As filed with the Securities and Exchange Commission on February 22, 2006

Registration No. 333-_______

 


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


 

Form F-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 


 

RIO HAN EMPREENDIMENTOS E PARTICIPAÇÕES S.A.

(Exact name of Registrant as specified in its charter)

 

Rio Han Holding Company

(Translation of Registrant’s name into English)


Federative Republic of Brazil

 

3721

 

Not Applicable

(State or Other Jurisdiction of
Incorporation or Organization)

 

(Primary Standard Industrial
Classification Code Number)

 

(I.R.S. Employer
Identification No.)


Av. Brigadeiro Faria Lima, 2170, F-56, térreo, sala 2656
12227-901 – São José dos Campos, SP, Brazil
55-12-3927-1000

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

 

National Registered Agents, Inc.
875 Avenue of the Americas, Suite 501
New York, NY  10001
1-800-767-1553

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

 

Copy to:

Richard S. Aldrich, Jr., Esq.
Shearman & Sterling LLP
Av. Brig. Faria Lima, 3400
04538-132 São Paulo-SP, Brazil

Approximate date of commencement of proposed offer to the public:  As soon as practicable after this registration statement becomes effective.

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

          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.  o

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered

 

Amount to be
Registered(1) (2)

 

Proposed Maximum
Offering Price
Per Share(3)

 

Proposed Maximum
Aggregate Offering
Price(2)(3)

 

Amount of
Registration Fee


 


 


 


 


Common Shares, no par value

 

337,177,111

 

U.S.$9.6578

 

U.S.$3,256,377,638.65

 

U.S.$348,433.63



(1)

290,029,360 of these common shares will initially be represented by the registrant’s American Depositary Shares (“ADSs”), each of which will represent four common shares, and which will be evidenced by American Depositary Receipts (“ADRs”).  A separate registration statement on Form F-6 will be filed to register the ADSs.  The remaining 38,503,014 common shares will not be represented by ADSs.  An additional 8,644,737 common shares will be issuable in exchange for preferred shares of Embraer in connection with the offering of exchangeable notes into preferred shares of Embraer by the Brazilian National and Social Development Bank, or BNDES.

 

 

(2)

Includes a maximum number of the registrant’s common shares expected to be issued to holders of ADSs of Embraer – Empresa Brasileira de Aeronáutica S.A. (“Embraer”), and to U.S. holders of common shares and preferred shares of Embraer in connection with the proposed restructuring and merger described in the accompanying prospectus.  The common shares to be issued in connection with the proposed restructuring and merger outside the United States to non-U.S. residents are not registered under this registration statement.

 

 

(3)

The proposed maximum aggregate offering price per common share (estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(f) and Rule 457(c) under the Securities Act) was calculated in accordance with the exchange ratio of one common share of the registrant to be exchanged for each common share or preferred share of Embraer held directly by a U.S. resident and the exchange ratio of one ADS of the registrant to be exchanged for each ADS of Embraer, in each case in connection with the proposed restructuring and merger described in the accompanying prospectus and based on (a) R$19.80, the average of the high and low prices of the common shares of Embraer, and R$20.45, the average of the high and low prices of the preferred shares of Embraer, as reported on the São Paulo Stock Exchange on February 17, 2006, converted into U.S. dollars based on an exchange rate of R$2.1182 = U.S.$1.00, as reported by the Central Bank (PTAX rate) on February 17, 2006 and (b) U.S.$38.70, the average of the high and low prices of the ADSs of Embraer as reported on the New York Stock Exchange on February 17, 2006.

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 this registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.



The information in this prospectus is not complete and may be changed.  Rio Han Empreendimentos e Participações S.A. may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective.  This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction where such an offer or solicitation would be illegal.

Prospectus
Subject to Completion, dated ____________, 2006

Message

RIO HAN EMPREENDIMENTOS E PARTICIPAÇÕES S.A.

          The Board of Directors of Embraer-Empresa Brasileira de Aeronáutica S.A., or Embraer, has approved a restructuring of Embraer that consists of the adoption of a new capital structure and listing on the Novo Mercado segment of the São Paulo Stock Exchange (Bolsa de Valores de São Paulo), or BOVESPA.

          The proposed restructuring will be implemented through a merger of companies under Brazilian law (incorporação de empresas), or merger, of Embraer with and into Rio Han Empreendimentos e Participações S.A., a holding company, or Rio Han.  As a result of the merger, Embraer will cease to exist and:

 

Rio Han will succeed to all of the rights and obligations of Embraer, and will change its legal name to Embraer-Empresa Brasileira de Aeronáutica S.A., which is Embraer’s current legal name;

 

 

 

 

each common share of Embraer (other than common shares held by Rio Han) will be exchanged for one common share of Rio Han, or Rio Han common share;

 

 

 

 

each preferred share of Embraer will be exchanged for one Rio Han common share, and Rio Han will be prohibited from issuing preferred shares;

 

 

 

 

each American Depositary Share of Embraer, or Embraer ADS, each of which represents four preferred shares of Embraer, will be exchanged for one American Depositary Share of Rio Han, or Rio Han ADS, each of which will represent four Rio Han common shares; and

 

 

 

 

the Golden Share, a special class of common share of Embraer held by the Federative Republic of Brazil, or the Brazilian Government, will be exchanged for a special class of common share, or Golden Share, of Rio Han.

          An extraordinary general meeting of Embraer shareholders will be held at Embraer’s principal executive offices at Avenida Brigadeiro Faria Lima, 2170, City of São José dos Campos, State of São Paulo, Brazil on [______] [__], 2006 at [__]:00 a.m., local time, to consider and vote upon the merger in accordance with the procedures described in this prospectus.

          Even though under Brazilian law holders of Embraer preferred shares and, consequently, Embraer ADSs, collectively, Embraer non-voting shares, do not have the right to vote on the merger, the Board of Directors of Embraer proposes to extend voting rights to all holders of preferred shares, including preferred shares represented by Embraer ADSs, in respect of all proposals relating to the merger, as described in this prospectus.

          NEITHER RIO HAN NOR EMBRAER IS ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND RIO HAN OR EMBRAER A PROXY.

          The Rio Han common shares to be issued to holders of Embraer common and preferred shares will be listed on the BOVESPA.  Rio Han will apply to list such shares on the Novo Mercado segment of the BOVESPA under the symbol “EMBR3.”  The Rio Han ADSs and the underlying common shares to be received by holders of Embraer ADSs will be listed on the New York Stock Exchange, or NYSE, under the symbol “ERJ.”

          You should read this prospectus carefully.  See the section entitled “Risk Factors” beginning on page 27 of this prospectus for a discussion of risks that you should consider when evaluating the transactions described in this prospectus.

          Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in connection with the merger or determined if this prospectus is truthful or complete.  Any representation to the contrary is a criminal offense.

          This prospectus is dated           , 2006 and is expected to be first made available to Embraer shareholders on or about that date.



TABLE OF CONTENTS

PRESENTATION OF FINANCIAL INFORMATION

 

v

 

 

Rio Han Historical Financial Information

 

v

 

 

Embraer Historical Financial Information

 

v

 

 

Pro Forma Combined Financial Information

 

vi

 

CAUTIONARY STATEMENTS CONCERNING FORWARD LOOKING INFORMATION

 

vii

 

QUESTIONS AND ANSWERS ABOUT THE PROPOSED RESTRUCTURING AND MERGER

 

1

 

SUMMARY

 

6

 

 

The Companies

 

6

 

 

The Proposed Restructuring and Merger

 

7

 

 

Share Ownership After the Merger

 

8

 

 

Reasons for the Proposed Restructuring and Merger

 

8

 

 

Approval of the Conselho Fiscal (Audit Board) and of the Board of Directors of Embraer

 

10

 

 

Conditions to the Merger

 

10

 

 

Extraordinary General Meeting of Embraer Shareholders Regarding the Merger

 

11

 

 

Vote Required for Approval of the Merger

 

12

 

 

Appraisal Rights

 

12

 

 

Unwinding of the Merger

 

13

 

 

Financial Analyses of Goldman Sachs

 

13

 

 

Valuation Reports of ACAL

 

13

 

 

Opinion of Citigroup Global Markets Inc.

 

13

 

 

Risk Factors

 

14

 

 

Tax Considerations

 

14

 

 

Accounting Treatment of the Merger

 

14

 

 

Merger Agreement

 

14

 

 

Interests of Certain Persons in the Merger

 

14

 

 

Management of Rio Han Before and After the Proposed Restructuring and Merger

 

14

 

 

Stock Exchange Listings

 

15

 

 

Rights of the Golden Share

 

16

 

 

Lock-up of Certain Shareholders

 

16

 

 

Comparison of Rights of Holders of Embraer Preferred Shares and Rio Han Common Shares

 

16

 

 

Limitations on Voting Rights of Certain Rio Han Shareholders

 

16

 

 

Mechanism to Promote Dispersed Ownership of Rio Han’s Shares

 

17

 

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

 

18

 

 

Summary of Selected Historical Financial Information of Rio Han

 

20

 

 

Summary of Selected Historical Financial Information of Embraer

 

21

 

 

Comparative Per Share Market Data

 

26

 

RISK FACTORS

 

27

 

 

Risks Relating to the Proposed Restructuring and Merger

 

27

 

 

Risks Relating to Rio Han’s Common Shares and ADSs

 

29

 

EXTRAORDINARY GENERAL MEETING OF EMBRAER SHAREHOLDERS

 

32

 

 

Extraordinary General Meeting

 

32

 

 

Date, Time, Place and Purpose of the Extraordinary General Meeting

 

32

 

 

Record Date; Quorum

 

32

 

 

Vote Required for Approval of the Merger

 

33

 

 

How to Vote Your Embraer Shares and ADSs

 

33

 

 

Questions About Voting Your Shares

 

34

 

THE PROPOSED RESTRUCTURING AND MERGER

 

35

 

 

The Proposed Restructuring and Merger

 

35

 

 

Share Ownership After the Merger

 

38

 

 

Background of the Proposed Restructuring and Merger

 

39

 

 

Reasons for the Proposed Restructuring and Merger

 

41

 

 

Delivery of Rio Han Common Shares and ADSs

 

42

 

 

Approval of the Conselho Fiscal (Audit Board) and of the Board of Directors of Embraer Regarding the Merger

 

42

 

 

Financial Analyses of Goldman Sachs

 

43

 

 

Valuation Reports of ACAL

 

49

 

 

Opinion of Citigroup Global Markets Inc.

 

54

 

 

Appraisal Rights

 

56

 

 

Unwinding of the Merger

 

57

 

 

Prospectus Availability

 

57

 

 

Brokerage Commissions and Cancellation Fees

 

57

 

i



 

Stock Exchange Listings

 

57

 

 

Accounting Treatment

 

58

 

 

Exchangeable Notes Issued by BNDES

 

58

 

MERGER AGREEMENT

 

59

 

 

Structure of the Merger

 

59

 

 

Rationale, Purpose and Interests of Embraer and Rio Han in the Implementation of the Proposed Restructuring and Merger

 

59

 

 

Approval of the Merger

 

60

 

 

Valuation Reports and Financial Analyses

 

60

 

 

Exchange Ratio

 

61

 

 

Premium for Embraer Control Shares

 

61

 

 

Capital Increase

 

61

 

 

Holders of Embraer Preferred Shares

 

62

 

 

Appraisal Rights

 

62

 

 

Renaming of Rio Han

 

62

 

 

Rio Han Board of Directors

 

62

 

 

Chairman and Chief Executive Officer

 

63

 

 

Officers of Rio Han

 

63

 

 

Listing of Rio Han

 

63

 

 

Lock-up of Controlling Shareholders

 

63

 

 

Rio Han Bylaws

 

63

 

 

General Limitation on the Exercise of Voting Rights

 

63

 

 

Limitation on the Exercise of the Voting Rights of Non-Brazilian Shareholders

 

64

 

 

Requirement of a Public Tender Offer

 

64

 

 

Rights of the Golden Share

 

64

 

 

Monitoring of Equity Shareholders

 

64

 

 

Breaching of Legal and Statutory Provisions

 

64

 

 

General Provisions

 

64

 

INTERESTS OF CERTAIN PERSONS IN, AND SIGNIFICANT SHAREHOLDERS OF, RIO HAN AND EMBRAER

 

65

 

 

Rio Han

 

65

 

 

Embraer

 

65

 

 

Related Party Transactions

 

67

 

SPECIFIC CONSIDERATIONS FOR HOLDERS OF EMBRAER ADSs

 

