joint ventures that we may pursue could present unforeseen integration obstacles.

The process of integrating the operations of Evercore and Protego may require a disproportionate amount of resources and management attention as the combination will increase the scope, geographic diversity and complexity of our operations. Any substantial diversion of management attention or difficulties in operating the combined business could affect our ability to achieve operational, financial and strategic objectives. The unsuccessful integration of our operations with Protego may also have adverse short-term effects on reported operating results and may lead to the loss of key personnel. In addition, Protego’s clients may react unfavorably to the combination of our businesses or we may be exposed to additional liabilities of the combined business, both of which could materially adversely affect our revenue and results of operations.

We may also pursue new acquisitions or joint ventures that could present integration obstacles or costs. As may be the case with our combination with Protego, we may not realize any of the benefits we anticipated from the strategy and we may be exposed to additional liabilities of any acquired business, any of which could materially adversely affect our revenue and results of operations. In addition, future acquisitions or joint ventures may involve the issuance of additional partnership units of Evercore LP or shares of our Class A common stock, which would dilute your ownership.

Adverse economic conditions in Mexico, including interest rate volatility, may result in a decrease in Protego’s revenue.

Protego is a Mexican company, with all of its assets located in Mexico and most of its revenue derived from operations in Mexico. As a financial services firm, Protego’s businesses are materially affected by Mexico’s financial markets and economic conditions. Historically, interest rates in Mexico have been volatile, particularly in times of economic unrest and uncertainty. Mexico has had, and may continue to have, high real and nominal interest rates. The interest rates on 28-day Mexican government treasury securities averaged 9.1%, 6.8%, 6.2%

 

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and 7.1%, for 2005, 2004, 2003 and 2002, respectively. The Mexican economy has grown at varying rates over the past decade. For example, Mexico’s GDP grew at a rate of approximately 5.45% between 1996 and 2000. Between 2001 and 2003, Mexico’s GDP growth rates declined to approximately -0.2% in 2001, 0.8% in 2002, and 1.4% in 2003. Mexico’s GDP grew at a rate of approximately 3.0% and 4.2% in 2005 and 2004, respectively. Economic crises have been recurrent in Mexico, particularly around election years. For example, in 1976, the Mexican peso was devalued by 60.0%. In 1982, the Mexican economy entered into a period of instability marked by sustained devaluation, inflation and high interest rates following a sharp decline in oil prices. In December 1994, weeks after the new government took office, the peso was devalued and the Mexican government abandoned the semi-fixed exchange rate after its foreign reserves were depleted.

Because revenue generated by Protego’s advisory business, which accounted for 84% of its revenue in 2005, is directly related to the volume and value of the transactions in which it is involved, during periods of unfavorable market or economic conditions in Mexico, the volume and value of mergers and acquisitions and other types of transactions may decrease, thereby reducing the demand for Protego’s advisory services and increasing price competition among financial services companies seeking such engagements. Protego’s results of operations would be adversely affected by any such reduction in the volume or value of these and similar advisory transactions.

Fluctuations in the value of the Mexican peso relative to the U.S. dollar could adversely affect Protego’s revenue and expenses in U.S. dollar terms.

Approximately 64%, 18% and 29% of Protego’s revenue in 2005, 2004 and 2003, respectively, and 49% of Protego’s revenue in the first quarter of 2006 was derived from contracts denominated in Mexican pesos. In addition, Protego’s contracts with employees and most of its suppliers are denominated in Mexican pesos. As a result, variations in the exchange rate between the Mexican peso and the U.S. dollar may affect Protego’s revenue and expenses in U.S. dollars. A peso appreciation increases Protego’s costs in U.S. dollar terms but has a proportionately smaller effect on revenue, reducing Protego’s net income in U.S. dollar terms. Historically, the value of the peso has fluctuated considerably relative to the U.S. dollar. For example, between December 31, 2004 and December 31, 2005, the peso appreciated 4.3% relative to the U.S. dollar. If the peso appreciates in the future, it may adversely affect Protego’s net income in U.S. dollar terms.

Political events in Mexico may result in disruptions to Protego’s business operations and adversely affect its revenue.

The Mexican government exercises significant influence over many aspects of the Mexican economy and Mexico’s financial sector is regulated. Any action by the government, including changes in the regulation of Mexico’s financial sector, could have an adverse effect on the operations of Protego, especially on its asset management business.

The Mexican national elections held on July 2, 2000 ended 71 years of rule by the Institutional Revolutionary Party (Partido Revolucionario Institucional) with the election of President Vicente Fox Quesada, a member of the National Action Party (Partido Acción Nacional). According to preliminary figures provided by the Federal Electoral Institute (Instituto Federal Electoral), the presidential elections of July 2, 2006 gave Felipe Calderón Hinojosa, the candidate of the National Action Party, a small advantage over Andrés Manuel López Obrador, the candidate of the Democratic Revolution Party (Partido de la Revolución Democrática). The results of the presidential election were appealed by the two parties that received the greatest number of votes at the Electoral Court of the Federations’ Judiciary Power (Tribunal Electoral del Poder Judicial de la Federación), which must render a verdict by September 6, 2006. It is possible that the losing candidate will not recognize his defeat. It is also possible that the courts may nullify the presidential election and call for a new one. These two scenarios may adversely affect Protego’s business by creating political and economic uncertainty and adversely affecting the business environment in Mexico.

 

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As in the past several years, no political party has, or is expected to have in the next three years as a consequence of the recently held elections, a majority in the Mexican Congress. Multi-party rule is relatively new in Mexico and could result in economic or political conditions that could cause disruptions to Protego’s business. The lack of a majority party in the legislature and the lack of alignment between the legislature and the executive branch could prevent the timely implementation of economic reforms or other legislative actions, which in turn could have a material adverse effect on the Mexican economy and cause disruptions to Protego’s business and decrease its revenue.

A change in state and municipal political leadership in Mexico may adversely affect Protego’s business.

Protego derives a significant portion of its revenue from advisory contracts with state and local governments in Mexico. The re-election of individual officeholders is prohibited by Mexican law. State governors have six-year terms of office, and local administrations are limited to three or four years, depending on the law of their state. The term limit system may prevent Protego from maintaining relationships with the same clients in the same political positions beyond these periods. After an election takes place, there is no guarantee that Protego will be able to remain as advisors of the new government, even if the new administration is of the same political party as the previous one. Protego currently has five contracts with state and local governments, including the states of Tabasco, Michoacán, Querétaro, Sonora and Durango. Advising state and local governments in Mexico accounted for $12.6 million, or 33.3%, of Protego’s advisory revenue from January 1, 2003 through December 31, 2005 and $0.4 million, or 12%, of Protego’s advisory revenue in the first quarter of 2006. Of Protego’s current five Mexican state public finance clients, the governor of one is leaving office in 2006, one in 2008, two in 2009 and one in 2010. Moreover, political change or instability at the state or municipal level can lead to the unexpected termination of Protego advisory contracts or the cancellation of projects in which Protego might be involved, leading to a reduction of Protego’s advisory revenue.

Risks Related to Our Organizational Structure

Our only material asset after completion of this offering will be our interest in Evercore LP, and we are accordingly dependent upon distributions from Evercore LP to pay dividends and taxes and other expenses.

Evercore Partners Inc. will be a holding company and will have no material assets other than its ownership of partnership units in Evercore LP. Evercore Partners Inc. has no independent means of generating revenue. We intend to cause Evercore LP to make distributions to its partners in an amount sufficient to cover all applicable taxes payable and dividends, if any, declared by us. To the extent that Evercore Partners Inc. needs funds, and Evercore LP is restricted from making such distributions under applicable law or regulation, or is otherwise unable to provide such funds, it could materially adversely affect our liquidity and financial condition.

We will be required to pay our Senior Managing Directors for most of the benefits relating to any additional tax depreciation or amortization deductions we may claim as a result of the tax basis step-up we receive in connection with this offering and related transactions.

The Evercore LP partnership units held by our Senior Managing Directors may in the future be exchanged for shares of our Class A common stock. The exchanges may result in increases in the tax basis of the assets of Evercore LP that otherwise would not have been available. These increases in tax basis may reduce the amount of tax that we would otherwise be required to pay in the future, although the IRS may challenge all or part of that tax basis increase, and a court could sustain such a challenge.

We intend to enter into a tax receivable agreement with our Senior Managing Directors that will provide for the payment by us to our Senior Managing Directors of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize as a result of these increases in tax basis. While the actual increase in tax basis, as well as the amount and timing of any payments under this

 

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agreement, will vary depending upon a number of factors, including the timing of exchanges, the price of shares of our Class A common stock at the time of the exchange, the extent to which such exchanges are taxable, and the amount and timing of our income, we expect that, as a result of the size of the increases in the tax basis of the tangible and intangible assets of Evercore LP attributable to our interest in Evercore LP, during the expected term of the tax receivable agreement, the payments that we may make to our Senior Managing Directors could be substantial.

Although we are not aware of any issue that would cause the IRS to challenge a tax basis increase, our Senior Managing Directors will not reimburse us for any payments that may previously have been made under the tax receivable agreement. As a result, in certain circumstances we could make payments to the Senior Managing Directors under the tax receivable agreement in excess of our cash tax savings. Our ability to achieve benefits from any tax basis increase, and the payments to be made under this agreement, will depend upon a number of factors, as discussed above, including the timing and amount of our future income.

If Evercore Partners Inc. were deemed an “investment company” under the Investment Company Act of 1940 as a result of its ownership of Evercore LP, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.

If Evercore Partners Inc. were to cease participation in the management of Evercore LP, its interest in Evercore LP could be deemed an “investment security” for purposes of the 1940 Act. Generally, a person is deemed to be an “investment company” if it owns investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items), absent an applicable exemption. Following this offering, Evercore Partners Inc. will have no material assets other than its equity interest in Evercore LP. A determination that this interest was an investment security could result in Evercore Partners Inc. being an investment company under the 1940 Act and becoming subject to the registration and other requirements of the 1940 Act.

The 1940 Act and the rules thereunder contain detailed parameters for the organization and operations of investment companies. Among other things, the 1940 Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, prohibit the issuance of stock options, and impose certain governance requirements. We intend to conduct our operations so that Evercore Partners Inc. will not be deemed to be an investment company under the 1940 Act. However, if anything were to happen which would cause Evercore Partners Inc. to be deemed to be an investment company under the 1940 Act, requirements imposed by the 1940 Act, including limitations on our capital structure, ability to transact business with affiliates (including us) and ability to compensate key employees, could make it impractical for us to continue our business as currently conducted, impair the agreements and arrangements between and among Evercore Partners Inc., Evercore LP or our Senior Managing Directors, or any combination thereof and materially adversely affect our business, financial condition and results of operations.

Risks Related to Our Class A Common Stock and this Offering

Control by Messrs. Altman and Beutner of the voting power in Evercore Partners Inc. may give rise to conflicts of interests.

Our certificate of incorporation provides that the holders of the shares of our Class B common stock will be entitled to a number of votes that is determined pursuant to a formula that relates to the number of Evercore LP partnership units held by such holders. Under this formula, Messrs. Altman, Beutner and Aspe will, immediately following this offering, collectively be entitled to a number of votes equal to the total number of vested and unvested partnership units of Evercore LP held by all of our Senior Managing Directors, and our other Senior Managing Directors will have no voting power in Evercore Partners Inc. Accordingly, immediately following this offering, Messrs. Altman, Beutner and Aspe, and certain trusts benefiting their families will, collectively, have 85.3% of the voting power in Evercore Partners Inc. (of which 68.1% will be held by Messrs. Altman and

 

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Beutner), or 83.4% if the underwriters exercise in full their option to purchase additional shares (of which 66.6% will be held by Messrs. Altman and Beutner). In addition, Messrs. Altman and Beutner have agreed to vote together with respect to all matters submitted to stockholders. As a result, because Messrs. Altman and Beutner will have a majority of the voting power in Evercore Partners Inc. and our certificate of incorporation will not provide for cumulative voting, they will have the ability to elect all of the members of our board of directors and thereby to control our management and affairs, including determinations with respect to acquisitions, dispositions, borrowings, issuances of common stock or other securities, and the declaration and payment of dividends. In addition, they will be able to determine the outcome of all matters requiring stockholder approval and will be able to cause or prevent a change of control of our company or a change in the composition of our board of directors and could preclude any unsolicited acquisition of our company. The concentration of ownership could deprive our Class A stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our Class A common stock. As a result of the control exercised by Messrs. Altman and Beutner over us, none of our agreements with them have been negotiated on “arm’s length” terms. We cannot assure you that we would not have received more favorable terms from an unaffiliated party.

There may not be an active trading market for shares of our Class A common stock, which may cause our Class A common stock to trade at a discount from its initial offering price and make it difficult to sell the shares you purchase.

Prior to this offering, there has been no public trading market for shares of our Class A common stock. It is possible that, after this offering, an active trading market will not develop or continue, which would make it difficult for you to sell your shares of Class A common stock at an attractive price or at all. The initial public offering price per share of our Class A common stock will be determined by agreement among us and the representative of the underwriters, and may not be indicative of the price at which the shares of our Class A common stock will trade in the public market after this offering.

The historical and pro forma financial information in this prospectus may not permit you to predict our costs of operations.

The historical financial information in this prospectus does not reflect the added costs we expect to incur as a public company or the resulting changes that will occur in our capital structure and operations. Because we have historically operated through limited liability companies, partnerships or sub-chapter S entities, payments for services rendered by our Senior Managing Directors generally have been accounted for as distributions of members’ capital rather than as compensation expense. In preparing our pro forma financial information we have given effect to, among other items, the Reorganization described in “Organizational Structure”, a deduction and charge to earnings of estimated taxes based on an estimated tax rate (which may be different from our actual tax rate in the future), estimated salaries, payroll taxes and benefits for our Senior Managing Directors, and the cash distribution of pre-incorporation profits to our Senior Managing Directors. The estimates we used in our pro forma financial information may not be similar to our actual experience as a public company. For more information on our historical financial information and pro forma financial information, see “Unaudited Pro Forma Financial Information”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical combined financial statements included elsewhere in this prospectus.

If securities analysts do not publish research or reports about our business or if they downgrade our company or our sector, the price of our Class A common stock could decline.

The trading market for our Class A common stock will depend in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrades our company or our industry, or the stock of any of our competitors, the price of our Class A common stock could decline. If one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause the price of our Class A common stock to decline.

 

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Our share price may decline due to the large number of shares eligible for future sale and for exchange.

The market price of our Class A common stock could decline as a result of sales of a large number of shares of Class A common stock in the market after the offering or the perception that such sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. After the consummation of this offering, we will have 4,000,000 outstanding shares of Class A common stock. This number is primarily comprised of the shares of our Class A common stock we are selling in this offering, which may be resold immediately in the public market. See “Shares Eligible for Future Sale”.

We have agreed with the underwriters not to dispose of or hedge any of our Class A common stock, subject to specified exceptions, during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Lehman Brothers Inc. Subject to these agreements, we may issue and sell in the future additional shares of Class A common stock.

In addition, our Senior Managing Directors will, at the time of this offering, own an aggregate of              partnership units in Evercore LP. Our amended and restated certificate of incorporation will allow the exchange of partnership units in Evercore LP (other than those held by us) for shares of our Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. Our directors and executive officers and certain of their affiliates have agreed with the underwriters not to dispose of or hedge any of our Class A common stock, subject to specified exceptions, during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Lehman Brothers Inc. After the expiration of the 180-day lock-up period, the shares of Class A common stock issuable upon exchange of the partnership units that are held by our Senior Managing Directors will be eligible for resale from time to time, subject to certain contractual and Securities Act restrictions. In addition, we expect to grant to certain of our employees an aggregate of 2,300,000 restricted stock units pursuant to the Evercore Partners Inc. 2006 Stock Incentive Plan at the time of this offering. 200,000 of these restricted stock units will be fully vested and the remaining 2,100,000 restricted stock units will be unvested and will vest upon the same conditions as the unvested partnership units of Evercore LP issued in connection with the Formation Transaction and the Protego Combination.

Our Senior Managing Directors are parties to a registration rights agreement with us. Under that agreement, after the expiration of the 180-day lock-up period, these persons will have the ability to cause us to register the shares of our Class A common stock they could acquire upon exchange of their partnership units in Evercore LP.

The market price of our Class A common stock may be volatile, which could cause the value of your investment to decline.

Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our Class A common stock in spite of our operating performance. In addition, our operating results could be below the expectations of public market analysts and investors, and in response, the market price of our Class A common stock could decrease significantly. You may be unable to resell your shares of our Class A common stock at or above the initial public offering price.

Anti-takeover provisions in our charter documents and Delaware law could delay or prevent a change in control.

Our certificate of incorporation and by-laws may delay or prevent a merger or acquisition that a stockholder may consider favorable by permitting our board of directors to issue one or more series of preferred stock, requiring advance notice for stockholder proposals and nominations, and placing limitations on convening stockholder meetings. In addition, we are subject to provisions of the Delaware General Corporation Law that restrict certain business combinations with interested stockholders. These provisions may also discourage acquisition proposals or delay or prevent a change in control, which could harm our stock price. See “Description of Capital Stock”.

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. You can identify these forward-looking statements by the use of words such as “outlook”, “believes”, “expects”, “potential”, “continues”, “may”, “will”, “should”, “seeks”, “approximately”, “predicts”, “intends”, “plans”, “estimates”, “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include, but are not limited to, those described under “Risk Factors”. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

 

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ORGANIZATIONAL STRUCTURE

Formation Transaction

Our business is presently owned by our Senior Managing Directors. Pursuant to a contribution and sale agreement, dated as of May 12, 2006, our Senior Managing Directors will prior to this offering contribute to Evercore LP each of the various entities included in our historical combined financial statements, with the exception of the general partners of the Evercore Capital Partners I and II and Evercore Ventures funds and certain other entities through which Messrs. Altman and Beutner have invested capital in the Evercore Capital Partners I fund. More specifically, our Senior Managing Directors will contribute to Evercore LP all of the equity interests in:

 

    Evercore Group Holdings L.P. and its general partner, Evercore Group Holdings L.L.C. Evercore Group Holdings L.P. wholly owns Evercore Partners Services East L.L.C, the operating company that in turn wholly owns the advisors to the Evercore Capital Partners II and Evercore Ventures funds and certain other entities. In addition, Evercore Group Holdings L.P., through its non-managing membership in the general partner of the Evercore Capital Partners II fund, had $6.2 million of investments in and $3.7 million of commitments to that fund as of March 31, 2006;

 

    Evercore Advisors Inc., the advisor to the Evercore Capital Partners I fund, which will be converted into a limited liability company;

 

    Evercore Group L.L.C., Evercore’s registered broker-dealer;

 

    Evercore Properties Inc., Evercore’s leaseholding entity, which will be converted into a limited liability company; and

 

    Evercore GP Holdings L.L.C., which will become a non-managing member of the general partner of the Evercore Capital Partners II fund and will be entitled to 8% to 9% (depending on the particular fund investment) of any carried interest realized from that fund following this offering, which represents 10% of the carried interest currently allocable to our Senior Managing Directors.

In exchange for these contributions to Evercore LP, our Senior Managing Directors and certain trusts benefiting certain of their families will receive 11,670,313 vested and 9,354,967 unvested partnership units in Evercore LP. Fifty percent of these unvested partnership units will vest if Messrs. Altman, Beutner and Aspe, and trusts benefiting their families and permitted transferees, collectively, cease to beneficially own at least 90% of the aggregate Evercore LP partnership units owned by them on the date the Reorganization is affected. All of the unvested Evercore LP partnership units issued will vest upon the earliest to occur of the following events:

 

    when Messrs. Altman, Beutner and Aspe, and trusts benefiting their families and permitted transferees, collectively, cease to beneficially own at least 50% of the aggregate Evercore LP partnership units owned by them on the date of the partnership agreement;

 

    a change of control of Evercore; or

 

    two of Messrs. Altman, Beutner and Aspe are not employed by, or do not serve as a director of, Evercore Partners Inc. or one of its affiliates within a 10-year period following this offering.

In addition, all of the unvested Evercore LP partnership units held by a Senior Managing Director will vest if such Senior Managing Director dies or becomes disabled while in our employ.

The vested units will be reflected in our financial statements at the historical cost basis of the entities contributed. We intend to accrue for the unvested Evercore LP partnership units as compensation paid to our Senior Managing Directors in accordance with Statement of Financial Accounting Standards No. 123(R) “Share-Based Payments” or SFAS 123(R). The unvested Evercore LP partnership units will be charged to expense at the time a vesting event occurs or, if earlier, at the time that occurrence of an event related to the beneficial ownership, change of control or continued association conditions becomes probable or there is a change in the estimated forfeiture rate related to the death or disability condition. The expense will be based on the grant date

 

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fair value of the Evercore LP partnership units, which will be the initial public offering price of the Class A common stock into which these partnership units are exchangeable. In addition, we will distribute to our Senior Managing Directors cash and, to the extent cash is not available, notes or interests in certain accounts receivable so as to distribute to our Senior Managing Directors all earnings for the period from January 1, 2006 to the date of the closing of the contribution and sale agreement. We refer to these transactions, collectively, as the “Formation Transaction”.

Messrs. Altman and Beutner are the sole managing members of, and are vested with full management power and control over, Evercore Group Holdings L.L.C., which is the sole general partner of, and is vested with full management power and control over, Evercore Group Holdings L.P. Messrs. Altman and Beutner are also the sole managing members of Evercore Group L.L.C. and Evercore GP Holdings L.L.C and the sole stockholders of Evercore Advisors Inc. and Evercore Properties Inc. Accordingly, Messrs. Altman and Beutner control each of the entities being contributed to Evercore LP and, through their ownership of Evercore Partners Inc. Class B common stock, will hold a majority of our voting power immediately following this offering and have agreed to vote together with respect to all matters submitted to stockholders. See “Description of Capital Stock—Common Stock—Class B Common Stock.” Please see Note 1 to our historical combined financial statements included elsewhere in this prospectus for additional information regarding our present organizational structure. We will account for the Formation Transaction as an exchange between entities under common control and record the net assets and members’ equity of the contributed entities at historical cost. We will account for the unvested partnership units to be issued in the Formation Transaction as future compensation expense.

Evercore LP was formed as a Delaware limited partnership on May 12, 2006. Evercore LP has not engaged in any business or other activities except in connection with its formation and the Formation Transaction and the Protego Combination described below.

Combination with Protego

Protego’s business is presently owned by its directors and other stockholders and conducted by Protego Asesores and its subsidiaries and Protego SI. Prior to this offering, and concurrently with the Formation Transaction, we and Protego will undertake the following steps pursuant to the contribution and sale agreement, which we refer to collectively as the “Protego Combination”:

 

    Evercore LP will acquire Protego Asesores and its subsidiaries (including a 70% interest in Protego Casa de Bolsa, Protego’s asset management subsidiary) and Protego SI in exchange for $7.0 million aggregate principal amount of non-interest bearing notes; and

 

    Mr. Aspe and the other Protego Directors will become Senior Managing Directors of Evercore Partners and subscribe, collectively with certain companies they control, certain trusts benefiting their families and a trust benefiting certain Directors and employees of Protego, for 1,760,187 vested and 351,362 unvested partnership units of Evercore LP.

Of the $7.0 million in notes to be issued in consideration for the Protego Combination, $6.05 million will be payable in cash and $0.95 million will be payable in shares of our Class A common stock valued at the initial public offering price per share in this offering. Assuming an initial public offering price of $19.00 per share, we would issue 50,000 shares of Class A common stock upon repayment of such notes. In addition, Protego will distribute to its Directors cash and, to the extent cash is not available, notes or interests in certain accounts receivable so as to distribute to its Directors all earnings for the period from January 1, 2005 to the date of the closing of the contribution and sale agreement.

For U.S. GAAP and financial purposes, we will account for the vested partnership units of Evercore LP to be issued in the Protego Combination as a component of the estimated purchase price pursuant to Statement of Financial Accounting Standards No. 141 Business Combinations. The estimated value of the vested Evercore LP partnership units was determined by management. The estimated value of the vested Evercore LP partnership units was determined by estimating the total value of the combined entity, post Formation Transaction, including

 

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Protego, as of the date of the contribution and sale agreement. The total value of these entities was then multiplied by the percentage ownership implied by the vested Evercore LP partnership units issued in connection with the Protego combination.

For U.S. GAAP and financial purposes, we will account for the unvested partnership units to be issued in the Protego Combination (which are subject to the same vesting provisions described above in respect of the unvested partnership units to be received by the Evercore Senior Managing Directors in the Formation Transaction) as future compensation expense and not as part of the purchase consideration. In accordance with Statement of Financial Accounting Standards No. 123R, Share-Based Payments, the unvested partnership units of Evercore LP will be charged to expense at the time a vesting event occurs or, if earlier, at the time a vesting event becomes probable. The expense will be based on the grant date fair value of the partnership units of Evercore LP, which will be the initial public offering price of the Class A common stock into which these partnership units are exchangeable.

Based on a preliminary valuation of the purchase price for the Protego Combination, including the $7.0 million non-interest bearing notes, the vested Evercore LP partnership units and deferred acquisition costs, the total value of the purchase price is estimated at $36.4 million.

Incorporation of Evercore Partners Inc.

Evercore Partners Inc. was incorporated as a Delaware corporation on July 21, 2005. Evercore Partners Inc. has not engaged in any business or other activities except in connection with its formation. Prior to this offering, the certificate of incorporation of Evercore Partners Inc. will be amended and restated so that it:

 

    authorizes two classes of common stock—Class A common stock and Class B common stock—having the terms described in “Description of Capital Stock”. The Class B common stock, shares of which will be held by limited partners of Evercore LP only, provides its holder with no economic rights but entitles the holder to a number of votes as described in “Description of Capital Stock—Common Stock—Class B common stock”; and

 

    entitles the limited partners of Evercore LP, subject to the vesting and transfer restriction provisions of the Evercore LP partnership agreement, to exchange their partnership units for shares of Class A common stock on a one-for-one basis, subject to customary rate adjustments for stock splits, stock dividends and reclassifications. See “Related Party Transactions—Evercore LP Partnership Agreement.”

Offering Transactions

Upon the consummation of this offering, Evercore Partners Inc. will contribute all of the proceeds from this offering to Evercore LP, and Evercore LP will issue to Evercore Partners Inc. a number of partnership units equal to the number of shares of Class A common stock that Evercore Partners Inc. has issued in connection with the Protego Combination and in this offering. In connection with its acquisition of partnership units in Evercore LP, Evercore Partners Inc. will also become the sole general partner of Evercore LP.

As a result of the Formation Transaction, the Protego Combination and the other transactions described above, which we collectively refer to as the “Reorganization”, immediately following this offering:

 

    Evercore Partners Inc. will become the sole general partner of Evercore LP and, through Evercore LP and its subsidiaries, operate our business, including the business of Protego;

 

    our Senior Managing Directors, including the former Directors of Protego, and certain companies they control, certain trusts benefiting certain of their families and a trust benefiting certain Directors and employees of Protego will hold 100 shares of our Class B common stock and 23,136,829 partnership units in Evercore LP and Evercore Partners Inc. will hold 4,000,000 partnership units in Evercore LP (or 4,592,500 partnership units in Evercore LP if the underwriters exercise in full their options to purchase additional shares);

 

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    our public stockholders (including certain former stockholders of Protego who will receive $0.95 million payable in shares of our Class A common stock as described above under “—Combination with Protego”) will collectively own 4,000,000 shares of Class A common stock (or 4,592,500 shares if the underwriters exercise in full their option to purchase additional shares); and

 

    our public stockholders will collectively have 14.7% of the voting power in Evercore Partners Inc. (or 16.6% if the underwriters exercise in full their option to purchase additional shares) and, through their holdings of our Class B common stock, Messrs. Altman, Beutner and Aspe will have 85.3% of the voting power in Evercore Partners Inc., of which 68.1% will be held by Messrs. Altman and Beutner (or 83.4% if the underwriters exercise in full their option to purchase additional shares, of which 66.6% will be held by Messrs. Altman and Beutner). See “Description of Capital Stock”.

Under the terms of the Evercore LP partnership agreement, all of the partnership units received by our Senior Managing Directors in the Formation Transaction and subscribed for by the Directors of Protego in the Protego Combination will be subject to restrictions on transfer and exchange, and 66 2/3% of the partnership units received by our Senior Managing Directors other than Mr. Altman, Mr. Beutner and Mr. Aspe will, with specified exceptions, be subject to forfeiture and re-allocation to other Senior Managing Directors (or, in the event that there are no eligible Senior Managing Directors, to forfeiture and cancellation) if the Senior Managing Director ceases to be employed by us prior to the occurrence of specified vesting events. All of the partnership units received in the Formation Transaction and the Protego Combination by Mr. Altman, Mr. Beutner and Mr. Aspe, and 33 1/3% of the partnership units received by our other Senior Managing Directors, will be fully vested as of the date of issuance. See “Related Party Transactions—Evercore LP Partnership Agreement”.

Holding Company Structure

Evercore Partners Inc. will be a holding company and its sole asset will be a controlling equity interest in Evercore LP. As the sole general partner of Evercore LP, Evercore Partners Inc. will operate and control all of the business and affairs of Evercore LP. Through Evercore LP, we will continue to conduct the business conducted prior to this offering by Evercore LP’s operating subsidiaries, including the business of Protego. Evercore Partners Inc. will consolidate the financial results of Evercore LP and its subsidiaries and the ownership interest of our Senior Managing Directors in Evercore LP will be reflected as a minority interest in Evercore Partners Inc.’s consolidated financial statements.

Pursuant to the partnership agreement of Evercore LP, Evercore Partners Inc. has the right to determine when distributions will be made to the partners of Evercore LP and the amount of any such distributions. If Evercore Partners Inc. authorizes a distribution, such distribution will be made to the partners of Evercore LP (1) in the case of a tax distribution (as described below), to the holders of vested partnership units in proportion to the amount of taxable income of Evercore LP allocated to such holder and (2) in the case of other distributions, pro rata in accordance with the percentages of their respective vested partnership interests. Evercore Partners Inc. may, however, authorize a distribution to the partners of Evercore LP who hold vested and unvested units in accordance with the percentages of their respective vested and unvested partnership interests in the event of an extraordinary dividend, refinancing, restructuring or similar transaction.

The holders of partnership units in Evercore LP, including Evercore Partners Inc., will incur U.S. federal, state and local income taxes on their proportionate share of any net taxable income of Evercore LP. Net profits and net losses of Evercore LP will generally be allocated to its partners (including Evercore Partners Inc.) pro rata in accordance with the percentages of their respective partnership interests. Because Evercore Partners Inc. will own 14.7% of the total partnership units in Evercore LP (or 16.6% if the underwriters exercise in full their option to purchase additional shares), Evercore Partners Inc. will be allocated 14.7% of the net profits and net losses of Evercore LP (or 16.6% if the underwriters exercise in full their option to purchase additional shares). The remaining net profits and net losses will be allocated to the limited partners of Evercore LP. These percentages are subject to change, including upon an exchange of partnership units to shares of our Class A common stock and upon issuance of additional shares to the public. The partnership agreement will provide for

 

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cash distributions to the holders of vested partnership units of Evercore LP if Evercore Partners Inc. determines that the taxable income of Evercore LP will give rise to taxable income for its partners. In accordance with the partnership agreement, we intend to cause Evercore LP to make cash distributions to the holders of vested partnership units of Evercore LP for purposes of funding their tax obligations in respect of the income of Evercore LP that is allocated to them. Generally, these tax distributions will be computed based on our estimate of the net taxable income of Evercore LP allocable to such holder of vested partnership units multiplied by an assumed tax rate equal to the highest effective marginal combined U.S. federal, state and local income tax rate prescribed for an individual or corporate resident in New York, New York (taking into account the nondeductibility of certain expenses and the character of our income). If we had effected the Reorganization on January 1, 2005, the assumed effective tax rate for 2005 would have been approximately 44%.