68

 

 

Voting Rights

 

68

 

 

Vote by Holders of Embraer ADSs

 

68

 

 

Appraisal Rights

 

69

 

 

Delivery and Trading of Rio Han ADSs

 

69

 

EXCHANGE RATES

 

70

 

THE COMPANIES

 

71

 

 

Information About Rio Han

 

71

 

 

Information About Embraer

 

72

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

74

 

 

General

 

74

 

 

Brazilian Economic Environment

 

74

 

 

Effects of Inflation and Currency Exchange Fluctuations

 

75

 

 

Recently Issued Accounting Pronouncements

 

76

 

 

Rio Han

 

77

 

 

Embraer

 

77

 

MATERIAL TAX CONSIDERATIONS

 

102

 

 

Material Brazilian Tax Considerations

 

102

 

 

Material United States Federal Income Tax Considerations

 

104

 

MANAGEMENT OF RIO HAN BEFORE AND AFTER THE PROPOSED RESTRUCTURING AND MERGER

 

110

 

 

Board of Directors

 

110

 

 

Executive Officers

 

111

 

 

Audit Board (Conselho Fiscal)

 

113

 

 

Executive Committee

 

115

 

 

Compensation of Directors and Executive Officers

 

115

 

 

Contracts Between Rio Han and its Directors and Officers

 

115

 

 

Share Ownership of Directors and Executive Officers

 

115

 

 

Stock Option Plan

 

115

 

 

Profit Sharing Plan

 

116

 

DESCRIPTION OF RIO HAN’S CAPITAL STOCK

 

117

 

ii



 

General

 

117

 

 

Capital Stock

 

117

 

 

Corporate Purposes and Name Change

 

117

 

 

Rights of Common Shares

 

117

 

 

Dividends and Distribution of Profits

 

118

 

 

Limitations on the Voting Rights of Certain Holders of Common Shares

 

120

 

 

Limitation on the Voting Rights of Non-Brazilian Shareholders

 

121

 

 

Disclosure of Significant Interest

 

125

 

 

Rights of the Golden Share

 

125

 

 

Form and Transfer

 

125

 

 

Board of Directors

 

126

 

 

Election of Board of Directors

 

126

 

 

Preemptive Rights

 

127

 

 

Redemption and Appraisal Rights

 

127

 

 

Mechanism to Promote Dispersed Ownership of Rio Han’s Shares

 

128

 

 

Arbitration

 

129

 

 

Going Private Process

 

130

 

 

Delisting from the Novo Mercado

 

130

 

SUMMARY COMPARISON OF SHAREHOLDER RIGHTS

 

132

 

 

Comparison of Rights of Holders of Embraer Common Shares and Rio Han Common Shares

 

132

 

 

Comparison of Rights of Holders of Embraer Preferred Shares and Rio Han Common Shares

 

136

 

DESCRIPTION OF RIO HAN AMERICAN DEPOSITARY RECEIPTS

 

137

 

 

American Depositary Receipts

 

137

 

 

Share Dividends and Other Distributions

 

137

 

 

Deposit, Withdrawal and Cancellation

 

139

 

 

Record Dates

 

139

 

 

Voting Rights

 

140

 

 

Reports and Other Communications

 

140

 

 

Fees and Expenses

 

140

 

 

Payment of Taxes

 

141

 

 

Reclassifications, Recapitalizations and Mergers

 

142

 

 

Resignation or Removal

 

142

 

 

Amendment and Termination

 

142

 

 

Limitations on Obligations and Liability to ADR holders

 

143

 

 

Disclosure of Interest in ADSs

 

144

 

 

Requirements for Depositary Actions

 

144

 

 

Books of Depositary

 

145

 

 

Pre-release of ADSs

 

145

 

 

Appointment

 

145

 

MARKET INFORMATION

 

146

 

 

Market Price of Rio Han and Embraer Shares

 

146

 

 

Dividend History

 

148

 

 

Trading on the BOVESPA

 

149

 

 

Novo Mercado Corporate Governance Practices

 

150

 

 

Regulation of the Brazilian Securities Market

 

151

 

 

Disclosure Requirements

 

151

 

WHERE YOU CAN FIND MORE INFORMATION

 

153

 

ENFORCEMENT OF CIVIL LIABILITIES UNDER U.S. SECURITIES LAWS

 

154

 

EXCHANGE CONTROL AND OTHER LIMITATIONS AFFECTING SHAREHOLDERS

 

155

 

LEGAL MATTERS

 

156

 

EXPERTS

 

156

 

DEALER PROSPECTUS DELIVERY OBLIGATIONS

 

157

 

iii



FINANCIAL STATEMENTS

F-1

 

ANNEX E—Valuation Report of Market Value of Shareholders’ Equity of Rio Han

E-1

ANNEX A—Annual Report of Embraer on Form 20-F for the Fiscal Year Ended December 31, 2004

A-1

 

ANNEX F—Shareholders’ Equity Valuation Report of Embraer

FF-1

ANNEX B—Merger Agreement

B-1

 

ANNEX G—Opinion of Citigroup Global Markets Inc.

G-1

ANNEX C—Financial Analyses of Goldman Sachs

C-1

 

ANNEX H—Proposed Bylaws of Rio Han

H-1

ANNEX D—Valuation Report of Market Value of Shareholders’ Equity of Embraer

D-1

 

 

 



           You should rely only on the information contained in this prospectus or on the information to which Rio Han and/or Embraer have referred you.  Rio Han and Embraer have not authorized anyone to provide you with different information.  The information contained in this prospectus or in any supplement accompanying this prospectus is only accurate at its respective date, and the business, results of operations and financial condition of Rio Han and Embraer may change thereafter.


iv



PRESENTATION OF FINANCIAL INFORMATION

Rio Han Historical Financial Information

          Rio Han was formed on September 2, 2005 as a sociedade por ações de capital fechado (a “closed company”), and has not carried on any activities other than in connection with the proposed restructuring and merger.  At September 30, 2005, Rio Han had no material assets or liabilities and had only recorded a capital of US$21.34 in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP.  As a result, Rio Han has not prepared any historical financial statements at and for the one month ended September 30, 2005.

          After the proposed restructuring and merger is implemented, Rio Han will prepare financial statements in accordance with U.S. GAAP, and, as currently done by Embraer, Rio Han will also present its primary U.S. GAAP financial statements in U.S. dollars.

          In addition, after implementation of the proposed restructuring and merger, and the subsequent listing of Rio Han as a public company with the Comissão de Valores Mobiliários, or CVM, Rio Han will be permitted for a limited period of time to prepare its financial statements in accordance with accounting practices adopted in Brazil (which include accounting practices derived from Law No. 6,404 of December 15, 1976, as amended, or the Brazilian Corporate Law) for certain purposes, such as providing reports to its Brazilian shareholders, filing financial statements with the CVM and determining dividend payments and other distributions and tax liabilities in Brazil.  These accounting practices are referred to in this prospectus as generally accepted accounting principles in Brazil, or Brazilian GAAP.

Embraer Historical Financial Information

          The historical financial information of Embraer included in this prospectus is derived from the following financial statements:

 

the consolidated financial statements of Embraer at December 31, 2003 and 2004 and for the years ended December 31, 2002, 2003 and 2004, audited by Deloitte Touche Tohmatsu Auditores Independentes, or Deloitte, included in the Annual Report of Embraer on Form 20-F for the Fiscal Year Ended December 31, 2004 attached as Annex A to this prospectus;

 

 

 

 

the consolidated financial statements of Embraer at December 31, 2000 and 2001 and for the years ended December 31, 2000 and 2001, audited by Deloitte, that have not been included in this prospectus; and

 

 

 

 

the condensed consolidated financial statements of Embraer at and for the nine months ended September 30, 2005, subject to limited review by Deloitte, included in “Financial Statements” beginning on page F-1 of this prospectus.

          You should read Embraer’s selected historical financial information included in this prospectus in conjunction with (1) “Item 5. Operating and Financial Review and Prospects” and “Item 18. Financial Statements” included in the Annual Report of Embraer on Form 20-F for the Fiscal Year Ended December 31, 2004 attached as Annex A to this prospectus, (2) Embraer’s financial statements and related notes included in “Financial Statements” beginning on page F-1 of this prospectus, and (3) “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” beginning on page 74 of this prospectus.

          Embraer’s consolidated financial statements for the years ended December 2001, 2002, 2003 and 2004 have been prepared in accordance with U.S. GAAP.  Because Embraer exports more than 90% of its production and operates in an industry that uses the U.S. dollar as its currency of reference, Embraer’s management believes that the U.S. dollar is its functional currency and the most appropriate currency in which to present its financial statements.  As a result, amounts for all periods presented have been remeasured into U.S. dollars in accordance with the methodology set forth in Statement of Financial Accounting Standards No. 52, or SFAS 52.

v



          Embraer’s consolidated financial statements at and for the year ended December 2000 have been prepared in accordance with Brazilian GAAP, stated in Brazilian reais and have been adjusted for the effects of inflation.  Previously, amount of net income and shareholders’ equity under Brazilian GAAP were reconciled to those that would have been reported under U.S. GAAP.

          For certain purposes, such as providing reports to its Brazilian shareholders, filing financial statements with the CVM and determining dividend payments and other distributions and tax liabilities in Brazil, Embraer has prepared and will, until the date the merger is completed, continue to be required to prepare financial statements in accordance with the Brazilian Corporate Law.  Embraer’s financial statements prepared in accordance with the Brazilian Corporate Law are not adjusted to account for the effects of inflation.

          As a result of the reconciliation of amounts to the functional currency and other adjustments related to the differences in accounting principles between U.S. GAAP and Brazilian GAAP, the amounts of net income and shareholders’ equity as reported in Embraer’s consolidated historical financial statements presented herein differ from those included in its statutory accounting records.

Pro Forma Combined Financial Information

          Under U.S. GAAP, the merger of Embraer with and into Rio Han will be recorded using the historical carrying values of the assets and liabilities of Embraer.  The merger will be treated as a recapitalization that results in no change in accounting basis from the accounting basis of Embraer because, in accordance with U.S. GAAP, Embraer is regarded as the acquiring party for accounting purposes.  The creation of Rio Han, a holding company with no operations, and the subsequent merger with Embraer do not involve any new shareholders nor result in any one shareholder or group of shareholders obtaining unilateral control of Rio Han.

          As a result, Rio Han is not presenting pro forma combined financial information in this prospectus, with the exception of the unaudited pro forma earnings per share information of Embraer, giving pro forma effect to the proposed restructuring and merger contemplated in this prospectus.  The unaudited pro forma earnings per share information is included in “Summary Historical and Pro Forma Financial Information—Summary Comparative Per Share Data” beginning on page 24 of this prospectus.

          The unaudited pro forma earnings per share information of Embraer presented in this prospectus gives effect to estimates made by Embraer’s management and assumes that none of the holders of Embraer common shares will exercise their appraisal rights.

          The unaudited pro forma earnings per share data of Embraer was prepared for illustrative purposes only.  This information does not purport to represent what historical earnings per share Embraer would have had if the proposed restructuring and merger had occurred before such period or the future earnings per share that Rio Han will experience after the proposed restructuring and merger is implemented.

          References to “real,” “reais” or “R$” are to the legal currency of Brazil, and references to “U.S. dollars” or “US$” are to the legal currency of the United States.

vi



CAUTIONARY STATEMENTS CONCERNING FORWARD LOOKING INFORMATION

          This prospectus includes forward-looking statements.  These forward-looking statements include, but are not limited to:  statements about the benefits of the proposed restructuring to Embraer and Embraer shareholders, including statements that the proposed restructuring will facilitate access to capital markets and increase financing resources for the development of new products and expansion programs and statements regarding the dispersed ownership and potential increase in liquidity of Rio Han common shares, and statements about the current conditions and future trends in the airline industry and business jet market, financial conditions, results of operations, cash flows, dividends, financing plans, business strategies, operating efficiencies or synergies, budgets, capital and other expenditures, competitive positions, growth opportunities for existing products, benefits from new technology, plans and objectives of management of Embraer and other matters.

          These forward-looking statements are based largely on the current beliefs and expectations of Rio Han and Embraer about future events and financial trends affecting Embraer’s businesses and are subject to risks, uncertainties and assumptions, including, among other things:

 

general economic, political and business conditions, both in Brazil and in Embraer’s markets;

 

 

 

 

changes in competitive conditions and in the general level of demand for Embraer’s products;

 

 

 

 

management’s expectations and estimates concerning Embraer’s future financial performance, financing plans and programs, and the effects of competition;

 

 

 

 

continued successful development and marketing of the Embraer 170/190 jet family, the line of business jets, including the new business jets for the light and very light categories, and defense aircraft;

 

 

 

 

Embraer’s level of debt;

 

 

 

 

anticipated trends in Embraer’s industry and its short- and long-term outlook for the 30-120 seat commercial aircraft market;

 

 

 

 

Embraer’s expenditure plans;

 

 

 

 

inflation and fluctuations in exchange rates;

 

 

 

 

Embraer’s ability to develop and deliver its products on a timely basis;

 

 

 

 

availability of sales financing for Embraer’s existing and potential customers;

 

 

 

 

existing and future governmental regulation; and

 

 

 

 

other risk factors as set forth under “Risk Factors” beginning on page 27 of this prospectus.

          The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify forward-looking statements.  Rio Han and Embraer undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or other factors.  In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this prospectus might not occur.

          Actual results and performance could differ substantially from those anticipated in forward-looking statements as a result of various factors such as those risks described in this prospectus, including in the Annual Report of Embraer on Form 20-F for the Fiscal Year Ended December 31, 2004 attached as Annex A to this prospectus.  You should not place undue reliance on these forward-looking statements.

vii



QUESTIONS AND ANSWERS ABOUT THE PROPOSED RESTRUCTURING AND MERGER

Q:

What is the proposed restructuring and merger?

 

 

A:

The Board of Directors of Embraer-Empresa Brasileira de Aeronáutica S.A., or Embraer, has approved a restructuring of Embraer that consists of the adoption of a new capital structure and listing on the Novo Mercado, a special trading segment of the São Paulo Stock Exchange (Bolsa de Valores de São Paulo), or BOVESPA.

 

 

 

The proposed restructuring involves two steps:

 

 

 

 

 

 

the organization of Rio Han Empreendimentos e Participações S.A., a holding company, or Rio Han, and the transfer by Cia. Bozano, Caixa de Previdência dos Funcionários do Banco do Brasil – PREVI, or PREVI, and Fundação Sistel de Seguridade Social, or SISTEL, the controlling shareholders of Embraer, of all of the Embraer common shares, or Embraer control shares, held by them subject to the Shareholders’ Agreement among Cia. Bozano, PREVI and SISTEL, dated July 24, 1997, or the Shareholders’ Agreement, to Rio Han—this step was completed on January 18, 2006; and

 

 

 

 

 

 

the merger of companies under Brazilian law (incorporação de empresas), or merger, of Embraer with and into Rio Han.

 

 

 

 

Q:

Why has Embraer decided to propose the restructuring and merger?

 

 

 

 

A:

The proposed restructuring is intended to create a basis for the sustainability, growth and continuity of Embraer’s businesses and activities by simplifying the capital structure of Embraer and thereby improving its access to capital markets and increasing financing resources for the development of new products and expansion programs.  The Board of Directors of Embraer believes that the proposed restructuring will also benefit Embraer shareholders through:

 

 

 

 

 

 

the extension of voting rights to all Embraer shareholders;

 

 

 

 

 

 

the relinquishment of voting control by the current controlling shareholders of Embraer in favor of all Embraer shareholders;

 

 

 

 

 

 

a potential increase in the liquidity of the shares to be received by Embraer shareholders in the merger resulting from the expected dispersed ownership of such shares; and

 

 

 

 

 

 

the adoption of enhanced corporate governance practices and transparency standards.

 

 

 

 

Q:

What will happen to my Embraer common or preferred shares or ADSs?

 

 

 

 

A:

As a result of the merger, Embraer common and preferred shares (including preferred shares represented by Embraer ADSs, each of which represents four Embraer preferred shares) will be exchanged for Rio Han common shares (including common shares represented by Rio Han ADSs, each of which will represent four Rio Han common shares) as follows:

 

 

 

 

 

 

each common share of Embraer (other than those held by Rio Han) will be exchanged for one Rio Han common share;

 

 

 

 

 

 

each preferred share of Embraer will be exchanged for one Rio Han common share, and Rio Han will be prohibited from issuing preferred shares;

 

 

 

 

 

 

each Embraer ADS will be exchanged for one Rio Han ADS; and

 

 

 

 

 

 

the Golden Share, a special class of common share held by the Federative Republic of Brazil, or the Brazilian Government, will be exchanged for a special class of common share, or Golden Share, of Rio Han.

1



Q:

What shareholder approvals are needed for the proposed restructuring and merger?

 

 

A:

Under the Brazilian Corporate Law, the merger must be approved by the shareholders of Rio Han and Embraer at their respective general meetings.

 

 

 

The Brazilian Government holds a Golden Share that gives the Brazilian Government a veto right over certain actions by Embraer, including the merger.  The representative of the Brazilian Government on the Board of Directors of Embraer has approved the proposed restructuring and merger, and the Brazilian Government has indicated to the Board of Directors of Embraer that it intends to vote in favor of the merger.

 

 

Q:

When and where is the extraordinary general meeting of Embraer shareholders to approve the merger?

 

 

A:

The extraordinary general meeting of Embraer shareholders to approve the merger will be held on [__________], 2006, at [__] a.m., local time, at Embraer’s principal executive offices at Avenida Brigadeiro Faria Lima, 2170, São José dos Campos, São Paulo, Brazil.  The general meeting of Rio Han shareholders to approve the merger will be held at Rio Han’s principal executive offices at Avenida Brigadeiro Faria Lima, 2170, F-56, térreo, sala 2656, São José dos Campos, São Paulo, Brazil, immediately following the extraordinary general meeting of Embraer shareholders.

 

 

Q:

Will holders of Embraer non-voting shares be entitled to vote at the extraordinary general meeting?

 

 

A:

Even though under the Brazilian Corporate Law holders of Embraer preferred shares and, consequently, Embraer ADSs do not have the right to vote on the merger, the Board of Directors of Embraer proposes to extend voting rights to all holders of preferred shares, including preferred shares represented by Embraer ADSs, or, collectively, The Embraer non-voting shares in respect of all proposals relating to the merger.  At the extraordinary general meeting of Embraer shareholders, holders of Embraer common shares will first be asked to consider and vote upon a proposal to insert a temporary provision in the bylaws of Embraer to confer voting rights upon all Embraer shareholders in respect of all proposals relating to the merger.  This first proposal must be approved by holders of a majority of the Embraer common shares present and voting at the extraordinary general meeting.  The Board of Directors of Embraer expects this first proposal to be approved because Rio Han and its shareholders Cia. Bozano, PREVI and SISTEL, which directly or indirectly hold 63.35% of the outstanding Embraer common shares, have indicated to the Board of Directors of Embraer that they intend to vote in favor of this first proposal.  If this first proposal is approved, all Embraer shareholders will have the right to vote upon all proposals relating to the merger.

 

 

Q:

What vote is required to approve the merger at the extraordinary general meeting?

 

 

A:

If the proposal to insert a temporary provision in the bylaws of Embraer to confer voting rights upon all Embraer shareholders is approved, then the merger must be approved by holders of more than 50% of the outstanding common and preferred shares of Embraer.

 

 

Q:

How will the vote for the approval of the merger be conducted at the extraordinary general meeting?

 

 

A:

The Board of Directors of Embraer has agreed that all Embraer shareholders (other than Rio Han, Cia. Bozano, PREVI and SISTEL and the directors and executive officers of Embraer), including the depositary of the Embraer ADSs that will vote as instructed by holders of ADSs, will vote before Rio Han, Cia. Bozano, PREVI, SISTEL and the directors and executive officers of Embraer on the proposals to approve the merger.  If the merger is rejected by holders of more than 50% of the outstanding common and preferred shares of Embraer (other than common or preferred shares held by Rio Han, Cia. Bozano, PREVI, SISTEL and the directors and executive officers of Embraer), then Rio Han, Cia. Bozano, PREVI and SISTEL will vote against the merger.  If the merger is not rejected as described in the preceding sentence, Rio Han, Cia. Bozano, PREVI and SISTEL will vote for the merger.

2



Q:

What is the record date for the extraordinary general meeting?

 

 

A:

Only Embraer shareholders who hold shares of record as of the close of business on [                     ], 2006 will be entitled to attend and, in the case of holders of Embraer non-voting shares only if the proposal to extend voting rights to all Embraer shareholders is approved, vote at the extraordinary general meeting.

 

 

Q:

Do I have to attend the extraordinary general meeting in person to vote?

 

 

A:

You must attend the extraordinary general meeting of Embraer shareholders in person or by proxy in order to vote.  See “Extraordinary General Meeting of Embraer Shareholders—How to Vote Your Embraer Shares and ADSs” beginning on page 33 of this prospectus for further details.

 

 

Q:

As a holder of Embraer ADSs, how do I vote?

 

 

A:

As a holder of Embraer ADSs, you are not entitled to attend the extraordinary general meeting in person, but instead may be represented at the meeting by the depositary of the Embraer ADSs, or the depositary, or its representative.  You should provide the depositary with timely voting instructions with respect to the preferred shares represented by your Embraer ADSs to enable the depositary to have such shares represented at the extraordinary general meeting.  The depositary has set [__] p.m. (New York City time) on [__________], 2006 as the record date for determining those holders of Embraer ADSs entitled to provide voting instructions.  See “Extraordinary General Meeting of Embraer Shareholders—How to Vote Your Embraer Shares and ADSs” and “Specific Considerations for Holders of Embraer ADS—Vote by Holders of Embraer ADSs” beginning on pages 33 and 68 of this prospectus, respectively.

 

 

Q:

Do I have appraisal rights in connection with the merger?

 

 

A:

Holders of record of Embraer common shares at the close of business on January 19, 2006, the date of the first announcement of the merger, are entitled to exercise appraisal or withdrawal rights (direito de recesso ou retirada), or appraisal rights, in connection with the merger.

 

 

 

If you held Embraer common shares of record at the close of business on January 19, 2006, you will have the right to elect to receive, instead of the Rio Han common shares to be issued in the merger, R$6.61 in cash per common share, being the shareholders’ equity per share of Embraer determined in accordance with Brazilian GAAP as of September 30, 2005, using the methodology described in the Valuation Report of Shareholders’ Equity of Embraer prepared by ACAL Consultoria e Auditoria S/S, or ACAL, dated as of January 18, 2006.  See “The Proposed Restructuring and Merger—Valuation Reports of ACAL—Summary of Valuation Report of Book Value of Embraer’s Shareholders’ Equity ” beginning on page 53 of this prospectus.

 

 

 

If you have appraisal rights, you must exercise your rights within 30 days of the publication of the minutes of the extraordinary general meeting of Embraer shareholders convened to approve the merger, or the appraisal rights period, otherwise your rights will lapse.  You cannot exercise your appraisal rights if you vote in favor of the merger.  See “The Proposed Restructuring and Merger—Appraisal Rights” on page 56 of this prospectus for information on how to exercise your appraisal rights.

 

 

 

Under the Brazilian Corporate Law, holders of Embraer preferred shares and Embraer ADSs are not entitled to appraisal rights in connection with the merger.  See “The Proposed Restructuring and Merger—Appraisal Rights” on page 56 of this prospectus.

3



Q:

Can the merger be unwound?

 

 

 

 

A:

Yes.  Under the Brazilian Corporate Law, if the management of Rio Han believes that the total value of the appraisal rights exercised by holders of Embraer common shares may put at risk the financial stability of Rio Han, the management may, within ten days after the end of the appraisal rights period, call an extraordinary general meeting of Rio Han shareholders to ratify or unwind the merger.

 

 

 

 

Q:

When will the merger be completed?

 

 

 

 

A:

The merger will be effective upon approval of the merger by the shareholders of Rio Han and Embraer at their respective meetings.

 

 

 

 

 

The merger will be completed only after the merger becomes irreversible, which will occur upon the earliest occurrence of any of the following events:

 

 

 

 

 

 

by the tenth day following the end of the appraisal rights period if management of Rio Han has not called an extraordinary general meeting of Rio Han shareholders to either ratify or unwind the merger;

 

 

 

 

 

 

Rio Han waives its right to unwind the merger; or

 

 

 

 

 

 

management of Rio Han calls an extraordinary general meeting of Rio Han shareholders within ten days of the end of the appraisal rights period to either ratify or unwind the merger, and the merger is ratified.

 

 

 

 

Q:

As a holder of Embraer common or preferred shares, what should I do to receive my Rio Han common shares?