After this offering, Evercore LP also intends to make distributions to Evercore Partners Inc. in order to fund any dividends Evercore Partners Inc. may declare on the Class A common stock. If Evercore Partners Inc. declares such dividends, our Senior Managing Directors will be entitled to receive equivalent distributions pro rata based on their partnership interests in Evercore LP, although these individuals will not be entitled to receive any such dividend-related distributions in respect of unvested partnership units.

 

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USE OF PROCEEDS

We estimate that our net proceeds from this offering, at an assumed initial public offering price of $19.00 per share and after deducting estimated underwriting discounts, commissions and offering expenses, will be approximately $62.9 million, or $73.3 million if the underwriters exercise in full their option to purchase additional shares. A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per share would increase (decrease) the net proceeds to us from this offering by $3.7 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us. We intend to use $30 million of these proceeds to repay all of our outstanding borrowings under our credit agreement, $6.05 million to repay the non-interest bearing notes to be issued as a portion of the consideration for the Protego Combination and the remaining $26.8 million to expand and diversify our advisory and investment management businesses and for general corporate purposes. Pending specific application of the net proceeds, we expect to use the net proceeds to purchase U.S. Government securities, other short-term, highly-rated debt securities and money market funds.

Our credit agreement is a 364-day $30.0 million revolving line of credit that matures on the earlier of the consummation of this offering and December 31, 2006. As of July 31, 2006, we had outstanding borrowings of $30.0 million under our credit agreement bearing interest at a weighted average rate of 7.4%. Proceeds from these borrowings have been used for working capital purposes including funding of our ongoing investment management activities.

Affiliates of Lehman Brothers Inc., J.P. Morgan Securities Inc. and Goldman, Sachs & Co. are the lenders under our credit agreement and will, accordingly, indirectly receive the proceeds used to repay those borrowings.

DIVIDEND POLICY

Following this offering and subject to legally available funds, we intend to pay a quarterly cash dividend initially equal to $0.07 per share of Class A common stock, commencing with the fourth quarter of 2006. The declaration and payment of any future dividends will be at the sole discretion of our board of directors. Our board of directors will take into account:

 

    general economic and business conditions;

 

    our financial condition and operating results;

 

    our available cash and current and anticipated cash needs;

 

    capital requirements;

 

    contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries (including Evercore LP) to us; and

 

    such other factors as our board of directors may deem relevant.

Evercore Partners Inc. will be a holding company and will have no material assets other than its ownership of partnership units in Evercore LP. We intend to cause Evercore LP to make distributions to Evercore Partners Inc. in an amount sufficient to cover dividends, if any, declared by us. If Evercore LP makes such distributions, our Senior Managing Directors will be entitled to receive equivalent distributions from Evercore LP on their vested partnership units.

 

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CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2006:

 

    on a historical basis for Evercore Holdings;

 

    on a pro forma basis for Evercore LP giving effect to the Formation Transaction and the Protego Combination described in “Organizational Structure”; and

 

    on a pro forma basis for Evercore Partners Inc. giving effect to the Formation Transaction and Protego Combination described in “Organizational Structure”, including the issuance of $0.95 million of shares of Class A common stock, as well as to:

 

    the issue and sale by Evercore Partners Inc. of 3,950,000 shares of Class A common stock in this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us in this offering and our use of a portion of the proceeds to repay debt as described in “Use of Proceeds”; and

 

    the acquisition by Evercore Partners Inc. of a number of newly issued partnership units of Evercore LP equivalent to the number of shares of its Class A common stock outstanding.

You should read this table together with the other information contained in this prospectus, including “Organizational Structure”, “Unaudited Pro Forma Financial Information”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our combined financial statements and related notes included elsewhere in this prospectus.

 

     March 31, 2006
    

Evercore
Holdings

Historical

  

Evercore LP

Pro Forma

  

Evercore
Partners Inc.

Pro Forma
as Adjusted

($ in thousands, except par value)

        

Short-Term Debt (secured)

   $ 25,000    $ 25,000    $ —  

Capital Leases

     371      371      371

Notes Payable

     —        7,000      —  

Minority Interest

     267      1,000      21,072

Members’ Capital

     28,233      19,868      —  

Class A Common Stock, par value $0.01 per share, 1,000,000,000 shares authorized; 4,000,000 shares issued and outstanding on a pro forma as adjusted basis

     —        —        40

Class B Common Stock, par value $0.01 per share, 1,000,000 shares authorized; 100 shares issued and outstanding on a pro forma as adjusted basis

     —        —        0

Restricted Stock Units, 200,000 restricted stock units issued and outstanding on a pro forma as adjusted basis

     —        —        3,800

Additional Paid-in-Capital (1)

     —        —        63,835

Accumulated Other Comprehensive Income

     204      204      —  
                    

Total Capitalization (1)

   $ 54,075    $ 53,443    $ 89,118
                    

(1) A $1.00 increase (decrease) in the assumed initial public offering price of $19.00 per share would increase (decrease) each of additional paid-in-capital and total capitalization by $3.7 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.

 

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DILUTION

If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma net tangible book value per share of our Class A common stock after this offering. Dilution results from the fact that the per share offering price of the Class A common stock is substantially in excess of the book value per share attributable to the existing equity holders.

Our pro forma net tangible book deficit as of March 31, 2006 was approximately $(13.6 million), or $(1.01) per share of our Class A common stock. Pro forma net tangible book value represents the amount of total tangible assets less total liabilities, after giving effect to the Formation Transaction and the Protego Combination, and pro forma net tangible book value per share represents pro forma net tangible book value divided by the number of shares of Class A common stock outstanding, after giving effect to the Formation Transaction and the Protego Combination and assuming that all of the limited partners of Evercore LP exchanged their vested partnership units for newly-issued shares of our Class A common stock on a one-for-one basis.

After giving effect to the sale of 3,950,000 shares of Class A common stock in this offering at an assumed initial public offering price of $19.00 per share, the midpoint of the price range on the cover of this prospectus, our pro forma net tangible book value would have been $30.2 million, or $1.73 per share. This represents an immediate increase in net tangible book value (or a decrease in net tangible book deficit) of $2.74 per share to existing equityholders and an immediate dilution in net tangible book value of $17.27 per share to new investors.

The following table illustrates this dilution on a per share basis assuming the underwriters do not exercise their option to purchase additional shares:

 

Assumed Initial Public Offering Price Per Share

     $ 19.00

Pro Forma Net Tangible Book Deficit Per Share as of March 31, 2006

   (1.01 )  

Increase in Pro Forma Net Tangible Book Value Per Share Attributable to New Investors

   2.74    
        

Pro Forma Net Tangible Book Value per Share After the Offering

       1.73
        

Dilution in Pro Forma Net Tangible Book Value per Share to New Investors

     $ 17.27
        

The following table summarizes, on the same pro forma basis as of March 31, 2006, the total number of shares of Class A common stock purchased from us, the total cash consideration paid to us and the average price per share paid by the existing equityholders and by new investors purchasing shares in this offering, assuming that all of the limited partners of Evercore LP exchanged their vested partnership units for shares of our Class A common stock on a one-for-one basis.

 

     Shares Purchased     Total Consideration    

Average
Price

Per Share

     Number    Percent     Amount    Percent    

Existing Equity Holders

   13,480,500    77.3 %   $ —      0.0 %   $ —  

New Investors

   3,950,000    22.7       75,050,000    100.0       19.00
                          

Total

   17,430,500    100.0 %   $ 75,050,000    100.0 %     4.31
                          

Of the 23,136,829 partnership units to be held by the limited partners of Evercore LP immediately following this offering 13,430,500 will be fully vested and 9,706,329 will be unvested. If we had assumed that all of the limited partners exchanged their unvested partnership units in addition to their vested partnership units for newly issued shares of our Class A common stock, the dilution in pro forma net tangible book value per share to new investors would have been greater and the average price per share paid by the existing equityholders would have been lower.

 

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UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following unaudited condensed consolidated pro forma statements of income for the year ended December 31, 2005 and the three months ended March 31, 2006 and the unaudited condensed consolidated pro forma statement of financial condition as of March 31, 2006 present the consolidated results of operations and financial position of Evercore Partners Inc. assuming that all of the transactions described under “Organizational Structure” had been completed as of January 1, 2005 with respect to the unaudited condensed consolidated pro forma statements of income and as of March 31, 2006 with respect to the unaudited pro forma statement of financial condition data. The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of these transactions and this offering, on the historical financial information of Evercore Holdings. The adjustments are described in the notes to the unaudited condensed consolidated pro forma statements of income and the unaudited condensed consolidated pro forma statement of financial condition.

The Evercore LP pro forma adjustments principally give effect to the following items:

 

    the Formation Transaction described in “Organizational Structure”, including the elimination of the financial results of the general partners of the Evercore Capital Partners I, Evercore Capital Partners II and Evercore Ventures funds and certain other entities through which Messrs. Altman and Beutner have invested capital in the Evercore Capital Partners I fund, which will not be contributed to Evercore LP, and the cash distribution of pre-offering profits to our Senior Managing Directors; and

 

    the Protego Combination described in “Organizational Structure”, including certain purchase accounting adjustments such as the allocation of the purchase price to acquired assets and assumed liabilities.

The Evercore Partners Inc. pro forma adjustments principally give effect to the Formation Transaction and the Protego Combination described in “Organizational Structure” as well as the following items:

 

    in the case of the unaudited condensed consolidated pro forma statement of income data, total compensation and benefits expenses at 50% of our total revenue, which gives effect to our policy following this offering to set our total compensation and benefits expenses at a level not to exceed 50% of our total revenue each year (excluding for purposes of this calculation, any revenue or compensation and benefits expense relating to gains or losses on investments or carried interest), and we initially expect to accrue compensation and benefits expense equal to 50% of our total revenue following this offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Operating Expenses—Employee Compensation and Benefits Expense”;

 

    in the case of the unaudited condensed consolidated pro forma statement of income data, a provision for corporate income taxes at an effective tax rate of 44%, which assumes the highest statutory rates apportioned to each state, local and/or foreign tax jurisdiction and reflected net of U.S. federal tax benefit; and

 

    this offering and our use of a portion of the proceeds to repay debt as described in “Use of Proceeds”.

The unaudited condensed consolidated pro forma financial information of Evercore Partners Inc. should be read together with “Organizational Structure”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Evercore Holdings and Protego historical financial statements and related notes included elsewhere in this prospectus.

The unaudited condensed consolidated pro forma financial information is included for informational purposes only and does not purport to reflect the results of operations or financial position of Evercore that would have occurred had we operated as a public company during the periods presented. The unaudited condensed consolidated pro forma financial information should not be relied upon as being indicative of our results of operations or financial condition had the transactions contemplated in connection with the Formation Transaction, the Protego Combination and this offering been completed on the dates assumed. The unaudited condensed consolidated pro forma financial information also does not project the results of operations or financial position for any future period or date.

 

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Table of Contents

Unaudited Condensed Consolidated Pro Forma Statements of Income

 

    Year Ended December 31, 2005  
($ in thousands, except per
share data)
 

Evercore

Holdings

Historical

  Adjustments
for
Formation
    Evercore
Post
Formation
  Protego
Historical
    Protego
Combination
Adjustments
   

Protego

as

Adjusted

    Evercore
LP Pro
Forma
   

Adjustments
for

Offering

    Evercore
Partners
Inc. Pro
Forma
 

Advisory Revenue

  $ 110,842   $       $ 110,842   $ 16,388     $          $ 16,388     $ 127,230     $       $ 127,230  

Investment Management Revenue

    14,584     976  (a)     15,560     2,855         2,855       18,415         18,415  

Interest Income and Other Revenue

    209       209     278         278       487         487  
                                                                   

Total Revenues

    125,635     976       126,611     19,521       —         19,521       146,132         146,132  
                                                                   

Compensation and Benefits

    24,115       24,115     8,347         8,347       32,462       40,605  (f)     73,067  

Professional Fees

    23,892       23,892     3,742         3,742       27,634         27,634  

Other Operating Expenses

    11,096     (162 )(a)     10,934     3,280         3,280       14,214         14,214  

Amortization of Intangibles

    —         —       —         3,000  (c)     3,000       3,000         3,000  
                                                                   

Total Expenses

    59,103     (162 )     58,941     15,369       3,000       18,369       77,310       40,605       117,915  
                                                                   

Income Before Minority Interest and Income Tax

    66,532     1,138       67,670     4,152       (3,000 )     1,152       68,822       (40,605 )     28,217  

Minority Interest

    8     (8 )(a)     —       (1,199 )     465  (d)     (734 )     (734 )     21,415 (g)     20,681  
                                                                   

Income Before Taxes

    66,524     1,146       67,670     5,351       (3,465 )     1,886       69,556       (62,020 )     7,536  
                                                                   

Provision for Income Taxes

    3,372     (831 )(b)     2,541     1,969       —    (e)     1,969       4,510       (526 )(h)     3,984  
                                                                   

Net Income

  $ 63,152   $ 1,977     $ 65,129   $ 3,382     $ (3,465 )   $ (83 )   $ 65,046     $ (61,494 )   $ 3,552  
                                                                   

Weighted Average Shares of Class A Common Stock Outstanding:

                 

Basic

                    4,200 (i)

Diluted

                    4,200 (i)

Net Income Available to Holders of Shares of Class A Common Stock Per Share:

                 

Basic

                  $ 0.85 (i)

Diluted

                  $ 0.85 (i)

 

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Table of Contents
    Three Months Ended March 31, 2006  
($ in thousands, except per
share data)
 

Evercore

Holdings

Historical

    Adjustments
for
Formation
    Evercore
Post
Formation
  Protego
Historical
    Protego
Combination
Adjustments
   

Protego

as

Adjusted

    Evercore
LP Pro
Forma
   

Adjustments
for

Offering

    Evercore
Partners
Inc. Pro
Forma
 

Advisory Revenue

  $ 32,397     $                  $ 32,397   $ 2,289     $                  $ 2,289     $ 34,686     $                  $ 34,686  

Investment Management Revenue

    13,108       (5,116 )(a)     7,992     789         789       8,781         8,781  

Interest Income and Other Revenue

    121         121     163         163       284         284  
                                                                     

Total Revenues

    45,626       (5,116 )     40,510     3,241         3,241       43,751         43,751  
                                                                     

Compensation and Benefits

    8,759         8,759     1,579         1,579       10,338       11,53 8 (f)     21,876  

Professional Fees

    5,668         5,668     622         622       6,290         6,290  

Other Operating Expenses

    4,279       (15 )(a)     4,264     750         750       5,014         5,014  

Amortization of Intangibles

    —           —       —         120  (c)     120       120         120  
                                                                     

Total Expenses

    18,706       (15 )     18,691     2,951       120       3,071       21,762       11,538       33,300  
                                                                     

Income Before Minority Interest and Income Tax

    26,920       (5,101 )     21,819     290       (120 )     170       21,989       (11,538 )     10,451  

Minority Interest

    (7 )     7  (a)     —       (192 )     74  (d)     (118 )     (118 )     7,818  (g)     7,700  
                                                                     

Income Before Taxes

    26,927       (5,108 )     21,819     482       (194 )     288       22,107       (19,356 )     2,751  
                                                                     

Provision for Income Taxes

    979       (71 )(b)     908     236             (e)     236       1,144       310  (h)     1,454  
                                                                     

Net Income

  $ 25,948     $ (5,037 )   $ 20,911   $ 246     $ (194 )   $ 52     $ 20,963     $ (19,666 )   $ 1,297  
                                                                     

Weighted Average Shares of Class A Common Stock Outstanding:

                 

Basic

                    4,200 (i)

Diluted

                    4,200 (i)

Net Income Available to Holders of Shares of Class A Common Stock Per Share:

                 

Basic

                  $ 0.31 (i)

Diluted

                  $ 0.31 (i)

Notes to Unaudited Condensed Consolidated Pro Forma Statements of Income ($ in thousands, unless otherwise noted)

The Unaudited Condensed Consolidated Pro Forma Statements of Income assume an initial public offering price of $19.00 per share, the midpoint of the price range set forth on the cover page of this prospectus.

 

(a) Adjustment reflects the elimination of the historical results of operations for the general partners of the Evercore Capital Partners I, Evercore Capital Partners II and Evercore Ventures funds and certain other entities through which Messrs. Altman and Beutner have invested capital in the Evercore Capital Partners I fund, specifically, Evercore Founders LLC and Evercore Founders Cayman Limited, which will not be contributed to Evercore LP. See “Organizational Structure—Formation Transaction”. For the year ended December 31, 2005, this adjustment reflects $976 of net losses associated with carried interest and portfolio investments, $8 minority interest, and $162 of general partnership level expenses. For the three months ended March 31, 2006, this adjustment reflects $5,116 of net gains associated with carried interest and portfolio investments, $(7) of minority interest and $15 of general partnership level expenses.
(b) Adjustment reflects the tax impact on Evercore LP’s New York City Unincorporated Business Tax, or “UBT”, associated with adjustments for the Formation Transaction, including the New York City tax impact of converting the subchapter S corporations to limited liability companies. Since the entities that form Evercore have been limited liability companies, partnerships or sub-chapter S entities, Evercore’s income has not been subject to U.S. federal and state income taxes. Taxes related to income earned by limited liability companies and partnerships represent obligations of the individual Senior Managing Directors. Income taxes shown on Evercore Holdings’ historical combined statements of income are attributable to the New York City UBT, attributable to Evercore’s operations apportioned to New York City.
(c) Reflects the amortization of intangible assets acquired in conjunction with the purchase of Protego with an estimated useful life ranging from 0.5 years to five years. The intangible assets with finite useful lives include the following asset types: client backlog and relationships, broker dealer license and non-competition and non-solicitation agreements. See Notes (e) and (o) under “Notes to Unaudited Condensed Consolidated Pro Forma Statement of Financial Condition”.
(d) Reflects an adjustment to eliminate a minority interest of 19% in Protego’s asset management subsidiary that Evercore acquired as part of the Protego Combination.
(e) For tax purposes, no tax benefit will be realized related to the intangible assets acquired by Evercore LP in conjunction with the Protego Combination. However, a tax benefit will be realized by Evercore Partners Inc. upon consummation of this offering. See Note (h) under “Notes to Unaudited Condensed Consolidated Pro Forma Statements of Income.”

 

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Table of Contents
(f) Historically the entities that form Evercore have been limited liability companies, partnerships or sub-chapter S entities. Accordingly, payments for services rendered by our Senior Managing Directors generally have been accounted for as distributions of members’ capital rather than as compensation expense. Following this offering, we will include all payments for services rendered by our Senior Managing Directors in compensation and benefits expense. Our policy will be to set our total employee compensation and benefits expense at a level not to exceed 50% of our total revenue each year (excluding, for purposes of this calculation, any revenue or compensation and benefits expense relating to gains (or losses) on investments or carried interest), and we initially expect to accrue compensation and benefits expense equal to 50% of our total revenue following this offering. However, we may record compensation and benefits expense in excess of this percentage to the extent that such expense is incurred due to a significant expansion of our business or to any vesting of the partnership units to be held by our Senior Managing Directors or restricted stock units to be received by our non-Senior Managing Director employees at the time of this offering. We may change this policy in the future. An adjustment has been made to Evercore Partners Inc. to reflect total compensation and benefits expense as 50% of total revenue. See Note (y) under “Notes to Unaudited Condensed Consolidated Pro Forma Statement of Financial Condition”.

 

 

    

Year Ended

December 31, 2005

   

Three Months Ended

March 31, 2006

 
     Evercore     Protego     Total     Evercore     Protego     Total  

Post Formation Total Revenues

   $ 126,611       $ 126,611     $ 40,510       $ 40,510  

Historical Total Revenues

     $ 19,521       19,521       $ 3,241       3,241  
                                                

Compensation Expense Threshold – 50%

     63,306       9,761       73,067       20,255       1,621       21,876  

Historical Compensation and Benefits

     (24,115 )     (8,347 )     (32,462 )     (8,759 )     (1,579 )     (10,338 )
                                                

Total Pro Forma Compensation and Benefits Expense Adjustment

   $ 39,191     $ 1,414     $ 40,605     $ 11,496     $ 42     $ 11,538  
                                                

 

(g) Reflects an adjustment to record the 77.1% minority interest ownership of our Senior Managing Directors in Evercore LP relating to their vested partnership units, assuming 4,000,000 shares of Class A common stock are outstanding after this offering. Partnership units of Evercore LP are, subject to certain limitations, exchangeable into shares of Class A common stock of Evercore Partners Inc. on a one-for-one basis. Evercore Partners Inc.’s interest in Evercore LP is within the scope of EITF 04-5. Although Evercore Partners Inc. will have a minority economic interest in Evercore LP, it will have a majority voting interest and control the management of Evercore LP. Additionally, although the limited partners will have an economic majority of Evercore LP, they will not have the right to dissolve the partnership or substantive kick-out rights or participating rights, and therefore lack the ability to control Evercore LP. Accordingly, Evercore will consolidate Evercore LP and record minority interest for the economic interest in Evercore LP held directly by the Senior Managing Directors. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures—Minority Interest”.
(h) As a limited liability company, partnership or sub-chapter S entity, we were generally not subject to income taxes except in foreign and local jurisdictions. An adjustment has been made to increase our effective tax rate to approximately 44%, that assumes that Evercore Partners Inc. is taxed as a C corporation at the highest statutory rates apportioned to each state, local and/or foreign tax jurisdiction and is reflected net of U.S. federal tax benefit. There is no current foreign tax increase or benefits assumed with the Protego Combination as it relates to the effective tax rate. However, Evercore Partners Inc. will realize deferred tax increases or benefits upon the Protego Combination as it relates to the tax amortization of intangibles and goodwill over a 15 year straight-line basis. The holders of partnership units in Evercore LP, including Evercore Partners Inc., will incur U.S. federal, state and local income taxes on their proportionate share of any net taxable income of Evercore LP. In accordance with the partnership agreement pursuant to which Evercore LP will be governed, we intend to cause Evercore LP to make pro rata cash distributions to our Senior Managing Directors and Evercore Partners Inc. for purposes of funding their tax obligations in respect of the income of Evercore LP that is allocated to them. The following table reflects the adjustment to arrive at total income subject to tax for Evercore Partners Inc.:

 

 

     Year Ended
December 31, 2005
   Three Months Ended
March 31, 2006

Operating Income

   $ 28,217    $ 10,451

Less Minority Interest

     20,681      7,700
             

Total Income

   $ 7,536    $ 2,751
             

 

(i) For the purposes of the pro forma net income per share calculation, the weighted average shares outstanding, basic and diluted, are calculated based on:

 

    

Year Ended

December 31, 2005

  

Three Months Ended

March 31, 2006

     Evercore Partners Inc.
Pro Forma
   Evercore Partners Inc.
Pro Forma
     Basic    Diluted    Basic    Diluted

Evercore Partners Inc. Shares of Class A Common Stock

   50,000    50,000    50,000    50,000

Evercore Partners Inc. Restricted Stock Units – vested

   200,000    200,000    200,000    200,000

Evercore LP Partnership Units – vested (1)

   —      —      —      —  

New Shares from Offering

   3,950,000    3,950,000    3,950,000    3,950,000
                   
           

Weighted Average Shares of Class A Common Stock Outstanding

   4,200,000    4,200,000    4,200,000    4,200,000
                   
 
  (1) 13,430,500 vested Evercore LP partnership units are not included in the calculation of Weighted Average Shares of Class A Common Stock outstanding as they are antidilutive.

 

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Table of Contents
     Of the 23,136,829 Evercore LP partnership units to be held by parties other than Evercore Partners Inc. immediately following this offering, 13,430,500 will be fully vested and 9,706,329 will be unvested. We have concluded that at the current time it is not probable that the conditions relating to the vesting of these unvested partnership units will be achieved or satisfied and, accordingly, these unvested partnership units are not reflected as outstanding for purposes of calculating the minority interest for the economic interest in Evercore LP held by the limited partners. Any vesting of these unvested partnership units would significantly increase minority interest and reduce our net income and net income per share. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures—Operating Expenses—Employee Compensation and Benefits Expense”.

 

     Basic and diluted net income per share are calculated as follows:

 

    

Year Ended

December 31, 2005

  Three Months Ended
March 31, 2006
     Evercore Partners Inc.
Pro Forma
  Evercore Partners Inc.
Pro Forma

Basic and Diluted Net Income Per Share

    

Net Income Available to Holders of Shares of Class A Common Stock

   $ 3,552   $ 1,297

Basic and Diluted Weighted Average Shares of Class A Common Stock Outstanding

     4,200,000     4,200,000

Basic and Diluted Net Income Per Share of Class A Common Stock

   $ 0.85   $ 0.31
            

The vested Evercore LP partnership units that could potentially dilute basic net income per share were not included in the computation of diluted net income per share because to do so would have been antidilutive for the periods presented.

The shares of Class B common stock have no right to receive dividends or a distribution on liquidation or winding up of Evercore Partners Inc. The shares of Class B common stock do not share in the earnings of Evercore Partners Inc. and no earnings are allocable to such class. Accordingly, pro forma basic and diluted net income per share of Class B common stock have not been presented.

 

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Unaudited Condensed Consolidated Pro Forma Statement of Financial Condition

 

    As of March 31, 2006  
($ in thousands,
except per share
data)
  Evercore
Holdings
Historical
    Adjustments  
for Formation
    Evercore
Post
Formation
    Protego
Historical
  Protego
Combination
Adjustments(m)
    Protego
As
Adjusted
  Evercore
LP Pro
Forma
    Adjustments  
for Offering
    Evercore
Partners
Inc. Pro
Forma
 

Cash and Cash Equivalents

  $ 13,804   $ (12,285 )(j)(k)   $ 1,519     $ 4,082   $ (3,628 )(m)   $ 454   $ 1,973   $ 35,687 (u)(v)   $ 37,660  

Accounts Receivable

    16,531     (7,190 )(k)     9,341       1,327     —         1,327     10,668       10,668  

Investments at Fair Value

    28,191     (19,427 )(j)     8,764       1,322       1,322     10,086       10,086  

Goodwill

    —         —           29,874  (n)     29,874     29,874       29,874  

Intangible Assets

    —         —           3,770  (o)     3,770     3,770       3,770  

Other Assets

    14,950     1,743  (j)     16,693       2,441     (1,911 )(p)     530     17,223     (3,812 )(w)     13,411  
                                                               

Total Assets

  $ 73,476   $ (37,159 )   $ 36,317     $ 9,172   $ 28,105     $ 37,277   $ 73,594   $ 31,875     $ 105,469  
                                                               

Short-Term Borrowings

  $ 25,000   $                  $ 25,000     $ —     $                  $     $ 25,000   $ (25,000 )(v)   $ —    

Accrued Compensation and Benefits

    5,549       5,549       529       529     6,078     $ 6,078  

Accounts Payable and Accrued Expenses

    8,312       8,312       626       626     8,938       8,938  

Notes Payable

    —         —         —       7,000  (q)     7,000     7,000     (7,000 )(v)     —    

Other Liabilities

    5,911     (1,009 )(j)     4,902       612       612     5,514       5,514  
                                                               

Total Liabilities

    44,772     (1,009 )     43,763       1,767     7,000       8,767     52,530     (32,000 )     20,530  
                                                               

Minority Interest

    267     (267 )(j)     —         1,633     (633 )(r)     1,000     1,000     20,064  (x)     21,064  
                                                               

Members’ Capital

    28,233     (35,883 )(j)(k)     (7,650 )(l)       27,510  (s)     27,510     19,860     (19,860 )(x)     —    

Retained Earnings

    —           5,545     (5,545 )(m)(t)     —       —       (3,800 )(y)     (3,800 )

Accumulated Other Comprehensive Income

    204       204       219     (219 )(t)     —       204     (204 )(x)     —    

Class A Common Stock, $0.01 par value per share

    —           —         —       —       40  (u)(v)     40  

Class B Common Stock, $0.01 par value per share

    —           —         —       —       0       0  

Restricted Stock Units

    —           —             3,800  (y)     3,800  

Additional Paid-in-Capital

    —           8     (8 )(t)     —       —       63,835 (u)(v)(w)     63,835  
                                                               

Total Stockholders’ Equity

    28,437     (35,883 )     (7,446 )     5,772     21,738       27,510     20,064     43,811       63,875  
                                                               

Total Liabilities and Stockholders’ Equity

  $ 73,476   $ (37,159 )   $ 36,317     $ 9,172   $ 28,105     $ 37,277   $ 73,594   $ 31,875     $ 105,469  
                                                               

 

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Notes to Unaudited Condensed Consolidated Pro Forma Statement of Financial Condition ($ in thousands, unless otherwise noted)

The Unaudited Condensed Consolidated Pro Forma Statement of Financial Condition assumes an initial public offering price of $19.00 per share, the midpoint of the price range set forth on the cover page of this prospectus.

 

(j) The cash, investments, other assets, other liabilities, minority interest and members’ capital of the general partners of the Evercore Capital Partners I, Evercore Capital Partners II and Evercore Ventures private equity funds and certain other entities through which Messrs. Altman and Beutner have invested capital in the Evercore Capital Partners I fund are eliminated for the presentation of the unaudited condensed consolidated pro forma statement of financial condition since these entities will not be contributed to Evercore LP. Refer to “Organizational Structure—Formation Transaction”.
(k) Reflects the pro forma cash distribution of pre-offering profits defined as net income less net income derived from the general partners and certain other entities as described in footnote (j) above for the period January 1 through the closing of the Formation Transaction, in the amount of $18,023 as of March 31, 2006 to our Senior Managing Directors to be effected prior to this offering. The distributions are to be funded with available cash, with the remainder to be funded by the assignment of interests in certain accounts receivable. The tables below reflect this pro forma distribution of first quarter 2006 profits as of March 31, 2006.

 

Pre-incorporation Profits

   Three months ended
March 31, 2006
 

Evercore Holdings Historical Net Income

   $ 25,948  

Less: Net Income of General Partner Not Distributed

     (5,108 )
        

Pre-incorporation Profits to be Distributed

   $ 20,840  

Partner Distribution made in Q1 2006 Pertaining to Pre-incorporation Profits

     (2,817 )
        

Net Pre-incorporation profits distribution

   $ 18,023  
        

 

 

Pre-incorporation Profits Consideration

   Three months ended
March 31, 2006

Accounts Receivable

   $ 7,190

Cash

     10,833
      

Total

   $ 18,023
      

 

(l) The accumulated deficit represents cumulative distributions to members in excess of cumulative book income pertaining to periods prior to January 1, 2006.
(m) Represents adjustments to recognize the acquisition of Protego, which includes a 70% majority interest in its asset management subsidiary.