 

 

 

 

A:

As a holder of Embraer common or preferred shares, you will not need to do anything to receive your Rio Han common shares issued in the merger.  Upon the effectiveness of the merger, all Embraer common and preferred shares will automatically be exchanged for Rio Han common shares.  As Embraer shares are registered in book-entry form and Rio Han common shares will be registered in book-entry form, an entry or entries will be made by Banco Itaú S.A., the registrar of the Embraer share registry and the Rio Han share registry, in the Rio Han share registry to evidence the Rio Han common shares issued in the merger.  Holders of Embraer common or preferred shares will not receive certificates evidencing Rio Han common shares.  After the merger is completed, the registrar of the Rio Han share registry will provide a statement of shareholding to each registered holder of Rio Han common shares confirming their ownership of Rio Han common shares.

 

 

 

 

Q:

As a holder of Embraer ADSs, what should I do to receive my Rio Han ADSs?

 

 

 

 

A:

If you are a registered holder of Embraer ADSs, you will not need to take any action with respect to your Embraer ADSs.  If you hold your Embraer ADSs in book-entry form through the direct registration system maintained by JPMorgan Chase Bank, N.A., the depositary for the Embraer ADSs, an entry or entries will be made in the direct registration system after the effectiveness of the merger to evidence that your Embraer ADSs represent Rio Han common shares rather than Embraer preferred shares. If you hold certificates, commonly known as American Depositary Receipts, or ADRs, evidencing your Embraer ADSs, your ADRs will evidence your Rio Han ADSs after the effectiveness of the merger. In all cases, the number of Embraer ADSs you hold will remain unchanged. If you are not a registered holder of your Embraer ADSs but hold your Embraer ADSs in “street name” through a broker, bank, custodian or other nominee, you will not need to take any action unless your broker, bank, custodian or other nominee informs you otherwise.

4



Q:

Can I trade my Embraer shares during the appraisal rights period?

 

 

A:

Yes.  You may continue to trade your Embraer common or preferred shares under their existing ticker symbols on the BOVESPA until such time as Rio Han is registered as a public company with the CVM and the Rio Han common shares issued in the merger are listed on the BOVESPA.  Upon the effectiveness of the merger, Rio Han will apply to register as a public company with the CVM and to list the Rio Han common shares on the Novo Mercado segment of the BOVESPA under the ticker symbol “EMBR3.”  Rio Han anticipates the registration and listing process to be completed within approximately 60 days from the date of the filing of its applications with the CVM and the BOVESPA.  Holders of Embraer ADSs may continue to trade their Embraer ADSs under the ticker symbol “ERJ” on the NYSE until such time as the Rio Han ADSs are authorized for listing on the NYSE.  Rio Han expects that the Rio Han ADSs will be authorized for listing on the NYSE, subject to official notice of issuance, by the same time that Rio Han is registered as a public company with the CVM and the Rio Han common shares are listed on the BOVESPA.

 

 

Q:

Will I have to pay brokerage commissions?

 

 

A:

You will not have to pay brokerage commissions if your shares are registered in your own name.

 

 

Q:

Who can help answer my questions?

 

 

A:

If you have any questions about the proposed restructuring or merger, you should contact:

 

 

 

 

 

Embraer

 

 

 

Avenida Brigadeiro Faria Lima, 2170

 

 

 

12227-901 São José dos Campos

 

 

 

São Paulo, Brazil

 

 

 

Attention:  Investor Relations

 

 

 

Telephone (Brazil):  +55 12 3927-4404

 

 

 

Telephone (US):  +1 954 359-3721

5



SUMMARY

          The following summary highlights selected information from this prospectus and may not contain all the information that may be important to you.  To understand the proposed restructuring and merger more fully, you should read this entire prospectus carefully.  This summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing in this prospectus, including Embraer’s condensed consolidated financial statements and the accompanying notes.

The Companies

Rio Han (see page 71)

Av. Brigadeiro Faria Lima, 2170
F-56, térreo, sala 2656
12227-901 – São José dos Campos
São Paulo, Brazil
Tel:  +55-12-3927-1000

          Rio Han was formed as a closed company under the laws of Brazil on September 2, 2005 under the name R.A.A.S.P.E. Empreendimentos e Participações S.A., which name was subsequently changed to Rio Han on January 12, 2006.

          The current share ownership of Rio Han (after giving effect to the transfer by Cia. Bozano, PREVI and SISTEL of the Embraer control shares to Rio Han on January 18, 2006) is as follows:

Shareholder

 

Number of
common shares

 

Percentage of
participation in
the capital stock

 


 



 



 

Cia. Bozano

 

 

54,102,501

 

 

33.33

%

PREVI

 

 

54,102,131

 

 

33.33

%

SISTEL

 

 

54,102,131

 

 

33.33

%

Total

 

 

162,306,763

 

 

100

%

          Rio Han has not carried on any activities other than in connection with the proposed restructuring and merger.

Embraer (see page 72)

Avenida Brigadeiro Faria Lima, 2170
12227-901 São José dos Campos
São Paulo, Brazil
Tel:  +55-12-3927-4440

          Embraer was incorporated as a publicly held company with private participation by the Brazilian Government in 1969, was privatized in 1994 and is currently a joint stock company duly organized under the laws of Brazil.  Embraer is one of the leading manufacturers of commercial aircraft in the world based on net sales of commercial aircraft, and has a global customer base.  Embraer’s focus is achieving customer satisfaction with a range of products addressing the commercial, business jet and defense aircraft markets.  Embraer is also the leading supplier of defense aircraft for the Brazilian Air Force based on number of aircraft sold, and has also sold aircraft to military forces in Europe and Latin America.

          For additional information about Embraer, including information regarding recent developments, see “The Companies—Information About Embraer” beginning on page 72 of this prospectus.

6



The Proposed Restructuring and Merger  (see page 35)

          The Board of Directors of Embraer has approved a restructuring of Embraer that consists of the adoption of a new capital structure and listing on the Novo Mercado, a special trading segment of the BOVESPA. 

          The proposed restructuring involves two steps:

 

1.

the organization of Rio Han and the transfer by Cia. Bozano, PREVI and SISTEL of the Embraer control shares to Rio Han—this step was completed on January 18, 2006; and

 

 

 

 

2.

the merger under Brazilian law of Embraer with and into Rio Han.



Organization of Rio Han and the Transfer of Embraer control shares to Rio Han (see page 71)

          Rio Han was formed on September 2, 2005 and has not carried on any activities other than in connection with the proposed restructuring and merger.

          On January 12, 2006, Cia. Bozano purchased all of the common shares representing the capital stock of Rio Han.  On January 13, 2006, PREVI and SISTEL each purchased from Cia. Bozano an amount of common shares to enable each of Cia. Bozano, PREVI and SISTEL to hold nearly equal amounts of Rio Han’s capital stock.  On January 18, 2006, Cia. Bozano, PREVI and SISTEL transferred all of the Embraer control shares (which represent 60% of Embraer’s common shares and 20.16% of Embraer’s total capital) to Rio Han in exchange for 162,306,263 Rio Han common shares (or 1.1153 Rio Han common shares for each Embraer control share). 

          The exchange ratio for the transfer of the Embraer control shares to Rio Han was determined by the management of Rio Han and the management of Embraer and subsequently recommended for approval by the Conselho Fiscal (Audit Board) of Embraer. The exchange ratio was approved by the Board of Directors of Embraer based on, among other things, the Financial Analyses Regarding the Restructuring of the Capital Stock of Embraer prepared by Goldman Sachs & Co. together with Goldman Sachs & Companhia, collectively, Goldman Sachs, dated as of January 13, 2006.  See “The Proposed Restructuring and Merger—Financial Analyses of Goldman Sachs” beginning on page 43 of this prospectus for further details regarding the financial analyses. The exchange ratio for the transfer of the Embraer control shares to Rio Han reflects a premium of 9% when compared to the exchange ratio for the merger.  The Board of Directors of Embraer understands that Cia. Bozano, PREVI and SISTEL have a legitimate and justified expectation in receiving a premium on the transfer of the Embraer control shares to Rio Han as compensation for their relinquishment of voting control over Embraer in favor of all Embraer shareholders in connection with the proposed restructuring and merger.  See “Merger Agreement” beginning on page 59 of this prospectus for further details.

Merger of Embraer with and into Rio Han (see page 37)

          The proposed restructuring will be implemented through the merger of Embraer with and into Rio Han under the Brazilian Corporate Law.

          As a result of the merger, Embraer will cease to exist and: 

 

Rio Han will succeed to all of the rights and obligations of Embraer, and will change its legal name to Embraer–Empresa Brasileira de Aeronáutica S.A., which is Embraer’s current legal name;

 

 

 

 

all of the assets and liabilities (including shareholders’ equity) of Embraer will be combined with the assets and liabilities (including shareholders’ equity) of Rio Han, and all of Embraer’s subsidiaries will become Rio Han’s subsidiaries;

7



 

each common share of Embraer (other than common shares held by Rio Han) will be exchanged for one Rio Han common share;

 

 

 

 

each preferred share of Embraer will be exchanged for one Rio Han common share, and Rio Han will be prohibited from issuing preferred shares;

 

 

 

 

each Embraer ADS will be exchanged for one Rio Han ADS; and

 

 

 

 

the Golden Share of Embraer held by the Brazilian Government will be exchanged for a Golden Share of Rio Han.

          Each common and preferred share of Embraer held by Cia. Bozano, PREVI or SISTEL not subject to the Shareholders’ Agreement will be exchanged for one Rio Han common share.

          Upon the effectiveness of the merger, the Shareholders’ Agreement will terminate and the new bylaws of Rio Han to be approved in connection with the merger will prohibit any shareholder or group of shareholders from exercising voting control over Rio Han.

          The ownership structure of Rio Han after the merger will be as follows: 

Message

Share Ownership After the Merger (see page 38)

          As of the date of this prospectus, holders of Embraer shares other than Rio Han hold approximately 79.84% in the aggregate of the total capital stock of Embraer.  As a result of the premium that will be realized by Cia. Bozano, PREVI and SISTEL by virtue of the exchange ratio for the transfer of the Embraer control shares to Rio Han when compared to the exchange ratio for the merger, and assuming no holders of Embraer common shares exercise their appraisal rights, holders of Embraer shares other than Rio Han will hold approximately 78.03% in the aggregate of the total capital stock of Rio Han after the merger.  See “The Proposed Restructuring and Merger—Share Ownership After the Merger” beginning on page 38 of this prospectus for further details on the financial impact of the merger on Embraer shareholders.

Reasons for the Proposed Restructuring and Merger  (see page 41)

          The proposed restructuring and merger is intended to create a basis for the sustainability, growth and continuity of Embraer’s businesses and activities by simplifying the capital structure of Embraer and thereby improving its access to capital markets and increasing financing resources for the development of new products and expansion programs.  See “The Proposed Restructuring and Merger—Reasons for the Proposed Restructuring and Merger” beginning on page 41 of this prospectus.  The Board of Directors of Embraer expects that the following benefits will result from the proposed restructuring:

8



 

Benefits to Embraer Shareholders:

 

 

 

 

 

 

the extension of voting rights to all Embraer shareholders;

 

 

 

 

 

 

the relinquishment of voting control by the current controlling shareholders of Embraer in favor of all Embraer shareholders;

 

 

 

 

 

 

a potential increase in the liquidity of the shares to be received by Embraer shareholders in the merger resulting from the expected dispersed ownership of such shares;

 

 

 

 

 

 

the adoption of enhanced corporate governance practices and transparency standards; and

 

 

 

 

 

 

for Cia. Bozano, PREVI and SISTEL, realization of a premium on the Embraer control shares transferred to Rio Han by virtue of the exchange ratio applicable to such transfer when compared to the exchange ratio applicable to the merger.

 

 

 

 

 

Benefits to the Brazilian Capital Markets:

 

 

 

 

 

 

the creation of the first major Brazilian company with dispersed ownership and simplified capital structure (only common shares) to be listed on the Novo Mercado; and

 

 

 

 

 

 

the creation of a new corporate governance benchmark for Brazilian public companies.

 

 

 

 

 

 

 

 

 

Benefits to the Brazilian Government:

 

 

 

 

 

 

the continuation of the rights of the Golden Share;

 

 

 

 

 

 

the assurance that a majority of the voting rights of Rio Han common shares will be held by Brazilian shareholders as provided in the Privatization Notice of Embraer;

 

 

 

 

 

 

the control over the concentration of Rio Han common shares in amounts equal to or greater than 35%;

 

 

 

 

 

 

the assurance of a dispersed capital structure due to the adoption of restrictions on voting rights contained in Rio Han’s proposed bylaws; and

 

 

 

 

 

 

the assurance that Rio Han will remain as a technological and industrial partner of the Brazilian Army.