 

  The estimated fair value of consideration paid and the assets and liabilities acquired in connection with the Protego Combination were determined to establish the appropriate allocation of purchase price to the acquired assets over liabilities. The total consideration includes the non-interest bearing notes of $7.0 million, 1,760,187 vested Evercore LP units and direct costs incurred with the acquisition transaction. With respect to the $7.0 million in notes to be issued in consideration for the Protego Combination, $6.05 million will be payable in cash and $0.95 million will be payable in shares of Class A common stock valued at the initial public offering price per share in this offering. Assuming an initial public offering price of $19.00 per share, we would issue 50,000 shares of Class A common stock upon repayment of such notes at the closing of this offering. The methodology to determine the estimated value of the vested Evercore LP units was to estimate the total value of the combined entity post Formation Transaction, including Protego, as of the date the contribution and sale agreement for the Protego Combination was signed and then multiply that percentage ownership implied by the vested units issued with respect to the Protego Combination to calculate the value of those partnership units. The purchase price was allocated to the acquired assets and liabilities based on fair value with any residual unallocated purchase price assigned to goodwill. The purchase price does not include 351,362 unvested Evercore LP partnership units issued by Evercore LP in connection with the acquisition, for which, among other things, employee service subsequent to the consummation date of the acquisition is required in order for the units to vest. The unvested partnership units of Evercore LP will be treated as expense and not part of the purchase price consideration. Expense will be charged at the time a vesting event occurs or, if earlier, at the time a vesting event becomes probable. The expense will be based on the grant date fair value of the partnership units of Evercore LP, which will be the initial public offering price of the Class A common stock into which these partnership units are exchangeable. 50% of these unvested partnership units will vest if and when Messrs. Altman, Beutner and Aspe, and trusts benefiting their families and permitted transferees, collectively, cease to beneficially own at least 90% of the aggregate Evercore LP partnership units owned by them on the date the Reorganization is affected. 100% of the unvested Evercore LP partnership units issued will vest upon the earliest to occur of the following events:

 

    When Messrs. Altman, Beutner and Aspe, and trusts benefiting their families and permitted transferees, collectively, cease to beneficially own at least 50% of the aggregate Evercore LP partnership units owned by them on the date of the partnership agreement;
    A change of control of Evercore; or
    Two of Messrs. Altman, Beutner and Aspe are not employed by, or do not serve as a director of, Evercore Partners Inc. or one of its affiliates within a 10-year period following this offering.

 

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  In addition, 100% of the unvested Evercore LP partnership units held by a Senior Managing Director will vest if such Senior Managing Director dies or becomes disabled while in our employ. Our Equity Committee, which is comprised of Messrs. Altman, Beutner and Aspe, with our concurrence, may also accelerate vesting of unvested Evercore LP partnership units.

 

  A final determination of required purchase accounting adjustments, including the allocation of the purchase price, has not yet been made. Accordingly, the purchase accounting adjustments made in connection with these unaudited condensed consolidated pro forma financial statements are preliminary and have been made solely for the purposes of developing such condensed consolidated pro forma financial statements. At this time, we do not expect that the value of any of the identifiable, definite-lived intangibles will change in a material manner between the time the preliminary valuation was performed and the closing of the transaction when the final valuation will be completed. Additionally, we do not expect any material changes in the value of any of the other assets acquired and liabilities assumed in conjunction with the Protego Combination. We do not expect any uncertainties regarding amortization periods to have a material impact on our financials.

 

Estimated Purchase Price

      

Non-Interest Bearing Evercore LP Notes

   $ 7,000  

Evercore LP Partnership Units (vested)

     27,510  

Acquisition Costs

     1,911  
        

Estimated Purchase Price

   $ 36,421  
        

Estimated Purchase Price Allocation

      

Cash

   $ 4,082  

Less: Pre-Protego Combination Profits Distribution

     (3,628 )
        

Net Cash

     454  
        

Accounts Receivable

     1,327  

Investments

     1,322  

Intangible Assets

     3,770  

Other Assets

     2,441  

Current Liabilities

     (1,767 )

Minority Interest

     (1,000 )
        

Identifiable Net Assets

     6,547  
        

Goodwill

   $ 29,874  
        

 

  Pursuant to the agreement with Protego, the above calculation reflects a pro forma cash distribution of pre-Protego Combination profits to the Protego Directors prior to this offering. The distributions are to be funded with available cash, with the remainder to be funded with notes or an assignment of certain accounts receivable. The table above reflects this pro forma distribution as of March 31, 2006. Under a service agreement with a Director who ceased to be employed by Protego in June 2006, Protego will be required to make a payment of up to $2.6 million. The associated expense will reduce Protego’s pre-Protego Combination profits and accordingly reduce Protego’s pre-Protego Combination profits distribution.

 

(n) Reflects the residual value of goodwill attributable to the acquisition. Goodwill is based on a provisional purchase price allocation and is equal to the purchase price in excess of the estimated fair value of identifiable net assets acquired, as set forth in Note (m) above. For tax purposes, such amounts will be amortized straight-line over a fifteen year period.
(o) Reflects the fair value of intangible assets acquired. Such amount will be amortized over the estimated useful lives of the intangible assets which have been assumed to range from 0.5 to five years for financial statement accounting purposes and fifteen years for tax purposes of these condensed consolidated pro forma financial statements.
(p) Reflects the elimination of direct costs which have been capitalized in Evercore’s historical statement of financial condition, associated with the acquisition of Protego incurred prior to March 31, 2006. These costs have been added to the estimated purchase price. See Note (m) above.
(q) Reflects the issuance of the aggregate principal amount of non-interest bearing Evercore LP notes that are payable in cash of $6.1 million, and $0.9 million of Class A common stock immediately following the closing of this offering (the “Evercore LP Notes”).
(r) Reflects an adjustment to eliminate a minority interest of 19% in Protego’s asset management subsidiary acquired by Evercore as part of the Protego Combination.
(s) Reflects the fair value of 1,760,187 vested Evercore LP partnership units issued in connection with the purchase of Protego.
(t) Reflects the elimination of Protego’s shareholder equity accounts including retained earnings, accumulated other comprehensive income and additional paid-in capital.
(u) Reflects net proceeds from the sale by us of 3,950,000 shares of Class A common stock pursuant to this offering, assuming an initial public offering price of $19.00 per share of Class A common stock, the midpoint of the price range set forth on the cover page of this prospectus, less estimated underwriting discounts and commissions and expenses payable in connection with this offering and the related transactions.
(v) Reflects repayment of the Evercore LP Notes issued to effect the Protego Combination using net proceeds from this offering of $6.1 million and the issuance of $0.9 million of Class A common stock and repayment of the outstanding amount under our line of credit of $25 million.

 

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(w) Reflects the elimination of direct costs incurred through March 31, 2006 of this offering.
(x) Reflects a minority interest adjustment for the ownership of vested Evercore LP partnership units held directly by our Senior Managing Directors, assuming 3,950,000 shares of Class A common stock are issued in connection with this offering. Partnership units of Evercore LP are, subject to certain limitations, exchangeable into shares of Class A common stock of Evercore Partners Inc. on a one-for-one basis.
(y) Reflects the anticipated one time grant of restricted stock units. We intend to grant 2,300,000 restricted stock units to our non-Senior Managing Director employees at the time of this offering. 200,000 of the restricted stock units will be fully vested and, as a result, we will record compensation and benefits expense at the time of this offering equal to the value of these fully vested restricted stock units. Such expense has been excluded from the unaudited condensed consolidated pro forma statement of income as the charge is a non-recurring charge directly attributable to the acquisition. The remaining 2,100,000 of these restricted stock units will be unvested and will vest only upon the same conditions as the unvested partnership units of Evercore LP issued in connection with the Formation Transaction and the Protego Combination described above. If and when these unvested restricted stock units vest, we will record compensation and benefits expense at the time of vesting equal to the grant date fair value of the Class A common stock of Evercore Partners Inc. deliverable pursuant to such restricted stock units, which would be calculated based on the initial public offering price of the Class A common stock. As a result, based on an assumed initial public offering price of $19.00 per share, we expect to record compensation expense at the time of this offering equal to the fair value of the vested restricted stock units issued of $3.8 million and would record additional compensation expense at the time of vesting of the unvested restricted stock units of $39.9 million if all such unvested restricted stock units were to vest. If the initial public offering price per share is higher than $19.00, the compensation expense that we record will be greater.

 

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SELECTED HISTORICAL FINANCIAL AND OTHER DATA

Evercore

The following selected combined financial and other data of Evercore Holdings should be read together with “Unaudited Pro Forma Financial Information”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and related notes included elsewhere in this prospectus.

We derived the selected historical combined statement of income data of Evercore Holdings for each of the years ended December 31, 2003, 2004 and 2005 and the selected combined statement of financial condition data as of December 31, 2004 and 2005 from our historical combined financial statements audited by Deloitte & Touche LLP which are included elsewhere in this prospectus. We derived the historical combined statement of financial condition and statement of income data of Evercore Holdings as of March 31, 2006 and for the three months ended March 31, 2005 and 2006 from our unaudited interim historical combined financial statements which are included elsewhere in this prospectus. We derived the selected historical combined statement of financial condition data as of December 31, 2003 and the selected historical combined statement of income data of Evercore Holdings for the year ended December 31, 2002 from our historical combined financial statements audited by Deloitte & Touche LLP which are not included in this prospectus.

We derived the selected historical combined statement of income data of Evercore Holdings for the year ended December 31, 2001 and the selected combined statement of financial condition data as of December 31, 2001 and 2002 from our unaudited combined financial statements which are not included in this prospectus. The unaudited combined financial statements of Evercore Holdings have been prepared on substantially the same basis as the audited combined financial statements and include all adjustments that we consider necessary for a fair presentation of our combined financial position and results of operations for all periods presented.

We derived the unaudited pro forma data of Evercore Partners Inc. for the year ended December 31, 2005 and the three months ended March 31, 2006 from the pro forma data included in “Unaudited Pro Forma Financial Information” included elsewhere in this prospectus.

The selected historical financial data is not indicative of the expected future operating results of Evercore following the Formation Transaction. For example, following this offering our results will not include the financial results of the general partners of the three private equity funds that we currently manage and will include the financial results of Protego. See “Unaudited Pro Forma Financial Information”.

 

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Selected Historical Financial and Other Data

 

    Evercore Holdings  
    Year Ended December 31,     Three Months Ended
March 31,
 
    2001     2002     2003     2004   2005     2005     2006  

($ in thousands, except per share data)

             

Statement of Income Data

             

Revenues:

             

Advisory

  $ 40,206     $ 25,108     $ 26,302     $ 69,205   $ 110,842     $ 18,270     $ 32,397  

Investment Management

    5,267       32,921       33,568       16,967     14,584       4,120       13,108  

Interest Income and Other

    556       309       250       145     209       44       121  
                                                     

Total Revenues

    46,029       58,338       60,120       86,317     125,635       22,434       45,626  
                                                     

Expenses:

             

Employee Compensation and Benefits(a)

    15,178       12,092       12,448       17,084     24,115       5,410       8,759  

Other Operating Expenses

    11,182       10,397       12,432       17,389     34,988       5,176       9,947  
                                                     

Total Operating Expenses

    26,360       22,489       24,880       34,473     59,103       10,586       18,706  
                                                     

Other Income

    —         —         —         76     —         —         —    
                                                     

Operating Income

    19,669       35,849       35,240       51,920     66,532       11,848       26,920  

Minority Interest

    (7 )     (13 )     (9 )     29     8       2       (7 )
                                                     

Income Before Taxes

    19,676       35,862       35,249       51,891     66,524       11,846       26,927  
                                                     

Provision for Income Taxes(b)

    378       1,065       905       2,114     3,372       670       979  
                                                     

Net Income

  $ 19,298     $ 34,797     $ 34,344     $ 49,777   $ 63,152     $ 11,176     $ 25,948  
                                                     

Pro Forma Basic Net Income Per Share of Class A Common Stock

          $ 0.85 (c)     $ 0.31 (c)

Pro Forma Diluted Net Income Per Share of Class A Common Stock

          $ 0.85 (c)     $ 0.31 (c)

Pro Forma Basic Weighted Average Shares of Class A Common Stock

            4,200 (c)       4,200 (c)

Pro Forma Diluted Weighted Average Shares of Class A Common Stock

            4,200 (c)       4,200 (c)

($ in thousands)

             

Operating Metrics

             

Advisory:

             

Number of Advisory Clients

    26       29       35       45     58       26       20  

Advisory Senior Managing Director Headcount (as of the end of each period)

    3       5       6       8     11       8       11  

Advisory Revenue per Advisory Senior Managing Director

  $ 13,402     $ 5,022     $ 4,384     $ 8,651   $ 10,077     $ 2,284     $ 2,945  

Investment Management:

             

Capital Commitments(d)

  $    850,245     $ 1,152,699     $ 1,237,188     $ 1,237,188   $ 1,237,188     $ 1,237,188     $ 1,237,188  

Capital Invested(e)

    109,557       30,774       206,823       15,076     179,509       32,820       124,969  

Gross Realized Proceeds(f)

    101,039       50,594       308,050       35,087     85,488       5,422       122  

Investment Management Senior Managing Director Headcount

    3       5       6       6     6       6       7  

Investment Management Revenue:

             

Management and Portfolio Company Fees(g)

  $     7,039     $ 18,039     $ 20,846     $ 13,829   $ 15,560     $ 5,262     $ 7,992  

Carried Interest and Investment Income(h)

    (1,772 )     14,882       12,722       3,138     (976 )     (1,142 )     5,116  
                                                     

Total Investment Management Revenue

  $ 5,267     $ 32,921     $ 33,568     $ 16,967   $ 14,584     $ 4,120     $ 13,108  
                                                     

 

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    Evercore Holdings
    As of December 31,  

As of
March 31,

2006

    2001   2002   2003   2004   2005  

($ in thousands)

           

Statement of Financial Condition Data

           

Total Assets

  $ 40,306   $ 45,527   $ 42,343   $ 71,681   $ 81,412   $ 73,476

Total Liabilities

    15,807     19,694     15,135     20,137     29,633     44,772

Minority Interest

    65     123     155     265     274     267

Members’ Equity

    24,434     25,710     27,053     51,279     51,505     28,437

(a) Because the entities that form Evercore have been limited liability companies, partnership or sub-chapter S entities, payments for services rendered by our Senior Managing Directors generally have been accounted for as distributions of members’ capital rather than as compensation expense. Following this offering, we will include all payments for services rendered by our Senior Managing Directors in compensation and benefits expense. Accordingly, our historical operating expenses are not comparable to, and are lower than, the operating expenses we expect to incur after this offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures—Operating Expenses—Employee Compensation and Benefits Expense”.
(b) We have historically operated as a partnership or, in the case of certain combined subsidiaries, an S corporation, for U.S. federal income tax purposes. As a result, our income has not been subject to U.S. federal and state income taxes. Following this offering, Evercore Partners Inc. will be subject to additional entity-level taxes that will be reflected in our consolidated financial statements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures—Provision for Income Taxes”.
(c) For the purposes of the Evercore Partners Inc. pro forma net income per share of Class A common stock calculation, the weighted average shares of Class A common stock outstanding, basic and diluted, are calculated based on:

 

    

Year Ended

December 31, 2005

Pro Forma

  

Three Months Ended

March 31, 2006

Pro Forma

     Basic    Diluted    Basic    Diluted

Evercore Partners Inc. Class A common stock

   50,000    50,000    50,000    50,000

Evercore Partners Inc. Restricted Stock Units – vested

   200,000    200,000    200,000    200,000

Evercore LP Partnership Units – vested(1)

   —      —      —      —  

New Shares from Offering

   3,950,000    3,950,000    3,950,000    3,950,000
                   
           

Weighted Average Shares of Class A Common Stock Outstanding

   4,200,000    4,200,000    4,200,000    4,200,000
                   
 
  (1) 13,430,500 vested Evercore LP partnership units are not included in the calculation of Weighted Average Shares of Class A Common Stock outstanding as they are antidilutive.