 

 

 

 

          The Board of Directors also considered the following potential effects arising from the proposed restructuring and merger:

 

 

 

 

 

 

the ownership percentage of holders of Embraer shares other than those subject to the Shareholders’ Agreement will be diluted as a result of the merger (assuming no holders of Embraer common shares exercise appraisal rights); and

 

 

 

 

 

 

holders of Embraer preferred shares (including preferred shares represented by Embraer ADSs) will no longer be entitled to receive a dividend per share at least 10% higher than any dividend conferred upon each Embraer common share.

9



Approval of the Conselho Fiscal (Audit Board) and of the Board of Directors of Embraer (see page 42)

          The Conselho Fiscal (Audit Board) of Embraer has reviewed the proposed restructuring and merger, including the Protocol and Justification of Merger of Embraer with and into Rio Han, dated January 19, 2006, and the valuation reports, financial analyses and proposed bylaws of Rio Han attached as exhibits thereto, or the Merger Agreement, and has unanimously recommended the submission of the Merger Agreement and the merger to an extraordinary general meeting of Embraer shareholders for approval.

          The Board of Directors of Embraer has also reviewed the proposed restructuring and merger, including the Merger Agreement and all exhibits thereto, and has unanimously approved the restructuring and merger, the terms of the Merger Agreement and all related documents, and has approved the submission of the Merger Agreement and the merger to an extraordinary general meeting of Embraer shareholders for approval.

          In determining whether to approve the proposed restructuring and merger, the Board of Directors of Embraer consulted with its senior management and legal counsel as well as its financial advisors, ACAL and Goldman Sachs, considered the approval of the Conselho Fiscal, and considered the respective strategic, financial and other considerations referred to under “The Proposed Restructuring and Merger—Reasons for the Proposed Restructuring and Merger” beginning on page 41 of this prospectus.

Conditions to the Merger (see page 37)

          The merger must be approved by the shareholders of Rio Han and Embraer at their respective meetings.  At their general meeting, Rio Han shareholders will be asked to vote upon, among other things, the following proposals:

 

the approval of the proposed bylaws for Rio Han;

 

 

 

 

the election of a transition Board of Directors to serve until the annual general meeting of Rio Han shareholders in 2009 to approve the financial statements for the fiscal year ended December 31, 2008;

 

 

 

 

the ratification of the appointment of ACAL by the management of Rio Han to prepare the valuation reports of Embraer and Rio Han;

 

 

 

 

the approval of the valuation reports prepared by ACAL;

 

 

 

 

the approval of the Merger Agreement;

 

 

 

 

the approval of the merger of Embraer with and into Rio Han, pursuant to the terms of the Merger Agreement and related documents;

 

 

 

 

the increase of Rio Han’s capital as a result of the merger;

 

 

 

 

the approval of the renaming of Rio Han as Embraer – Empresa Brasileira de Aeronáutica S.A., which is Embraer’s current legal name; and

 

 

 

 

the restriction on transfers of Rio Han common shares by the current controlling shareholders of Rio Han and the management of Rio Han for a period of six months following the effectiveness of the merger.

10



          Rio Han expects that all of the resolutions submitted to Rio Han shareholders for approval at the general meeting of Rio Han shareholders will be approved because the current controlling shareholders of Rio Han have indicated to Rio Han and to the Board of Directors of Embraer that they intend to vote in favor of all of these proposals.

          The Brazilian Government holds a Golden Share that gives the Brazilian Government a veto right over certain actions by Embraer, including the merger.  The representative of the Brazilian Government on the Board of Directors of Embraer has approved the proposed restructuring and merger, and the Brazilian Government has indicated to the Board of Directors of Embraer that it intends to vote in favor of the merger at the extraordinary general meeting of Embraer shareholders called to approve the merger.

          No regulatory requirements, other than the filing of the minutes of the extraordinary general meeting of Embraer and general meeting of Rio Han shareholders approving the merger with the proper commercial registries, must be met, and no regulatory approvals must be obtained, in connection with the proposed restructuring and merger.

Extraordinary General Meeting of Embraer Shareholders Regarding the Merger (see page 32)

          When and Where.  The extraordinary general meeting of Embraer shareholders to approve the merger will be held on:

_________, 2006, _____ a.m., local time,
Avenida Brigadeiro Faria Lima, 2170,
City of São José dos Campos, State of São Paulo
Brazil

          Purpose of the Extraordinary General Meeting.  At the extraordinary general meeting of Embraer shareholders, holders of Embraer common shares will first be asked to consider and vote upon a proposal to insert a temporary provision in the bylaws of Embraer to confer voting rights upon all Embraer shareholders, regardless of the type of shares held by them, in respect of all proposals relating to the merger.  This first proposal must be approved by holders of a majority of the Embraer common shares present and voting at the extraordinary general meeting.  The Board of Directors of Embraer expects this first proposal to be approved because Rio Han and its shareholders Cia. Bozano, PREVI, and SISTEL, which directly or indirectly hold 63.35% of the outstanding Embraer common shares, have indicated to the Board of Directors of Embraer that they intend to vote in favor of this first proposal.

          If this first proposal is adopted, all Embraer shareholders will have the right to vote upon the following proposals relating to the merger:

 

the ratification of the appointment of ACAL and Goldman Sachs by the management of Embraer to prepare the valuation reports and financial analyses, respectively, regarding the proposed restructuring and merger;

 

 

 

 

the approval of the valuation reports prepared by ACAL and of the financial analyses prepared by Goldman Sachs;

 

 

 

 

the approval of the Merger Agreement; and

 

 

 

 

the approval of the merger of Embraer with and into Rio Han, pursuant to the terms of the Merger Agreement and related documents.

11



          Record Date; Quorum.  Only Embraer shareholders who hold shares of record as of the close of business, local time, on [_________________], 2006 will be entitled to attend and, in the case of holders of Embraer non-voting shares only if the first proposal is approved, vote at the extraordinary general meeting of Embraer shareholders to approve the merger.  The holders of record of Embraer ADSs as of [__] p.m. (New York City time) on [_________], 2006, the record date for the Embraer ADSs, will be entitled to provide the depositary for the Embraer ADSs with voting instructions in respect of the proposals to be considered at the extraordinary general meeting.

          A quorum of shares of Embraer common stock is necessary to hold a valid extraordinary general meeting of Embraer shareholders.  At first call, the holders of at least two-thirds of Embraer common shares issued and outstanding, present in person or represented by proxy, will constitute a quorum to hold the extraordinary general meeting.  In the event such quorum is not present, the extraordinary general meeting of Embraer shareholders may be held at second call, with the presence of any amount of holders of Embraer common shares issued and outstanding.

Vote Required for Approval of the Merger (see page 33)

          If the proposal to confer voting rights upon all Embraer shareholders is approved, all Embraer shareholders will have the right to vote on the merger and the merger must be approved by holders of more than 50% of the outstanding common and preferred shares of Embraer.

          The Board of Directors of Embraer has agreed that all Embraer shareholders (other than Rio Han, Cia. Bozano, PREVI and SISTEL and the directors and executive officers of Embraer), including the depositary of the Embraer ADSs that will vote as instructed by the holders of ADSs, will vote before Rio Han, Cia. Bozano, PREVI and SISTEL.  If the merger is rejected by holders of more than 50% of the outstanding common and preferred shares of Embraer (other than common or preferred shares held by Rio Han, Cia. Bozano, PREVI, SISTEL and the directors and executive officers of Embraer), then Rio Han, Cia. Bozano, PREVI and SISTEL will vote against the merger.  If the merger is not rejected as described in the preceding sentence, Rio Han, Cia. Bozano, PREVI and SISTEL will vote for the merger.

          At the close of business, local time, on February 20, 2006, directors and executive officers of Embraer beneficially owned, in the aggregate, 18 Embraer common shares and 2,417,681 Embraer preferred shares, representing approximately 0.22% of Embraer’s total capital stock.

Appraisal Rights (see page 56)

          Holders of record of Embraer common shares at the close of business on January 19, 2006, the date of the first announcement of the merger, are entitled to exercise appraisal rights in connection with the merger.

          If you held Embraer common shares of record at the close of business on January 19, 2006, you will have the right to elect to receive, instead of the Rio Han common shares to be issued in the merger, an amount in cash equal to R$6.61 per common share, being the shareholders’ equity per share of Embraer determined in accordance with Brazilian GAAP as of September 30, 2005, using the methodology described in the Valuation Report of Shareholders’ Equity of Embraer prepared by ACAL Consultoria e Auditoria S/S, or ACAL, dated as of January 18, 2006.  See “The Proposed Restructuring and Merger—Valuation Reports of ACAL—Summary of Valuation Report of Book Value of Embraer’s Shareholders’ Equity” beginning on page 53 of this prospectus.

          If you have appraisal rights, you must exercise your rights within 30 days of the publication of the minutes of the extraordinary general meeting of Embraer shareholders convened to approve the merger, or the appraisal rights period, otherwise your rights will lapse.  Embraer expects to publish the minutes of the extraordinary general meeting in the Vale Paraibano in São José dos Campos and in the Gazeta Mercantil in São Paulo on or about [________], 2006.  Embraer will furnish an English translation of the minutes of the extraordinary general meeting, which will specify the last date for the exercise of appraisal rights, on Form 6-K with the SEC (www.sec.gov) on the same date as their publication in Brazil and will also make an English translation of the minutes of the extraordinary general meeting available on its website (www.embraer.com.br).  For information on how to exercise your appraisal rights, see “The Proposed Restructuring and Merger—Appraisal Rights” on page 56 of this prospectus.

          Under the Brazilian Corporate Law, holders of Embraer preferred shares and Embraer ADSs are not entitled to appraisal rights in connection with the merger.  See “The Proposed Restructuring and Merger—Appraisal Rights” on page 56 of this prospectus.

12



Unwinding of the Merger (see page 57)

          Under the Brazilian Corporate Law, if the management of Rio Han believes that the total value of the appraisal rights exercised by holders of Embraer common shares may put at risk the financial stability of Rio Han, the management may, within ten days after the end of the appraisal rights period, call an extraordinary general meeting of Rio Han shareholders to ratify or unwind the merger.  Payment relating to the exercise of appraisal rights will not be due if the merger is unwound by Rio Han’s shareholders.

          The factors that may put at risk the financial stability of the enterprise will depend on the financial condition of Rio Han after the merger and the general economic environment in its markets at the time the appraisal rights are exercised.  These factors may include, but are not limited to, the cash balances of Rio Han, its ability to borrow funds or fund expansion plans and continuing operations, and compliance with existing contractual obligations, including financial covenants.  The decision to call the extraordinary general meeting of shareholders to ratify or unwind the merger is at the discretion of Rio Han’s management. 

Financial Analyses of Goldman Sachs (see page 43)

          In connection with the merger, the Board of Directors of Embraer received certain financial analyses from Goldman Sachs for consideration in its determination of the exchange ratio for the transfer of the Embraer control shares to Rio Han and the exchange ratio for the merger.

           We urge you to read carefully the summary of the financial analyses set forth in “The Proposed Restructuring and Merger—Financial Analyses of Goldman Sachs” beginning on page 43 of this prospectus, which includes information on how to obtain copies of the full analyses.

Valuation Reports of ACAL (see page 49)

          In connection with the merger, Rio Han and Embraer retained ACAL to render valuation reports for the purpose of appraising:

 

the book value of the shareholders’ equity of Embraer in order to determine the capital increase of Rio Han that will result from the merger; and

 

 

 

 

the market value of the shareholders’ equity of Embraer and Rio Han in order to (i) compare the ratio between such values with the exchange ratio stipulated in the Merger Agreement and (ii) determine the appraisal value of the Embraer common shares.

          The valuation reports were based on the audited financial statements of Rio Han and Embraer as of September 30, 2005, prepared in accordance with Brazilian GAAP.  See “The Proposed Restructuring and Merger—Valuation Reports of ACAL” beginning on page 49 of this prospectus for further details.

          We urge you to read carefully the summary of the valuation reports set forth in “The Proposed Restructuring and Merger—Valuation Reports of ACAL” beginning on page 49 of this prospectus, which includes information on how to obtain copies of the full reports.

Opinion of Citigroup Global Markets Inc. (see page 54)

          In connection with the merger, the Board of Directors of Embraer received a written opinion from Citigroup Global Markets Inc., or Citigroup, dated February 15, 2006, as to the fairness, from a financial point of view and as of the date of the opinion, to the holders of the Embraer non-voting shares (other than the controlling shareholders of Embraer and their respective affiliates), of the one-for-one exchange ratio provided for in the merger for the Embraer non-voting shares.  The full text of Citigroup’s written opinion is attached to this prospectus as Annex G.  We encourage you to read this opinion carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the review undertaken.  Citigroup’s opinion was provided to the Board of Directors of Embraer and relates only to the fairness, from a financial point of view, to the holders of the Embraer non-voting shares (other than the controlling shareholders of Embraer and their respective affiliates) of the one-for-one exchange ratio provided for in the merger for the Embraer non-voting shares.  Citigroup’s opinion does not address any other term, aspect or implication of the merger and does not constitute a recommendation to any security holder as to how such security holder should vote or act on any matters relating to the proposed merger.

13



Risk Factors (see page 27)

          Before making an investment decision, you should carefully consider the risk factors related to the proposed restructuring and the merger and also those related to Rio Han’s common shares and ADSs set forth in “Risk Factors” beginning on page 27 of this prospectus.

Tax Considerations (see page 102)

          There is no specific Brazilian legislation nor administrative or judicial precedent regarding the income tax consequences to investors resulting from a stock-for-stock merger.  Based on the opinion of its Brazilian tax counsel, Rio Han believes that the merger should not be subject to income tax pursuant to Brazilian law.  Rio Han’s Brazilian counsel believes that it is unlikely that the merger will be deemed to be a taxable transaction under Brazilian law, especially if a shareholder maintains, for Brazilian tax purposes, as the cost of acquisition of Rio Han’s common shares the cost of the acquisition of Embraer’s shares.  Gains resulting from the exercise of appraisal rights, however, will be taxable.  See “Risk Factors—Risks Relating to the Proposed Restructuring and Merger” beginning on page 27 of this prospectus and “Material Tax Considerations—Material Brazilian Tax Considerations” beginning on page 102 of this prospectus.  You are urged to consult your own tax advisor with respect to the personal tax consequences of the merger, which may vary for investors in different tax situations.

          Shearman & Sterling LLP, U.S. tax counsel to Embraer and Rio Han, is providing an opinion, based in part on customary representations and assumptions set forth therein, that the merger and resulting share exchange should qualify as one or more “reorganizations” for U.S. federal income tax purposes.  If the merger so qualifies as a “reorganization” pursuant to these provisions, the exchange of Embraer common shares, preferred shares and ADSs for Rio Han common shares and ADSs pursuant to the merger generally will be tax-free to U.S. holders of Embraer common shares, preferred shares and ADSs for such tax purposes.  See “Risk Factors—Risks Relating to the Proposed Restructuring and Merger” beginning on page 27 of this prospectus and “Material Tax Considerations—Material United States Federal Income Tax Considerations” beginning on page 104 of this prospectus.  You are urged to consult your own tax advisor with respect to your personal tax consequences of the merger, which may vary for investors in different tax situations.

Accounting Treatment of the Merger (see page 58)

          Under U.S. GAAP, the merger of Embraer with and into Rio Han will be recorded using the historical carrying values of the assets and liabilities of Embraer.  The merger will be treated as a recapitalization that results in no change in accounting basis from the accounting basis of Embraer because, in accordance with U.S. GAAP, Embraer is regarded as the acquiring party for accounting purposes.  The creation of Rio Han, a holding company with no operations, and the subsequent merger with Embraer do not involve any new shareholders nor result in any one shareholder or group of shareholders obtaining unilateral control of Rio Han.

Merger Agreement (see page 59)

          The Merger Agreement provides for the merger of Embraer with and into Rio Han, which will become the successor of Embraer and, by operation of law, assume all Embraer’s rights and obligations, under the Brazilian Corporate Law.  The Merger Agreement is described in more detail in “Merger Agreement” beginning on page 59 of this prospectus and is attached as Annex B to this prospectus.

Interests of Certain Persons in the Merger (see page 65)

          In considering how to vote, Embraer shareholders should be aware that certain members of the Embraer Board of Directors and the management of Embraer may have interests in the merger that differ from, or are in addition to, their interests as Embraer shareholders.  The Embraer Board of Directors was aware of these interests and considered them, among other matters, in approving the Merger Agreement and the merger.  A summary of these interests, to the extent material, is set forth in “Interests of Certain Persons in, and Significant Shareholders of, Embraer and Rio Han” beginning on page 65 of this prospectus.

Management of Rio Han Before and After the Proposed Restructuring and Merger (see page 110)

          Rio Han is currently managed by two executive officers, Mr. Vitor Sarquis Hallack and Mr. Carlos Alberto Cardoso Moreira, both executive officers without specific title currently serving a term that will expire at the next general meeting of Rio Han shareholders.  Additional officers of Rio Han may be elected by its shareholders prior to the proposed restructuring and merger.

14



          Pursuant to Rio Han’s proposed bylaws, after the implementation of the proposed restructuring and merger, Rio Han will be managed by a Board of Directors comprised of 11 members and a board of officers with a minimum of four and a maximum of 11 members.  One of the members of the board of officers will be the Chief Executive Officer, or CEO, who will participate in meetings of the Board of Directors, but may not vote in respect of any resolution of the Board of Directors.  The members of the Board of Directors will be elected for two-year terms.  Rio Han’s proposed bylaws further provide that the Brazilian Government, as holder of the Golden Share, will be entitled to appoint one member of the Board of Directors.  In addition, Rio Han’s employees will be entitled to appoint two members of the Board of Directors:  (i) one as a representative of the Rio Han employees who are Rio Han shareholders and (ii) one as a representative of Rio Han employees who are not Rio Han shareholders.  Rio Han will have a permanent Conselho Fiscal, or audit board, which will comprise five members and an equal number of alternates.

          Rio Han’s proposed bylaws also contain a temporary provision, which will become effective immediately before approval of the proposed restructuring and merger, specifying that Rio Han will be managed by a transition Board of Directors of 11 members to be elected on the date of approval of the Rio Han proposed bylaws at the general meeting of Rio Han shareholders to approve the merger.  This transition Board of Directors will comprise 11 members, of whom:  (i) one will be the current CEO of Embraer, who will also serve as CEO of Rio Han for a limited period; (ii) one will be appointed by the Brazilian Government; (iii) two will be appointed by Embraer’s employees; (iv) one will be appointed by each of Cia. Bozano, PREVI and SISTEL; and (v) the remaining four will be independent board members, who will be appointed by Cia. Bozano, PREVI and SISTEL, as a group.  The term of office of the members of the transition Board of Directors elected on the date of approval of the Rio Han bylaws will be three years, until the annual general meeting of Rio Han shareholders in 2009 to approve the financial statements for the fiscal year ended December 31, 2008.  The term of office of Rio Han’s Board of Directors will thereafter be two years.

          The current president and CEO of Embraer will be the Chairman of the transition Board of Directors pursuant to the temporary provision of Rio Han’s proposed bylaws.  As a result, Mr. Maurício Novis Botelho, currently president and CEO of Embraer, will be elected as Chairman of the Board of Directors, as well as the president and CEO of Rio Han, and will hold the office of CEO until the first meeting of the Board of Directors of Rio Han to be held after the annual general meeting of Rio Han shareholders that approves the financial statements for the fiscal year ended December 31, 2006 (at which time, a new CEO will be elected by the Board of Directors).

          See “Management of Rio Han Before and After the Proposed Restructuring and Merger” beginning on page 110 of this prospectus and “Description of Rio Han’s Capital Stock—Election of Board of Directors” beginning on page 126 of this prospectus for a detailed description of the rules and procedures regarding the nomination and election of Rio Han’s board members and executive officers.

Stock Exchange Listings (see page 57)

          Upon the effectiveness of the merger, Rio Han will apply to register as a public company with the CVM and to list the Rio Han common shares to be issued in the merger on the Novo Mercado segment of the BOVESPA under the ticker symbol “EMBR3,” which is currently the ticker symbol for the Embraer common shares.  Rio Han anticipates the registration and listing process to be completed within approximately 60 days from the date of the filing of its applications with the CVM and the BOVESPA.  Until Rio Han is registered as a public company with the CVM and the Rio Han common shares are listed on the BOVESPA, holders of Embraer common and preferred shares may continue to trade their Embraer shares under their current ticker symbols “EMBR3” and “EMBR4,” respectively. 

          Rio Han will also submit a listing application to the NYSE to list the Rio Han ADSs to be issued to holders of Embraer ADSs in the merger under the ticker symbol “ERJ,” which is currently the ticker symbol for the Embraer ADSs.  Until the Rio Han ADSs are authorized for listing on the NYSE, holders of Embraer ADSs may continue to trade their Embraer ADSs, without interruption, under their current ticker symbol.  Rio Han expects that the Rio Han ADSs will be authorized for listing on the NYSE, subject to official notice of issuance, by the same time that Rio Han is registered as a public company with the CVM and the Rio Han common shares are listed on the BOVESPA.

15



Rights of the Golden Share (see page 125)

          All rights to which the Brazilian Government is entitled in its capacity as holder of the Golden Share pursuant to Embraer’s bylaws will be fully maintained in Rio Han’s proposed bylaws, including the right to appoint one member to Rio Han’s Board of Directors.

          In addition, Rio Han’s proposed bylaws provide that:

 

any shareholder or group of shareholders that acquires or becomes the holder of (i) 35% or more of the total shares issued by Rio Han or (ii) other rights over shares issued by Rio Han that represent more than 35% of its capital will be required to make a public tender offer to purchase all of the shares issued by Rio Han on the terms specified in Rio Han’s proposed bylaws or to sell all of such shareholders’ shares that exceed the 35% limit, in either case, as required by the Brazilian Government; and

 

 

 

 

the Brazilian Government will have veto powers in connection with certain matters contained in Rio Han’s bylaws.

          See “Description of Rio Han’s Capital Stock—Rights of the Golden Share” on page 125 of this prospectus for further details regarding the Golden Share.

Lock-up of Certain Shareholders (see page 63)

          Immediately after approval of the merger, a proposal will be submitted to the general meeting of Rio Han shareholders, as set forth in the Merger Agreement, to approve a restriction on transfers of Rio Han common shares by the current controlling shareholders of Rio Han and the management of Rio Han for a period of six months after the effectiveness of the merger.  Rio Han expects that this proposal will be approved at the meeting as the current controlling shareholders of Rio Han have indicated that they intend to vote in favor of this proposal.

Comparison of Rights of Holders of Embraer Preferred Shares and Rio Han Common Shares (see page 117)

          If you hold Embraer preferred shares or Embraer ADSs, once you receive Rio Han common shares or Rio Han ADSs, respectively, your rights as a shareholder of Rio Han will be different in certain respects from your current rights.  As a holder of Rio Han common shares, you may personally attend and vote at any and all general meetings of Rio Han shareholders, subject to certain limitations applicable to all Rio Han common shareholders, and you will receive the same amount of dividends per share payable to all other shareholders, instead of the current entitlement to dividends in an amount per share at least 10% higher than any dividend conferred upon each Embraer common share.  For a more detailed description of the rights of holders of Rio Han common shares, see “Description of Rio Han’s Capital Stock—Rights of Common Shares” beginning on page 117 of this prospectus.

Limitations on Voting Rights of Certain Rio Han Shareholders (see page 120)

          Rio Han’s proposed bylaws provide that, at any general meeting of Rio Han shareholders, no shareholder or group of shareholders may exercise votes representing more than 5% of the quantity of shares into which the capital stock of Rio Han is divided.  Votes that exceed this 5% threshold will not be counted.  For further information, see “Description of Rio Han’s Capital Stock—Limitations on the Voting Rights of Certain Holders of Common Shares” beginning on page 120 of this prospectus.

          In order to comply with the edital (invitation to bid) issued by the Brazilian Government in connection with the privatization of Embraer in 1994, which limited the participation in the voting capital of Embraer by non-Brazilian shareholders to 40%, Rio Han’s proposed bylaws provide that, at any general meeting of Rio Han shareholders, non-Brazilian shareholders may not exercise voting rights representing in total more than 2/3 of the total votes that can be exercised by the Brazilian shareholders present at such meeting.  The total number of votes that may be exercised by Brazilian shareholders and by non-Brazilian shareholders will be assessed after giving effect to the 5% voting limitation discussed above.  Votes of non-Brazilian shareholders that exceed this 2/3 threshold will not be counted.