 

     Of the 23,136,829 Evercore LP partnership units to be held by parties other than Evercore Partners Inc. immediately following this offering, 13,430,500 will be fully vested and 9,706,329 will be unvested. We have concluded that at the current time it is not probable that the conditions relating to the vesting of these unvested partnership units will be achieved or satisfied and, accordingly, these unvested partnership units are not reflected as outstanding for purposes of calculating the minority interest for the economic interest in Evercore LP held by the limited partners. Any vesting of these unvested partnership units would significantly increase minority interest and reduce our net income and net income per share. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Financial Measures—Operating Expenses—Employee Compensation and Benefits Expense”.

 

     Evercore Partners Inc. pro forma basic and diluted net income per share of Class A common stock are calculated as follows:

 

($ in thousands except per share data)   

Year Ended

December 31, 2005

Pro Forma

  

Three
Months Ended

March 31, 2006

Pro Forma

Basic and Diluted Net Income Per Share

     

Net Income Available to Holders of Shares of Class A Common Stock

   $ 3,552    $ 1,297

Basic and Diluted Weighted Average Shares of Class A Common Stock Outstanding

     4,200,000      4,200,000

Basic and Diluted Net Income Per Share of Class A Common Stock

   $ 0.85    $ 0.31
             

 

     The vested Evercore LP partnership units that could potentially dilute basic net income per share were not included in the computation of diluted net income per share because to do so would have been antidilutive for the periods presented.

The shares of Class B common stock have no right to receive dividends or a distribution on liquidation or winding up of Evercore Partners Inc. The shares of Class B common stock do not share in the earnings of Evercore Partners Inc. and no earnings are allocable to such class. Accordingly, pro forma basic and diluted net income per share of Class B common stock have not been presented.

 

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(d) Capital commitments represent the total amount that has been committed by investors to the private equity funds we manage. We closed our last fund, Evercore Capital Partners II, in 2003 and, therefore, there has been no change in capital commitments subsequent to that period.
(e) Capital invested represents the amount invested during the period by the private equity funds we manage in the portfolio companies. Capital invested varies significantly from period to period. The decrease in capital invested in 2004 reflects a decrease in investment activity during that period.
(f) Gross realized proceeds represent the amount received during the period from the disposition of, or income received from, the underlying investments made by the private equity funds we manage. Gross realized proceeds vary significantly from period to period and decreased from 2004 to 2003 due to a decrease in the number and size of investments sold by the funds during 2004.
(g) Management fees are contractually based and are derived from investment management services provided in originating, recommending and consummating investment opportunities to the private equity funds. Portfolio company fees include monitoring, director and transaction fees associated with services provided to the portfolio companies of the private equity funds we manage.
(h) Carried interest is an incentive fee earned by the general partners of the private equity funds we manage when certain financial return targets and hurdles are met. Carried interest and investment income decreased over the three year period ending in 2005 due to a decrease in the number and amount of realizations of investments and in the carrying value of portfolio investments of the private equity funds we manage. Please see “Unaudited Pro Forma Financial Information” for presentation of our results of operations adjusted to give pro forma effect to the elimination of carried interest and investment gains or losses associated with the general partners of the private equity funds we currently manage.

 

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Protego Asesores

Prior to this offering, and concurrently with the Formation Transaction, Evercore LP will acquire Protego Asesores and its subsidiaries (including a 70% interest in Protego’s asset management subsidiary) and Protego SI in exchange for $7.0 million aggregate principal amount of non-interest bearing notes, and, once Protego is acquired, Mr. Aspe and the other Protego Directors will become Senior Managing Directors of Evercore and, collectively with certain companies they control, certain trusts benefiting their families and a trust benefiting Directors and employees of Protego, subscribe for partnership units in Evercore LP. In addition, Protego will distribute to its Directors cash and, to the extent cash is not available, notes or interests in certain accounts receivable so as to distribute to its Directors all earnings for the period from January 1, 2005 to the date of the closing of the contribution and sale agreement. See “Organizational Structure—Combination with Protego”.

The following summary historical combined financial data should be read in conjunction with Protego’s audited combined financial statements and related notes thereto included elsewhere in this prospectus. The summary historical combined statement of income data presented below for each of the years ended December 31, 2003, December 31, 2004 and December 31, 2005, have been derived from Protego’s historical combined and consolidated financial statements included elsewhere in this prospectus. The summary historical combined statement of income data presented below as of March 31, 2006 and for the three months ended March 31, 2005 and 2006, have been derived from Protego’s unaudited interim combined financial statements included elsewhere in this prospectus.

 

    Year Ended December 31,     Three Months Ended
March 31,
 
    2003   2004     2005     2005     2006  

($ in thousands)

         

Statement of Income Data

         

Revenues:

         

Advisory:

  $   9,083   $ 12,229     $ 16,388     $ 8,318     $ 2,289  

Investment Management

    —       670       2,855       562       789  

Interest Income and Other

    68     (50 )     278       20       163  
                                     

Total Revenues

    9,151     12,849       19,521       8,900       3,241  

Expenses:

         

Employee Compensation and Benefits

    5,161     5,700       8,347       3,323       1,579  

Other Operating Expenses

    2,914     4,056       7,022       1,235       1,372  
                                     

Total Operating Expenses

    8,075     9,756       15,369       4,558       2,951  
                                     

Operating Income

    1,076     3,093       4,152       4,342       290  

Total Income Tax, Net

    96     1,034       1,969       1,787       236  

Minority Interest (a)

    —       —         (1,199 )     (442 )     (192 )
                                     

Net Income (b)

  $      980   $   2,059     $   3,382     $ 2,997     $ 246  
                                     

($ in thousands)

         

Operating Metrics

         

Number of Advisory Clients

    47     36       48       27       42  

Advisory Senior Managing Director Headcount

    5     5       5       5       5  

Advisory Revenue per Advisory Senior Managing Director

  $ 1,817   $ 2,446     $ 3,278     $ 1,664     $ 458  

 

    As of March 31,
2006

($ in thousands)

 

Statement of Financial Condition Data

 

Total Assets

  $ 9,172

Total Liabilities

    1,767

Minority Interest

    1,633

Members’ Equity

    5,772

(a) Minority interest reflects the pro-rata share of the losses in Protego’s asset management entity Protego Casa de Bolsa allocated to third party ownership of 49%.
(b) Pursuant to a contribution and sale agreement, pre-incorporation profits will be distributed to the Protego Directors prior to this offering. The profits distribution will equal net income for the period from January 1, 2005 to the closing of the contribution and sale agreement.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the historical financial statements and the related notes included elsewhere in this prospectus.

The historical combined financial data discussed below reflect the historical results of operations and financial position of Evercore Holdings. These historical combined financial data do not give effect to the Reorganization, including our combination with Protego, or to the completion of this offering. See “Organizational Structure” and “Unaudited Pro Forma Financial Information” included elsewhere in this prospectus.

Overview

Evercore is an investment banking boutique. Our operations consist of two business segments: Advisory and Investment Management.

 

    Advisory generates revenue from fees for providing advice on matters of strategic importance to our clients, including mergers, acquisitions, restructurings, divestitures, leveraged buy-outs, recapitalizations and other corporate transactions. Our Advisory segment generated $110.8 million, or 88.2%, of our revenue in 2005, $32.4 million, or 71.0%, of our revenue in the first quarter of 2006 and $18.3 million, or 81.4%, of our revenue in the first quarter of 2005.

 

    Investment Management generates revenue from fees earned for managing private equity funds and the portfolio companies of the private equity funds. In addition, we earn revenue from incentive fees, referred to as carried interest, earned when certain financial returns are achieved over the life of a fund, through net gains and losses on investments of our own capital in the funds, and from other sources. Our Investment Management segment generated $14.6 million, or 11.6%, of our revenue in 2005, $13.1 million, or 28.7%, of our revenue in the first quarter of 2006 and $4.1 million, or 18.4%, of our revenue in the first quarter of 2005.

Key Financial Measures

Revenue

Advisory. Our Advisory business earns fees from our clients for providing advice on mergers, acquisitions, restructurings, leveraged buy-outs, recapitalizations and other corporate transactions. The amount and timing of the fees paid vary by the type of engagement. Fees may be paid at the time we sign an engagement letter, during the course of the engagement, or when an engagement is completed. The majority of our Advisory revenue comes from fees that are dependent on the successful completion of a transaction. A transaction can fail to be completed for many reasons, including failure to agree upon final terms with the counterparty, to secure necessary board or shareholder approvals, to secure necessary financing or to achieve necessary regulatory approvals.

Revenue trends in our Advisory business generally are correlated to the volume of merger and acquisition activity and restructurings. However, deviations from this trend can occur in any given year for a number of reasons. For example, changes in our market share or the ability of our clients to close certain large transactions can cause our revenue results to diverge from the level of overall merger and acquisition or restructuring activity.

We operate in a highly competitive environment where there are no long-term contracted sources of revenue and each revenue-generating engagement is separately awarded and negotiated. Our list of clients, including our list of clients with whom there is a currently active revenue-generating engagement, changes continually. We gain new clients through our business development initiatives, through recruiting additional senior investment banking professionals who bring with them client relationships and through referrals from executives, directors, attorneys and other parties with whom we have relationships. We may also lose clients as a result of the sale or merger of a client, a change in a client’s senior management, competition from other investment banks and other causes.

 

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Investment Management. Our Investment Management business has four principal sources of revenue: (1) management fees; (2) portfolio company fees; (3) carried interest; and (4) gains (or losses) on investments of our own capital in the private equity funds we manage.

 

    Management Fees. Management fees are generally a percentage of committed capital (the total dollar amount of capital pledged to a fund) from certain outside investors in each of the private equity funds we manage. During the commitment period or until full investment these fees are typically 2.0% per annum of committed capital and, for the remainder of the fund’s life, 1.0% per annum of invested capital. The entities which are entitled to the management fees from the private equity funds we manage are being contributed to Evercore LP. Accordingly, we will continue to reflect the management fees from all of these funds in our consolidated financial statements following this offering.

 

    Portfolio Company Fees. Portfolio company fees include monitoring, director and transaction fees associated with services provided to the portfolio companies of the private equity funds we manage. We earn monitoring fees for services we provide with respect to the development and implementation of strategies for improving operating, marketing and financial performance. Monitoring fee revenue is recognized ratably over the period for which services are provided. We earn director fees for the services provided by our Senior Managing Directors who serve on the boards of directors of portfolio companies. Director fees are recorded as revenue when payment is received. We earn transaction fees for providing advice on the acquisition or disposition of portfolio companies held by the private equity funds. These fees are earned and recognized under the same revenue recognition policies as advisory fees. The private equity fund documents provide for a reduction of management fees by the amount of certain portfolio company fees earned by us. The entities which are entitled to the portfolio company fees from the private equity funds we manage are being contributed to Evercore LP. Accordingly, we will continue to reflect the portfolio company fees from all of these funds in our consolidated financial statements following this offering.

 

    Carried Interest. Carried interest is an incentive fee earned by the general partners of the private equity funds we manage when certain financial return targets and hurdles are met. Generally, the carried interest is calculated as 20% of the profits, provided that certain outside investors in the funds have earned an 8% return on investments from the Evercore Capital Partners funds and a 10% return on investments from the Evercore Ventures fund. Accordingly, the amount of carried interest earned depends on the profits, if any, ultimately generated within the funds. Our historical combined results of operations include the results of the general partners of the private equity funds we currently manage, including the carried interest earned by these general partners. Participation in such carried interest historically has been allocated principally to our Senior Managing Directors and other employees and any carried interest ultimately realized was paid directly to such individuals. Following this offering, we will no longer consolidate the results of the general partners of the private equity funds we currently manage. Accordingly, we will no longer recognize as revenue any carried interest earned by the general partners of the Evercore Capital Partners I or Evercore Ventures funds. However, through our equity interest in the general partner of the Evercore Capital Partners II fund, we will recognize as revenue 8% to 9% (depending on the particular fund investment) of any carried interest realized from that fund following this offering.

 

   

Gains (or Losses) on Investments. Gains and losses include both realized gains and losses upon the sale of a portfolio company and unrealized gains and losses on investments arising from changes in the fair value of the portfolio companies. Because our historical combined results of operations include the results of the general partners of the private equity funds we currently manage and certain other entities through which Messrs. Altman and Beutner have invested capital in the Evercore Capital Partners I fund, our historical results include such realized or unrealized gains or losses. Following this offering, because we will no longer consolidate the results of these entities, we will no longer recognize as revenue any of the gains or losses arising from these entities’ investments in the Evercore Capital Partners I or Evercore Ventures funds. However, through our equity interest in the general partner of the

 

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Evercore Capital Partners II fund, we will continue to recognize revenue based on our share of that fund’s realized or unrealized gains or losses. As of March 31, 2006, giving pro forma effect to the Reorganization, we had $6.2 million of investments in, and $3.7 million of commitments to, the Evercore Capital Partners II fund. The remaining $19.4 million of investments and $5.7 million of commitments associated with all of the general partners’ investments in the private equity funds we currently manage as of March 31, 2006 will not be contributed to or assumed by us following this offering.

We expect we will be entitled to 100% of any management fees and portfolio company fees earned in relation to any future private equity funds we manage. We also expect to consolidate the general partners of any future private equity funds we manage. Accordingly, we expect to record as revenue 100% of any carried interest and realized or unrealized gains (or losses) on investments earned by these entities. However, we expect to allocate to our Senior Managing Directors and other employees through the direct equity interests these individuals will hold in these entities approximately 60% to 70% of any such carried interest. In addition, these individuals will be entitled to any such gains (or losses) on investment based on the amount of the general partners’ capital they contribute in respect of any such future fund. We intend to make significant capital commitments to any future private equity fund we manage. We believe these commitments will strengthen our ability to attract outside investors because of our demonstrated financial commitment to the funds and the alignment of our interests with those of the limited partners in these funds.

In both our Advisory and Investment Management segments we make various transaction-related expenditures, such as travel and professional fees, on behalf of our clients. Pursuant to the engagement letters with our clients or the contracts with the limited partners in the private equity funds we manage, these expenditures may be reimbursable. We record expenses as these expenditures are incurred and record revenue when it is determined that clients have an obligation to reimburse us for such transaction-related expenses. Specifically, client expense reimbursements are recorded as revenue on the statement of income on the later of the date an engagement letter is executed or the date the expense is paid or accrued. In 2005 we recorded approximately $2.5 million of revenue and $4.2 million of expenses in our Advisory segment and approximately $0.9 million of revenue and $1.6 million of expenses in our Investment Management segment in connection with these reimbursements and the underlying expenditures. In the first quarter of 2006 and 2005, we recorded approximately $1.0 million and $0.6 million, respectively, of revenue and $0.8 million and $1.0 million, respectively, of expenses in our Advisory segment and approximately $1.0 million and $0.2 million, respectively, of revenue and $1.3 million and $0.4 million, respectively, of expenses in our Investment Management segment in connection with these reimbursements and the underlying expenditures.

Operating Expenses

Employee Compensation and Benefits Expense. Prior to this offering, our employee compensation and benefits expense reflects compensation solely to non-Senior Managing Directors. Historically, payments for services rendered by our Senior Managing Directors, including all salaries and bonuses, have been accounted for as distributions from members’ capital rather than as employee compensation and benefits expense. As a result, our employee compensation and benefits expense and net income have not reflected payments for services rendered by our Senior Managing Directors. Following this offering, we will include all payments for services rendered by our Senior Managing Directors in employee compensation and benefits expense.

Following this offering, our policy will be to set our total employee compensation and benefits expense at a level not to exceed 50% of our total revenue each year (excluding for purposes of this calculation, any revenue or compensation and benefits expense relating to gains (or losses) on investments or carried interest), and we initially expect to accrue compensation and benefits expense equal to 50% of our total revenue following this offering. However, we may record compensation and benefits expense in excess of this percentage to the extent that such expense is incurred due to a significant expansion of our business or to any vesting of the partnership units to be held by our Senior Managing Directors in the Reorganization or the restricted stock units to be

 

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received by our non-Senior Managing Director employees at the time of the offering. Moreover, we retain the ability to change this policy in the future. We intend to achieve this target primarily by reducing payments for services rendered by our Senior Managing Directors, while continuing to maintain overall compensation and benefits packages that we believe are competitive in the marketplace.