16



          If the total vote of non-Brazilian shareholders at any general meeting of Rio Han shareholders exceeds 2/3 of the votes that may be exercised by the Brazilian shareholders present at such meeting, the number of votes of each non-Brazilian shareholder will be proportionately reduced so that the total vote of non-Brazilian shareholders does not exceed 2/3 of the total votes that can be exercised by Brazilian shareholders present at such meeting.  The objective of this 2/3 limitation is to ensure that Brazilian shareholders constitute a majority of the total votes cast at any general meeting of Rio Han shareholders and will effectively prevent the takeover of Rio Han by non-Brazilian shareholders.  The limitation applicable to Rio Han’s non-Brazilian shareholders only restricts voting rights without, however, preventing non-Brazilian shareholders from participating in the capital stock or receiving dividends based on their effective shareholding.  Therefore, rights such as the participation in the distribution of profits, participation in the net assets in case of liquidation, inspection of management’s activities, and preemptive rights in the subscription of new shares and convertible securities, as well as the right to exercise appraisal rights as provided by applicable law, shall not be affected.  See “Description of Rio Han’s Capital Stock—Limitation on the Voting Rights of Non-Brazilian Shareholders” beginning on page 121 of this prospectus for a further discussion of this limitation and examples of its application.

Mechanism to Promote Dispersed Ownership of Rio Han’s Shares (see page 128)

          Rio Han’s proposed bylaws contain provisions that have the effect of avoiding concentration of Rio Han shares in the hands of one investor or a small group of investors in order to promote more dispersed ownership of its shares.  These provisions require any shareholder or group of shareholders that acquires or becomes the holder of (i) 35% or more of the total shares issued by Rio Han or (ii) other rights over shares issued by Rio Han that represent more than 35% of its capital to make a public tender offer to purchase all of the shares issued by Rio Han on the terms specified in Rio Han’s proposed bylaws or to sell all of such shareholders’ shares that exceed the 35% limit, in either case, as required by the Brazilian Government.  For purposes of calculating the 35% limit, the calculation shall not include involuntary percentage increases resulting from the cancellation of treasury shares.

          Rio Han’s proposed bylaws will further require the mandatory disclosure, by means of a notice to Rio Han and to the exchanges on which its securities are traded, of the acquisition of shares that together with those already held by such shareholder exceed 5% of Rio Han’s total capital stock, subject to the potential suspension of all voting rights of the shares held by such shareholder, if a resolution is approved at a general meeting of Rio Han shareholders specially called by Rio Han’s management to discuss the matter.

17



SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

          The following information is provided to aid you in your analysis of the financial aspects of the proposed restructuring and merger. 

          Rio Han was formed on September 2, 2005 as a closed company, and has not carried on any activities other than in connection with the proposed restructuring and merger.  At September 30, 2005, Rio Han had no material assets or liabilities and had only recorded a capital of US$21.34 in accordance with U.S. GAAP.  As a result, Rio Han has not prepared any historical financial statements at and for the one month ended September 30, 2005.

          The historical financial information of Embraer included in this prospectus is derived from the following financial statements:

 

the consolidated financial statements of Embraer at December 31, 2003 and 2004 and for the years ended December 31, 2002, 2003 and 2004, audited by Deloitte Touche Tohmatsu Auditores Independentes, or Deloitte, included in the Annual Report of Embraer on Form 20-F for the Fiscal Year Ended December 31, 2004 attached as Annex A to this prospectus;

 

 

 

 

the consolidated financial statements of Embraer at December 31, 2000 and 2001 and for the years ended December 31, 2000 and 2001, audited by Deloitte, that have not been included in this prospectus; and

 

 

 

 

the condensed consolidated financial statements of Embraer at and for the nine months ended September 30, 2005, subject to limited review by Deloitte, included in “Financial Statements” beginning on page F-1 of this prospectus.

          This summary historical financial information should be read together with these financial statements.

          You should also read Embraer’s selected historical financial information included in this prospectus in conjunction with (1) “Item 5. Operating and Financial Review and Prospects” and “Item 18. Financial Statements” included in the Annual Report of Embraer on Form 20-F for the Fiscal Year Ended December 31, 2004 attached as Annex A to this prospectus, (2) Embraer’s financial statements and related notes included in “Financial Statements” beginning on page F-1 of this prospectus, and (3) “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” beginning on page 74 of this prospectus.

          Embraer’s consolidated financial statements for the years ended December 2001, 2002, 2003 and 2004 have been prepared in accordance with U.S. GAAP.  Because Embraer exports more than 90% of its production and operates in an industry that uses the U.S. dollar as its currency of reference, Embraer’s management believes that the U.S. dollar is its functional currency and the most appropriate currency in which to present its financial statements.  As a result, amounts for all periods presented have been remeasured into U.S. dollars in accordance with the methodology set forth in Statement of Financial Accounting Standards No. 52, or SFAS 52.

          Embraer’s consolidated financial statements at and for the year ended December 2000 have been prepared in accordance with Brazilian GAAP, stated in Brazilian reais and adjusted for the effects of inflation.  Previously, amounts of net income and shareholders’ equity under Brazilian GAAP were reconciled to those that would have been reported under U.S. GAAP.

          Under U.S. GAAP, the merger of Embraer with and into Rio Han will be recorded using the historical carrying values of the assets and liabilities of Embraer.  The merger will be treated as a recapitalization that results in no change in accounting basis from the accounting basis of Embraer because, in accordance with U.S. GAAP, Embraer is regarded as the acquiring party for accounting purposes.  The creation of Rio Han, a holding company with no operations, and the subsequent merger with Embraer do not involve any new shareholders nor result in any one shareholder or group of shareholders obtaining unilateral control of Rio Han.

18



          As a result, Rio Han is not presenting pro forma combined financial information in this prospectus, with the exception of the unaudited pro forma earnings per share information of Embraer, giving pro forma effect to the proposed restructuring and merger contemplated in this prospectus.  The unaudited pro forma earnings per share information is included in “Summary Comparative Per Share Data” beginning on page 24 of this prospectus.

          The unaudited pro forma earnings per share information of Embraer presented in this prospectus gives effect to estimates made by Embraer’s management and assumes that none of the holders of Embraer common shares will exercise their appraisal rights.

          The unaudited pro forma earnings per share data of Embraer was prepared for illustrative purposes only.  This information does not purport to represent what historical earnings per share Embraer would have had if the proposed restructuring and merger had occurred before such period or the future earnings per share that Rio Han will experience after the proposed restructuring and merger is implemented.

19



Summary of Selected Historical Financial Information of Rio Han

          Rio Han was formed on September 2, 2005 as a closed company, and has not carried on any activities other than in connection with the proposed restructuring and merger.  At September 30, 2005, Rio Han had no material assets and liabilities and had only recorded a capital of US$21.34 in accordance with U.S. GAAP.  As a result, Rio Han has not prepared any historical financial statements at and for the one month ended September 30, 2005.

20



Summary of Selected Historical Financial Information of Embraer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At and for the
year ended December 31,

 

At and for the nine months
ended September 30,

 

 

 


 


 

 

 

2000

 

2001

 

2002

 

2003

 

2004

 

2004

 

2005

 

 

 



 



 



 



 



 



 



 

 

 

(In thousands of U.S. dollars, except per share/ADS data)

 

Income Statement Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

2,762,162

 

 

2,926,995

 

 

2,525,800

 

 

2,143,460

 

 

3,440,533

 

 

2,486,999

 

 

2,640,049

 

Cost of sales and services

 

 

(1,879,318

)

 

(1,769,234

)

 

(1,531,720

)

 

(1,335,032

)

 

(2,267,330

)

 

(1,672,283

)

 

(1,817,226

)

Gross profit

 

 

882,844

 

 

1,157,761

 

 

994,080

 

 

808,428

 

 

1,173,203

 

 

814,716

 

 

822,823

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling expenses

 

 

(193,420

)

 

(212,057

)

 

(211,015

)

 

(206,246

)

 

(342,883

)

 

(266,317

)

 

(177,933

)

Research and development

 

 

(69,593

)

 

(99,566

)

 

(158,499

)

 

(173,216

)

 

(44,506

)

 

(5,435

)

 

(62,095

)

General and administrative expenses

 

 

(96,645

)

 

(120,787

)

 

(109,673

)

 

(114,743

)

 

(139,357

)

 

(97,011

)

 

(138,945

)

Employee profit sharing

 

 

(41,770

)

 

(43,746

)

 

(25,222

)

 

(20,399

)

 

(61,199

)

 

(42,956

)

 

(35,166

)

Other operating expense, net

 

 

(19,275

)

 

(30,227

)

 

(20,109

)

 

(29,009

)

 

(41,272

)

 

(600

)

 

(18,367

)

 

 



 



 



 



 



 



 



 

Total operating expenses

 

 

(420,703

)

 

(506,383

)

 

(524,518

)

 

(543,613

)

 

(629,217

)

 

(412,319

)

 

(432,506

)

 

 



 



 



 



 



 



 



 

Income from operations

 

 

462,141

 

 

651,378

 

 

469,562

 

 

264,815

 

 

543,986

 

 

402,397

 

 

390,317

 

Non-operating income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expenses), net

 

 

(6,874

)

 

47,502

 

 

80,456

 

 

(140,755

)

 

(38,000

)

 

4,548

 

 

(25,393

)

Exchange loss, net

 

 

(24,637

)

 

(148,637

)

 

(135,647

)

 

(16,500

)

 

(12,218

)

 

(4,968

)

 

(19,520

)

Other non-operating income (expenses), net

 

 

5,955

 

 

(8,426

)

 

(1,394

)

 

711

 

 

(117

)

 

13

 

 

(725

)

 

 



 



 



 



 



 



 



 

Total non-operating income (expense)

 

 

(25,556

)

 

(109,561

)

 

(56,585

)

 

(156,544

)

 

(50,335

)

 

(407

)

 

(45,638

)

 

 



 



 



 



 



 



 



 

Income before income taxes

 

 

436,585

 

 

541,817

 

 

412,977

 

 

108,271

 

 

493,651

 

 

401,990

 

 

344,679

 

Income tax benefit (expenses)

 

 

(117,379

)

 

(218,394

)

 

(188,502

)

 

27,990

 

 

(112,139

)

 

(103,431

)

 

(47,530

)

Income before minority interest

 

 

319,206

 

 

323,423

 

 

224,475

 

 

136,261

 

 

381,512

 

 

298,559

 

 

297,149

 

Minority interest

 

 

1,522

 

 

(423

)

 

(1,883

)

 

(217

)

 

(1,306

)

 

(1,321

)

 

(7,454

)

Income before cumulative effect of accounting change

 

 

320,728

 

 

323,000

 

 

222,592

 

 

136,044

 

 

380,206

 

 

297,238

 

 

289,695

 

Cumulative effect of accounting change, net of tax

 

 

 

 

 

5,440

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

 



 



 



 



 



 



 



 

Net income

 

 

320,728

 

 

328,440

 

 

222,592

 

 

136,044

 

 

380,206

 

 

297,238

 

 

289,695

 

 

 



 



 



 



 



 



 



 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common share – basic (1) (3) (6)

 

 

0.55

 

 

0.48

 

 

0.30

 

 

0.18

 

 

0.50

 

 

0.39

 

 

0.38

 

Preferred share – basic (1) (3) (6)

 

 

0.61

 

 

0.53

 

 

0.33

 

 

0.20

 

 

0.55

 

 

0.43

 

 

0.41

 

ADS – basic (1) (3) (6)

 

 

2.43

 

 

2.11

 

 

1.32

 

 

0.79

 

 

2.18

 

 

1.72

 

 

1.64

 

Common share – diluted (2) (3) (6)

 

 

0.48

 

 

0.46

 

 

0.30

 

 

0.18

 

 

0.49

 

 

0.38

 

 

0.37

 

Preferred share – diluted (2) (3) (6)

 

 

0.53

 

 

0.50

 

 

0.33

 

 

0.20

 

 

0.54

 

 

0.42

 

 

0.41

 

ADS – diluted (2) (3) (6)

 

 

2.10

 

 

2.01

 

 

1.31

 

 

0.78

 

 

2.17

 

 

1.68

 

 

1.65

 

Dividends per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common share (3) (4) (5)

 

 

0.220623

 

 

0.235248

 

 

0.173256

 

 

0.088174

 

 

0.166520

 

 

0.166520

 

 

0.194306

 

Preferred share (3) (4) (5)