Under the terms of the Evercore LP partnership agreement, 66 2/3% of the partnership units to be received by our Senior Managing Directors, other than Mr. Altman and Mr. Beutner, in the Formation Transaction and 66 2/3% of the partnership units to be received by the current Directors of Protego (who will become our Senior Managing Directors), other than Mr. Aspe, and certain companies they control and a trust benefiting Directors and employees of Protego in the Protego Combination will, with specified exceptions, be subject to forfeiture and re-allocation to other Senior Managing Directors (or, in the event that there are no eligible Senior Managing Directors, forfeiture and cancellation) if the Senior Managing Director ceases to be employed by us prior to the occurrence of specified vesting events. 4,853,164, or 50%, of these unvested partnership units will vest if and when Messrs. Altman, Beutner and Aspe, and trusts benefiting their families and permitted transferees, collectively, cease to beneficially own at least 90% of the aggregate Evercore LP partnership units owned by them on the date the Reorganization is effected. 9,706,329, or 100% of the unvested Evercore LP partnership units issued will vest upon the earliest to occur of the following events:

 

    when Messrs. Altman, Beutner and Aspe, and trusts benefiting their families and permitted transferees, collectively, cease to beneficially own at least 50% of the aggregate Evercore LP partnership units owned by them on the date of the partnership agreement;

 

    a change of control of Evercore; or

 

    two of Messrs. Altman, Beutner and Aspe are not employed by, or do not serve as a director of, Evercore Partners Inc. or one of its affiliates within a 10-year period following this offering.

In addition, 100% of the unvested Evercore LP partnership units held by a Senior Managing Director will vest if such Senior Managing Director dies or becomes disabled while in our employ. Our Equity Committee, which is comprised of Messrs. Altman, Beutner and Aspe, with our concurrence, may also accelerate vesting of unvested partnership units at any time.

We intend to account for the unvested Evercore LP partnership units as compensation paid to employees in accordance with SFAS 123(R), which we adopted effective January 1, 2006. The unvested Evercore LP partnership units vest based on the achievement of one of the performance and service vesting conditions as described above. In accordance with SFAS 123(R), accruals of compensation costs for awards with a performance or service condition are based on the probable outcome of that service or performance condition. Compensation cost is accrued if it is probable that the performance condition will be achieved and is not accrued if it is not probable that the performance condition will be achieved. We have concluded that at the current time it is not probable that the conditions relating to a decline in the collective beneficial ownership of Messrs. Altman, Beutner and Aspe (and trusts benefiting their families and permitted transferees), a change of control of Evercore or a lack of continued association of Messrs. Altman, Beutner and Aspe with Evercore will be achieved, or that the death or disability condition during the employment period will be satisfied. Accordingly, we are not accruing compensation expense relating to these unvested partnership units. The unvested partnership units will be charged to expense at the time a vesting event occurs or, if earlier, at the time that occurrence of an event related to the beneficial ownership, change of control or continued association conditions becomes probable or there is a change in the estimated forfeiture rate related to the death or disability condition. The expense will be based on the grant date fair value of the Evercore LP partnership units, which will be the initial public offering price of the Class A common stock into which the partnership units are exchangeable.

If all of the unvested partnership units were deemed to vest at some point in the future, based upon an assumed initial public offering price of the Class A common stock of $19.00 per share, which is the midpoint of the price range on the cover of this prospectus, the total amount of compensation expense that we would record

 

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in connection with the vesting of these unvested partnership units would be $184.4 million. However the compensation expense we may record could be significantly greater if the initial public offering price per share of the Class A common stock is higher than $19.00.

The unvested partnership units will not be reflected as outstanding for purposes of calculating the minority interest for the economic interest in Evercore LP held by the limited partners. Any vesting of these unvested partnership units would significantly increase minority interest and reduce our net income and net income per share. For example, if these unvested units were included in pro forma minority interest, our pro forma net income for the year ended December 31, 2005 would have been $2.3 million and our pro forma net income for the three months ended March 31, 2006 would have been $834 thousand.

We intend to grant 2,300,000 restricted stock units to our non-Senior Managing Director employees at the time of this offering. 200,000 of the restricted stock units will be fully vested and, as a result, we will record compensation expense at the time of this offering equal to the value of these fully vested restricted stock units. The remaining 2,100,000 of these restricted stock units will be unvested and will vest upon the same conditions as the unvested partnership units of Evercore LP issued in connection with the Formation Transaction and the Protego Combination described above. If and when these restricted stock units vest, we will record compensation expense at the time of vesting equal to the grant date fair value of the Class A common stock of Evercore Partners Inc. deliverable pursuant to such restricted stock units, which would be calculated based on the initial public offering price of the Class A common stock. As a result, based on an assumed initial public offering price of $19.00 per share, we expect to record compensation expense at the time of this offering equal to the fair value of the vested restricted stock units granted of $3.8 million and would record addition compensation expense at the time of vesting of the unvested restricted stock units of $39.9 million if all such unvested restricted stock units were to vest. If the initial public offering price per share is higher than $19.00, the compensation expense that we record will be greater. To the extent unvested restricted stock units vest they will be included in weighted average shares outstanding for purposes of calculating basic and diluted net income per share, which would have a dilutive effect on these measures.

Non-Compensation Expense. The balance of our operating expenses includes costs for occupancy and equipment rental, professional fees, travel and related expenses, communications and information services, depreciation and amortization and other operating expenses. We refer to all of these expenses as non-compensation expense.

As a result of this offering we will no longer be a private company and our costs for such items as insurance, accounting and legal advice will increase. We will also incur costs which we have not previously incurred for director fees, investor relations expenses, expenses for compliance with the Sarbanes-Oxley Act and new rules implemented by the Securities and Exchange Commission and the New York Stock Exchange, and various other costs of a public company. On an annual basis, we estimate that we will incur costs in the range of $4 to $5 million per year as a result of becoming a publicly traded company. In addition, we expect the one-time costs of meeting the legal and regulatory requirements of a public company, including Section 404 of the Sarbanes-Oxley Act of 2002 to reach $1.5 million and the ongoing annual costs of maintaining such requirements to approximate $0.5 million.

Equity in Income of Affiliate

On October 28, 2005 we began our expansion into the traditional asset management business by forming Evercore Asset Management LLC, in which we own a 41.7% equity interest, with the balance of EAM’s equity held by its senior management team. We account for our investment in EAM under the equity method of accounting whereby we recognize our share of earnings and losses. Accordingly, we do not consolidate EAM and do not record any revenue or incur expenses in connection with EAM. We do, however, recognize an investment on our statement of financial condition at the carrying value of our commitments and allocations of profits and losses from EAM. We would be required to consolidate EAM if we were to gain control of the entity or become the primary beneficiary. See “Business—Evercore Asset Management”.

 

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Provision for Income Taxes

We have historically operated as a partnership or, in the case of certain combined subsidiaries, an S corporation, for U.S. federal income tax purposes. As a result, our income has not been subject to U.S. federal and state income taxes. Income taxes shown on Evercore Holdings’ historical combined income statements are attributable to the New York City unincorporated business and corporate income taxes. Evercore Holdings is not subject to income taxes in the states of California and Delaware, but is subject to annual registration and filing fees within those states.

Following this offering, Evercore LP will continue to operate in the U.S. as a partnership for U.S. federal income tax purposes and remain subject to these New York City. In addition, however, Evercore Partners Inc. will be subject to additional entity-level taxes that will be reflected in our consolidated financial statements. For information on the pro forma effective tax rate of Evercore following the Reorganization, see Note (h) in “Unaudited Pro Forma Financial Information”.

Minority Interest

On a historical basis, our minority interest has consisted of unaffiliated third party interests in the general partner of the Evercore Ventures private equity fund. Following this offering, we will no longer consolidate the general partner of that fund and, accordingly, minority interest related to Evercore Ventures will no longer be reflected in our financial results. We will, however, record significant minority interest relating to the ownership interest of our Senior Managing Directors and their estate planning vehicles in Evercore LP. As described in “Organizational Structure”, Evercore Partners Inc. will be the sole general partner of Evercore LP. Accordingly, although Evercore Partners Inc. will have a minority economic interest in Evercore LP, it will have a majority voting interest and control the management of Evercore LP. As a result, Evercore Partners Inc. will consolidate Evercore LP and record a minority interest for the economic interest in Evercore LP held by the limited partners.

Presentation of Statements of Income

Consistent with the single-step presentation of our statements of income, we do not distinguish between operating and non-operating income and expenses as we consider all the various components of our revenues and expenses as operating items when making management decisions. We maintain accounting records reflecting the collective results of our operations both from a revenue and expense standpoint. We base the analysis of our financial results and the management of our cost structure and overall profitability on such accounting records.

Combination with Protego

On May 12, 2006, we agreed to combine our business with that of Protego Asesores, an investment banking boutique in Mexico founded by Mr. Aspe. Protego generated revenue of $19.5 million in 2005 and $3.2 million for the three months ended March 31, 2006. On a pro forma basis after giving effect to the Reorganization, revenues from Protego represented approximately 13.4% of our total pro forma combined revenue for the year ended December 31, 2005 and 7.4% of our total pro forma combined revenue for the three months ended March 31, 2006. See “Organizational Structure—Combination with Protego” and “Unaudited Pro Forma Financial Information”.

We intend to consummate our combination with Protego (including the acquisition by us of a 70% interest in Protego’s asset management subsidiary) prior to this offering. In this combination, we will acquire the Protego companies for $7.0 million aggregate principal amount of non-interest bearing notes, of which $6.05 million will be payable in cash and $0.95 million will be payable in shares of Class A common stock (such shares being valued at the initial public offering price per share in this offering). In addition, we will issue an aggregate of 1,760,187 vested and 351,362 unvested partnership units in Evercore LP to Mr. Aspe, the other Protego Directors certain companies they control, certain trusts benefiting certain of their families and a trust benefiting Directors and employees of Protego. Mr. Aspe and the other Protego Directors will become Senior Managing Directors of Evercore. For U.S. GAAP and financial purposes, we will account for the vested partnership units of Evercore

 

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LP to be issued in the Protego Combination as a component of the estimated purchase price pursuant to Statement of Financial Accounting Standards No. 141 Business Combinations. For U.S. GAAP and financial purposes, we will account for the unvested partnership units to be issued in the Protego Combination as future compensation expense and not as part of the purchase consideration. See “Unaudited Pro Forma Financial Information” for a discussion of the estimated purchase price related to the Protego Combination.

Combined Results of Operations

Following is a discussion of our combined results of operations for the three years ended December 31, 2003, 2004 and 2005 and for the three months ended March 31, 2005 and 2006. For a more detailed discussion of the factors that affected our revenue and operating expenses of our Advisory and Investment Management business segments in these periods, please see the discussion in “—Business Segments” below.

Revenue

The following table sets forth information regarding our combined revenue for the years ended December 31, 2003, 2004 and 2005 and for the three months ended March 31, 2005 and 2006.

 

     Revenue
     Year Ended December 31,   

Three Months

Ended March 31,

     2003    2004    2005    2005    2006

($ in thousands)

              

Advisory

   $ 26,302    $ 69,205    $ 110,842    $ 18,270    $ 32,397

Investment Management

     33,568      16,967      14,584      4,120      13,108

Interest Income and Other

     250      145      209      44      121
                                  

Total Revenues

   $ 60,120    $ 86,317    $ 125,635    $ 22,434    $ 45,626
                                  

(% of Total Revenues)

              

Advisory

     43.7%      80.2%      88.2%      81.4%      71.0%

Investment Management

     55.8%      19.7%      11.6%      18.4%      28.7%

Three Months Ended March 31, 2006 versus Three Months Ended March 31, 2005.

 

    Total revenue for the three months ended March 31, 2006 was $45.6 million, an increase of $23.2 million, or 103.4%, over the same period in 2005. Advisory revenue increased $14.1 million, or 77.3%, and Investment Management revenue increased $9.0 million, or 218.2%. Client expense reimbursements for transaction-related expenses recorded as revenue in the three months ended March 31, 2006 were $2.0 million, or $1.2 million greater than the same period in 2005.

Year Ended December 31, 2005 versus Year Ended December 31, 2004.

 

    Total revenue for 2005 was $125.6 million, an increase of $39.3 million, or 45.6%, over 2004. Advisory revenue increased $41.6 million, or 60.2%, while Investment Management revenue decreased $2.4 million, or 14.0%. Client expense reimbursements for transaction-related expenses recorded as revenue in 2005 were $3.4 million, or $1.0 million greater than 2004.

Year Ended December 31, 2004 versus Year Ended December 31, 2003.

 

    Total revenue for 2004 was $86.3 million, an increase of $26.2 million or 43.6% over 2003. Advisory revenue increased $42.9 million or 163.1%, while Investment Management revenue decreased $16.6 million, or 49.5%. Client expense reimbursements for transaction-related expenses recorded as revenue were steady between 2003 and 2004 at $2.5 million and $2.4 million, respectively.

 

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Operating Expenses

The following table sets forth information regarding our combined operating expenses for the years ended December 31, 2003, 2004 and 2005 and for the three months ended March 31, 2005 and 2006.

 

     Operating Expenses
     Year Ended December 31,    Three Months Ended
March 31,
     2003    2004    2005    2005    2006

($ in thousands)

              

Employee Compensation and Benefits

   $ 12,448    $ 17,084    $ 24,115    $ 5,410    $ 8,759

Non-Compensation Expense

     12,432      17,389      34,988      5,176      9,947
                                  

Total Operating Expenses

   $ 24,880    $ 34,473    $ 59,103    $ 10,586    $ 18,706
                                  

Three Months Ended March 31, 2006 versus Three Months Ended March 31, 2005.

 

    Employee compensation and benefits expense was $8.8 million in the three months ended March 31, 2006, an increase of $3.3 million, or 61.9%, versus employee compensation and benefits expense of $5.4 million in the three months ended March 31, 2005. The increase in first quarter 2006 compensation expense was primarily due to a net increase in headcount and an increase in sign-on and estimated year end bonus compensation. Base compensation in the three months ended March 31, 2006 increased by $0.4 million to $2.4 million, an increase of 16.9% relative to first quarter 2005 base compensation. Total bonus compensation for the three months ended March 31, 2006 was $5.3 million, reflecting an increase of $2.5 million, or 92.0%, compared to first quarter 2005 bonus compensation. Employee compensation and benefits represented 19.2% of total revenue in the three months ended March 31, 2006 versus 24.1% in the three months ended March 31, 2005. At March 31, 2006 and March 31, 2005, headcount for employees other than Senior Managing Directors was 100 and 75 respectively.

 

    Non-compensation expenses were $9.9 million in the three months ended March 31, 2006, an increase of $4.8 million, or 92.2%, versus $5.2 million in the three months ended March 31, 2005. Professional fees were $5.7 million, an increase of $3.1 million, or 119.2%. Approximately $1.2 million of the increase in professional fees was due to incremental costs incurred in connection with the preparation of our historical financial statements and upgrades to our reporting and accounting systems. Additionally, $0.8 million of costs were incurred through temporary outsourcing of our accounting and finance organization. This arrangement will cease with the hiring of permanent accounting staff which is planned to be substantially completed in the second quarter of 2006. Professional fees also increased in the first quarter of 2006 due to an increase in transaction-related expenses referred to below and new business initiatives. Additionally, non-compensation expenses increased due to costs associated with our line of credit of $0.6 million and $0.5 million of travel-related expenses in the first quarter of 2006.

 

    Included in the first quarter 2006 non-compensation expenses of $9.9 million are $2.1 million of transaction-related expenses for travel, meals and professional fees incurred in the conduct of financial advisory and investment management activity. Transaction-related expenses incurred in the three months ended March 31, 2005 were $1.4 million. We may be reimbursed for such transaction-related expenses, and such clients expense reimbursements are recorded as revenue on the statement of income on the later of the date of an executed engagement letter or the date the expense is incurred.

Year Ended December 31, 2005 versus Year Ended December 31, 2004.

 

   

Employee compensation and benefits expense was $24.1 million in 2005, an increase of $7.0 million, or 41.2%, versus employee compensation and benefits expense of $17.1 million in 2004. The 2005 compensation expense increase was primarily due to a net increase in headcount and an increase in bonus compensation. Base compensation in 2005 increased by $2.3 million to $8.6 million, an increase of 36.5% relative to 2004 base compensation, primarily as a result of the net increase in headcount.

 

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Total bonus compensation for 2005 was $13.5 million, reflecting an increase of $4.2 million, or 45.2% compared to 2004 bonuses. Employee compensation, which is highly correlated with total revenue, represented 19.2% of total revenue in 2005 versus 19.8% in 2004. At December 31, 2005 and December 31, 2004, headcount for employees other than Senior Managing Directors was 93 and 77, respectively.

 

    Non-compensation expenses were $35.0 million in 2005, an increase of $17.6 million, or 101.2%, versus $17.4 million in 2004. Professional fees were $23.9 million, an increase of $15.9 million, or 198.8%. Approximately $10.2 million of the increase in professional fees was due to incremental costs incurred in connection with the preparation of our historical financial statements and upgrades to our reporting and accounting systems. Additionally, $3.0 million of costs were incurred through temporary outsourcing of our accounting and finance organization. Professional fees also increased by $1.5 million in 2005 for the placement fees associated with the recruiting and retention of M&A professionals and accounting professionals.

 

    Included in the 2005 non-compensation expense of $35.0 million are $5.8 million of transaction-related expenses for travel, meals, and professional fees incurred in the conduct of financial advisory and investment management activity. Transaction-related expenses incurred in 2004 were $3.7 million. We may be reimbursed for such transaction-related expenses, and such client expense reimbursements are recorded as revenue on the statement of income on the later of the date of an executed engagement letter or the date the expense is incurred.

Year Ended December 31, 2004 versus Year Ended December 31, 2003.

 

    Employee compensation and benefits expense was $17.1 million in 2004, an increase of $4.6 million, or 37.2%, versus $12.4 million in 2003. The 2004 compensation expense increase was primarily due to a net increase in headcount and an increase in bonus compensation. Base compensation in 2004 increased by $0.8 million to $6.3 million, an increase of 14.5% relative to 2003 base compensation, primarily as a result of the net increase in headcount. Total bonus compensation for 2004 was $9.3 million, reflecting an increase of $3.7 million, or 66.1% compared to 2003 bonuses. Employee compensation, which is highly correlated with total revenue, represented 19.8% of total revenue in 2004 versus 20.7% in 2003. At December 31, 2004 and December 31, 2003, headcount for employees other than Senior Managing Directors was 77 and 69, respectively.

 

    Non-compensation expense was $17.4 million in 2004, an increase of $5.0 million, or 39.9%, versus $12.4 million in 2003. Professional fees were $8.0 million in 2004, an increase of $3.6 million from 2003, or 81.8%. The increase in professional fees was principally due to expenses related to our attempted but terminated launch of a business development company in 2004 and additional consulting costs to support our growth initiatives.

 

    Included in 2004 non-compensation expense of $17.4 million are transaction-related expenses of $3.7 million for travel, meals, and professional fees incurred in the conduct of financial advisory and investment management activity.

Provision for Income Taxes

The following table sets forth information regarding our provision for income taxes for the years ended December 31, 2003, 2004 and 2005 and for the three months ended March 31, 2005 and 2006.

 

     Provision for Income Taxes
     Year Ended December 31,    Three Months Ended
March 31,
     2003    2004    2005    2005    2006

($ in thousands)

              

Provision for Income Taxes

   $    905    $ 2,114    $ 3,372    $ 670    $ 979
                                  

 

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Three Months Ended March 31, 2006 versus Three Months Ended March 31, 2005.

 

    Provision for income taxes was $1.0 million in the three months ended March 31, 2006, an increase of $0.3 million, or 46.1%, from the prior-year period, which increase was due to the increase in operating income coupled with a higher percentage of operating income derived from S corporations in our structure.

Year Ended December 31, 2005 versus Year Ended December 31, 2004.

 

    Provision for income taxes was $3.4 million in 2005, an increase of $1.3 million, or 59.5%, which was due to the increase in operating income coupled with a higher percentage of operating income derived from S corporations in our structure.

Year Ended December 31, 2004 versus Year Ended December 31, 2003.

 

    Provision for income taxes was $2.1 million in 2004, an increase of $1.2 million, or 133.6% from 2003, which was primarily due to an increase in operating income coupled with a decline in the percentage of operating income derived from carried interest which is exempted from the Unincorporated Business Tax.

Business Segments

The following data discusses revenue and operating income by business segment. Each segment’s operating expenses include (1) compensation and benefits expense incurred directly in support of the businesses of the segment and (2) non-compensation expenses, which include directly incurred expenses for premises and occupancy, professional fees, travel and entertainment, communications and information services, equipment, and indirect support costs (including compensation and other operating expenses related thereto) for administrative services. These administrative services include accounting, tax, legal, facilities management and senior management activities. Such support costs are allocated to the relevant segments based on various statistics such as headcount, square footage and transactional volume.

Advisory Results of Operations

The following table summarizes the results for the Advisory segment for the years ended December 31, 2003, 2004 and 2005 and for the three months ended March 31, 2005 and 2006.

 

     Advisory
     Year Ended December 31,    Three Months Ended
March 31,
     2003    2004    2005    2005    2006

($ in thousands)

              

Revenues:

              

Advisory Revenue

   $   26,302    $   69,205    $ 110,842    $   18,270    $   32,397

Interest Income and Other

     31      110      170      34      101
                                  

Total Advisory Revenue

     26,333      69,315      111,012      18,304      32,498
                                  

Expenses:

              

Employee Compensation and Benefits Expense

     8,151      13,288      19,047      4,331      6,811

Non-Compensation Expense

     7,841      11,214      17,558      3,135      4,404
                                  

Total Advisory Operating Expenses

     15,992      24,502      36,605      7,466      11,215
                                  

Advisory Operating Income

   $   10,341    $   44,813    $ 74,407    $ 10,838    $ 21,283
                                  

 

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Certain client and industry statistics for the Advisory segment are set forth below:

 

     Client and Industry Statistics
     Year Ended December 31,    Three Months Ended
March 31,
     2003    2004    2005    2005    2006

Industry Statistics ($ in billions):

              

Value of North American M&A Deals Announced

   $      589    $      855    $   1,251    $      287    $      345

Value of North American M&A Deals Completed

   $ 486    $ 819    $ 951    $ 171    $ 348

Advisory Statistics:

              

Number of Advisory Clients

     35      45      58      26      20

Advisory Headcount:

              

Senior Managing Directors

     6      8      11      8      11

Other Advisory Professionals

     24      29      35      33      38
                                  

Total Advisory Headcount

     30      37      46      41      49
                                  

Three Months Ended March 31, 2006 versus Three Months Ended March 31, 2005.

 

    Advisory revenue, including interest and other revenue allocated to this segment, was $32.5 million for the three months ended March 31, 2006, compared to $18.3 million for the same period in 2005, which represents an increase of 77.6%. The increase represents an overall increase in the M&A market, our continued business development and the continued addition to our Advisory headcount. Advisory client expense reimbursements billed as revenue were $1.0 million and $0.6 million for the three months ended March 31, 2006 and 2005, respectively.

 

    We earned Advisory revenue from 20 different clients during the three months ended March 31, 2006, compared to 26 different clients during the same period in 2005. We earned in excess of $1 million from 9 of those clients in the three months ended March 31, 2006, compared to 7 in the same period in 2005. Five clients accounted for more than 71.3% of Advisory revenue for the three months ended March 31, 2006, as compared to five clients accounting for more than 63.2% of Advisory revenue during the same period in 2005. Additionally, one client accounted for 21% of Advisory revenue for the three months ended March 31, 2006 and 27% for the same period in 2005.

 

    Advisory operating expenses were $11.2 million for the three months ended March 31, 2006, an increase of $3.7 million, or 50.2%, from the same period in 2005. This increase is largely due to an increase in employee compensation, which rose from $4.3 million for the three months ended March 31, 2005 to $6.8 million for the three months ended March 31, 2006. In addition, the $1.3 million increase in non-compensation expense, from $3.1 million as of March 31, 2005 to $4.4 million as of March 31, 2006, is primarily attributable to professional fees and other allocated expenses such as costs due to our line of credit discussed below.

 

    Advisory base compensation for the three months ended March 31, 2006 was $1.9 million, an increase of $0.5 million, or 31.3%, relative to the same period in 2005. This increase can be directly attributed to the increase in headcount within the Advisory segment as well as an increase in allocated compensation costs. Total Advisory bonus compensation for the three months ended March 31, 2006 was $4.1 million, which represents an increase of $1.6 million related to the increased headcount and higher estimated year-end bonus accruals versus $2.5 million of bonus compensation for the same period in 2005.

 

    Non-compensation expenses increased principally due to allocated costs of $0.5 million for our line of credit and $0.5 million for temporary staffing and some professional fees. Included in Advisory non-compensation expenses for the three months ended March 31, 2006 of $4.4 million are transaction-related expenses of $0.8 million for travel, meals, and professional fees incurred in the conduct of financial advisory activity. Advisory transaction-related expenses incurred for the three months ended March 31, 2005 were $1.0 million.

 

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Year ended December 31, 2005 versus Year Ended December 31, 2004.

 

    Advisory revenue, including interest and other revenue allocated to this segment, was $111.0 million in 2005 compared to $69.3 million in 2004, which represents an increase of 60.2%. The increase reflects the continued growth of the M&A market, our continued business development efforts and additions to our Advisory headcount, particularly three new Senior Managing Directors. Our revenue per Senior Managing Director increased by 16.1% from $8.7 million in 2004 to $10.1 million in 2005. Advisory client expense reimbursements billed as revenue were $2.5 million and $2.1 million in 2005 and 2004, respectively.

 

    We earned Advisory revenue from 58 different clients in 2005 compared to 45 in 2004. We earned in excess of $1 million from 28 of those clients in 2005, compared to 15 in 2004. Three clients each accounted for more than 10% of Advisory revenue in 2005 and two clients each accounted for more than 10% of Advisory revenue in 2004. Additionally, one client accounted for 18.7% of Advisory revenue in 2005 and 34.1% in 2004. Our top five clients accounted for 56.9% of Advisory revenue in 2005 and 64.6% of Advisory revenue in 2004.

 

    Advisory operating expenses were $36.6 million in 2005, an increase of $12.1 million from 2004, largely due to higher employee compensation and benefits expense, which rose from $13.3 million in 2004 to $19.0 million in 2005, and an increase in non-compensation expense from $11.2 million in 2004 to $17.6 million in 2005, an increase of $6.4 million or 56.6%.

 

    Advisory base compensation in 2005 was $6.1 million, an increase of $1.9 million or 45.2% relative to 2004. Of this $1.9 million increase, $1.7 million, or 40.5%, of 2004 base compensation relates to net increases in headcount for direct hires into the Advisory headcount and compensation costs of allocated support staff. Total Advisory bonus compensation for 2005 was $11.4 million, which represents an increase of $3.3 million relative to 2004 Advisory bonus compensation of $8.1 million.

 

    Non-compensation expense increased principally due to additional professional fees and transaction-related expenses. The increase in professional fees is due to $2.4 million of temporary accounting fees borne by this segment and an increase in executive search fees to recruit Advisory professionals of $1.2 million. Included in Advisory 2005 non-compensation expense of $17.6 million are transaction-related expenses of $4.2 million for travel, meals, and professional fees incurred in the conduct of financial advisory activity. Advisory transaction-related expenses incurred in 2004 were $2.9 million.

Year Ended December 31, 2004 versus Year Ended December 31, 2003.

 

    We earned Advisory revenue of $69.3 million in 2004, an increase of 163.2% compared to 2003. The increase reflects the recovery of the M&A market, additions to the M&A team and our continued business development efforts. Our revenue per Senior Managing Director increased by 97.7% from $4.4 million in 2003 to $8.7 million in 2004. Advisory client expense reimbursements billed as revenue were $2.1 million and $1.9 million in 2004 and 2003, respectively.

 

    We earned Advisory revenue from 45 different clients in 2004 compared to 35 in 2003. We earned in excess of $1 million from 15 of those clients in 2004 and nine in 2003. Two clients each accounted for more than 10% of Advisory revenue in 2004 and no single client accounted for more than 10% of Advisory revenue in 2003. Our top five clients accounted for 64.6% of Advisory revenue in 2004 and 37.5% of advisory revenue in 2003.

 

    Advisory operating expenses were $24.5 million in 2004, an increase of $8.5 million from 2003, primarily due to higher employee compensation and benefits expense, which rose from $8.2 million in 2003 to $13.3 million in 2004 and an increase in non-compensation expense from $7.8 million in 2003 to $11.2 million in 2004, an increase of $3.4 million, or 43.0%.

 

    Advisory base compensation in 2004 was $4.2 million, an increase of $1.0 million or 31.3% relative to 2003. The majority of this increase relates to net increases in Advisory headcount for direct hires and compensation costs of allocated support staff. Total Advisory bonus compensation for 2004 was $8.1 million, which represents an increase of $4.0 million compared to $4.1 million in 2003.

 

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    Non-compensation expense increased due to client development efforts and transaction-related expenses. Included in Advisory 2004 non-compensation expense of $11.2 million are transaction-related expenses of $2.9 million for travel, meals, and professional fees incurred in the conduct of financial advisory activity. Advisory transaction-related expenses incurred in 2003 were $2.5 million.

Investment Management Results of Operations

Our historical combined results of operations include the results of the general partners of the private equity funds we currently manage and certain other entities through which Messrs. Altman and Beutner have invested capital in the Evercore Capital Partners I fund. Following this offering we will no longer consolidate these entities. See “—Key Financial Measures—Revenue—Investment Management” for a discussion of the revenues we expect to recognize in our Investment Management segment following this offering.

The following table summarizes the operating results for the Investment Management segment for the years ended December 31, 2003, 2004 and 2005 and for the three months ended March 31, 2005 and 2006:

 

     Investment Management
     Year Ended December 31,    

Three Months

Ended March 31,

     2003     2004     2005     2005     2006

($ in thousands)

          

Revenue:

          

Management Fees

   $ 12,265     $ 14,575     $ 12,935     $ 3,786     $ 3,346

Placement Fees

     (1,268 )     (2,487 )     (2,487 )     (622 )     —  
                                      

Net Management Fees

     10,997       12,088       10,448       3,164       3,346

Portfolio Company Fees

     9,849       1,741       5,112       2,098       4,646
                                      

Total Management and Portfolio Company Fees

     20,846       13,829       15,560       5,262       7,992

Carried Interest and Gains/(Losses) on Portfolio Investments

     12,722       3,138       (976 )     (1,142 )     5,116
                                      

Investment Management Revenue

     33,568       16,967       14,584       4,120       13,108

Interest Income and Other Revenue

     219       111       39       10       20
                                      

Total Investment Management Revenue

     33,787       17,078       14,623       4,130       13,128
                                      

Expenses:

          

Employee Compensation and Benefits Expense

     4,297       3,796       5,068       1,079       1,948

Non-Compensation Expense

     4,591       6,175       7,097       2,041       3,693
                                      

Total Investment Management Operating Expenses

     8,888       9,971       12,165       3,120       5,641
                                      

Investment Management Operating Income

   $ 24,899     $ 7,107     $ 2,458     $ 1,010     $ 7,487
                                      

Investment Management Headcount:

          

Senior Managing Directors

     6       6       6       6       7

Other Investment Management Professionals

     5       7       4