 

 

0.242686

 

 

0.258763

 

 

0.190578

 

 

0.096991

 

 

0.183169

 

 

0.183169

 

 

0.213737

 

ADS (3) (4) (5)

 

 

0.970744

 

 

1.035052

 

 

0.762312

 

 

0.387964

 

 

0.732676

 

 

0.732676

 

 

0.854948

 

Weighted averaged number of shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common share – basic (3)

 

 

242,544

 

 

242,544

 

 

242,544

 

 

242,544

 

 

242,544

 

 

242,544

 

 

242,544

 

Preferred share – basic (3)

 

 

308,401

 

 

402,035

 

 

454,414

 

 

471,228

 

 

474,994

 

 

475,411

 

 

478,219

 

Common share – diluted (3)

 

 

242,544

 

 

242,544

 

 

242,544

 

 

242,544

 

 

242,544

 

 

242,544

 

 

242,544

 

Preferred share – diluted (3)

 

 

392,954

 

 

433,386

 

 

459,415

 

 

474,840

 

 

479,217

 

 

479,822

 

 

481,746

 

21



 

 

At and for the
year ended December 31,

 

At and for the
nine months
ended
September 30,

 

 

 


 


 

 

 

2000

 

2001

 

2002

 

2003

 

2004

 

2005

 

 

 



 



 



 



 



 



 

 

 

(In thousands of U.S. dollars, except per share/ADS data)

 

Balance Sheet Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

1,189,231

 

 

749,302

 

 

656,822

 

 

1,265,820

 

 

1,207,288

 

 

976,093

 

Temporary cash investments

 

 

—  

 

 

—  

 

 

—  

 

 

4,320

 

 

153,488

 

 

821,515

 

Other current assets

 

 

920,278

 

 

1,816,046

 

 

1,856,301

 

 

2,076,726

 

 

2,514,733

 

 

2,998,589

 

Property, plant and equipment, net

 

 

254,965

 

 

366,481

 

 

436,715

 

 

402,663

 

 

381,265

 

 

399,372

 

Other long-term assets

 

 

528,942

 

 

628,958

 

 

1,335,626

 

 

2,331,006

 

 

1,825,625

 

 

1,829,251

 

 

 



 



 



 



 



 



 

Total assets

 

 

2,893,416

 

 

3,560,787

 

 

4,285,464

 

 

6,080,535

 

 

6,082,399

 

 

7,024,820

 

 

 



 



 



 



 



 



 

Short-term loans and financing

 

 

365,043

 

 

526,550

 

 

244,526

 

 

517,014

 

 

513,281

 

 

576,887

 

Other current liabilities

 

 

967,283

 

 

1,161,313

 

 

1,397,407

 

 

1,929,181

 

 

1,802,820

 

 

2,032,630

 

Long-term loans and financing

 

 

90,969

 

 

245,186

 

 

308,110

 

 

526,728

 

 

825,448

 

 

1,123,752

 

Other long-term liabilities

 

 

677,013

 

 

599,212

 

 

1,237,015

 

 

1,925,776

 

 

1,565,539

 

 

1,737,483

 

Minority interest

 

 

7,748

 

 

8,170

 

 

8,226

 

 

12,611

 

 

21,443

 

 

46,110

 

Shareholders’ equity

 

 

785,360

 

 

1,020,356

 

 

1,090,180

 

 

1,169,225

 

 

1,353,868

 

 

1,507,958

 

 

 



 



 



 



 



 



 

Total liabilities and shareholders’ equity

 

 

2,893,416

 

 

3,560,787

 

 

4,285,464

 

 

6,080,535

 

 

6,082,399

 

 

7,024,820

 

 

 



 



 



 



 



 



 


 

 

For the
year ended December 31,

 

For the nine months
ended September 30,

 

 

 


 


 

 

 

2000

 

2001

 

2002

 

2003

 

2004

 

2004

 

2005

 

 

 



 



 



 



 



 



 



 

 

 

(In thousands of U.S. dollars, except per share/ADS data)

 

Other Financial Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

 

1,103,674

 

 

(207,388

)

 

575,653

 

 

239,634

 

 

3,301

 

 

192,027

 

 

195,096

 

Net cash used in investing activities

 

 

(90,996

)

 

(162,760

)

 

(104,216

)

 

(72,667

)

 

(217,781

)

 

(85,371

)

 

(720,440

)

Net cash provided by (used in) financing activities

 

 

(85,250

)

 

134,379

 

 

(352,435

)

 

403,791

 

 

105,220

 

 

7,374

 

 

206,832

 

Depreciation and amortization

 

 

30,596

 

 

46,417

 

 

55,602

 

 

58,877

 

 

59,685

 

 

44,250

 

 

52,190

 


 


 

(1)

Based on weighted average number of shares outstanding.  See Note 25 to Embraer’s consolidated financial statements included in Item 18 of the Annual Report of Embraer on Form 20-F for the Fiscal Year Ended December 31, 2004 attached as Annex A to this prospectus.

 

(2)

Based on weighted average number of shares outstanding and the effects of potentially dilutive securities.  See Note 25 to Embraer’s consolidated financial statements included in Item 18 of the Annual Report of Embraer on Form 20-F for the Fiscal Year Ended December 31, 2004 attached as Annex A to this prospectus

 

(3)

Restated to give effect to the issuance on March 1, 2002, in the form of a preferred share dividend, of 0.142106 new preferred share for each existing preferred or common share.

 

(4)

Includes interest on shareholders’ equity.

 

(5)

Translated from nominal reais into U.S. dollars at the commercial selling rates in effect on the dates that distributions were approved during the period.  The dividends to the ADSs were adjusted from the total amount paid to the preferred shares multiplied by four.

 

(6)

In 2001, Embraer adopted SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” as amended.  As a result, Embraer recognized a gain of US$5.4 million, net of related taxes, as a cumulative effect of a change in accounting.  The following summarizes the earnings per share impact related to the adoption of SFAS No. 133.

 

 

 


 

 

 

2001

 

 

 

 


 

 

Effect of tax adjustments

 

—  

 

 

Effect of cumulative effect of change In accounting

 

5,440

 

 

 

 


 

 

Total

 

5,440

 

 

 

 


 

 

Basic earnings per common share

 

0.01

 

 

Basic earnings per preferred share

 

0.01

 

 

Basic earnings per ADS

 

0.04

 

 

Diluted earnings per common share

 

0.01

 

 

Diluted earnings per preferred share

 

0.01

 

 

Diluted earnings per ADS

 

0.04

 

22



 

 

At and for the
year ended December 31,

 

At and for the nine months
ended September 30,

 

 

 


 


 

 

 

2000

 

2001

 

2002

 

2003

 

2004

 

2004

 

2005

 

 

 



 



 



 



 



 



 



 

Other Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aircraft delivered during period (1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To the Commercial Airline Market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EMB 120 Brasília

 

 

—  

 

 

2

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

ERJ 145

 

 

112

 

 

104

 

 

82

 

 

57

 

 

87

(5)

 

64

(3)

 

40

 

ERJ 135

 

 

45

 

 

27

 

 

3

 

 

14

 

 

1

(1)

 

—  

 

 

2

 

ERJ 140

 

 

—  

 

 

22

 

 

36

 

 

16

 

 

—  

 

 

—  

 

 

—  

 

EMBRAER 170

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

46

 

 

36

 

 

35

(1)

EMBRAER 175

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

9

 

EMBRAER 190

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

2

 

To the Defense Market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EMB 120 Brasília

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

Legacy 600

 

 

—  

 

 

—  

 

 

1

 

 

—  

 

 

—  

 

 

—  

 

 

4

 

EMB 145

 

 

—  

 

 

—  

 

 

1

 

 

1

 

 

1

 

 

1

 

 

1

 

EMB 135

 

 

1

 

 

2

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

EMB 145 AEW&C/RS/MP

 

 

—  

 

 

1

 

 

5

 

 

3

 

 

6

 

 

5

 

 

1

 

EMB 312 Tucano / AL-X

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

7

 

 

3

 

 

14

 

AM-X

 

 

1

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

To the Business Jet Market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy 600

 

 

—  

 

 

—  

 

 

8

 

 

11

(2)

 

13

 

 

5

 

 

8

 

EMB 135

 

 

2

 

 

5

 

 

—  

 

 

2

 

 

—  

 

 

 

 

 

 

 

To the General Aviation Market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Light Propeller Aircraft

 

 

17

 

 

11

 

 

25

 

 

46

 

 

70

 

 

32

 

 

26

 

 

 



 



 



 



 



 



 



 

Total delivered

 

 

178

 

 

174

 

 

161

 

 

150

 

 

231

 

 

146

 

 

142

 

 

 



 



 



 



 



 



 



 

Aircraft in backlog at the end of period:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In the Commercial Airline Market (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EMB 120 Brasília

 

 

2

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

ERJ 145

 

 

261

 

 

159

 

 

109

 

 

144

 

 

66

 

 

109

 

 

16

 

ERJ 135

 

 

85

 

 

53

 

 

31

 

 

17

 

 

17

 

 

19

 

 

15

 

ERJ 140

 

 

133

 

 

152

 

 

116

 

 

20

 

 

20

 

 

20

 

 

20

 

EMBRAER 170

 

 

90

 

 

82

 

 

88

 

 

120

 

 

112

 

 

119

 

 

108

 

EMBRAER 175

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

15

 

 

—  

 

 

13

 

EMBRAER 190

 

 

—  

 

 

—  

 

 

—  

 

 

110

 

 

155

 

 

155

 

 

182

 

EMBRAER 195

 

 

30

 

 

30

 

 

30

 

 

15

 

 

15

 

 

15

 

 

29

 

In the Defense Market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EMB 145 AEW&C/RS/MP

 

 

12

 

 

15

 

 

10

 

 

7

 

 

1

 

 

2

 

 

—  

 

EMB 312 Tucano/EMB 314 Super Tucano

 

 

—  

 

 

86

 

 

86

 

 

76

 

 

69

 

 

73

 

 

55

 

EMB 145

 

 

2

 

 

1

 

 

—  

 

 

1

 

 

—  

 

 

—  

 

 

—  

 

EMB 135

 

 

2

 

 

1

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

EMBRAER 170

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

2

 

EMBRAER 190

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

—  

 

 

1

 

Legacy 600

 

 

—  

 

 

—  

 

 

—  

 

 

5

 

 

5

 

 

5

 

 

2

 

In the Business Jet Market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legacy 600/EMB 135

 

 

29

 

 

66

 

 

58

 

 

27

 

 

4

 

 

23

 

 

12

 

In the General Aviation Market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Light Propeller Aircraft

 

 

—  

 

 

—  

 

 

—  

 

 

11

 

 

25

 

 

45

 

 

8

 

 

 



 



 



 



 



 



 



 

Total backlog (in aircraft)

 

 

646

 

 

645

 

 

528

 

 

553

 

 

504

 

 

585

 

 

463

 

 

 



 



 



 



 



 



 



 

Total backlog (in millions)

 

 

11,421

 

 

10,693

 

 

9,034

 

 

10,591

 

 

10,097

 

 

11,048

 

 

10,415

 


 


 

(1)

Deliveries identified in parentheses correspond to aircraft delivered under operating leases.

 

 

 

 

(2)

Since September 30, 2005, Embraer has received five additional firm orders for its ERJ 145 regional jet family, 13 additional firm orders for its EMBRAER 170/190 jet family and 59 firm orders for its EMBRAER 170 aircraft were converted into 59 firm orders for the EMBRAER 190 aircraft.

23



Summary Comparative Per Share Data

          Set forth below is Embraer’s book value, cash dividend and income (loss) from continuing operations per share data on both a historical and an unaudited pro forma combined basis under U.S. GAAP.

          The unaudited pro forma earnings per share information of Embraer presented in this prospectus gives effect to estimates made by Embraer’s management and assumes that none of the holders of Embraer common shares will exercise their appraisal rights.

          The unaudited pro forma earnings per share data of Embraer was prepared for illustrative purposes only.  This information does not purport to represent what historical earnings per share Embraer would have had if the proposed restructuring and merger had occurred before such period or the future earnings per share that Rio Han will experience after the proposed restructuring and merger is implemented.

          Rio Han was formed on September 2, 2005 as a closed company and has not carried on any activities other than in connection with the proposed restructuring and merger.  At September 30, 2005 Rio Han had no material assets or liabilities and had only recorded a capital of US$21.34 in accordance with U.S. GAAP.  As a result, Rio Han has not prepared any historical financial statements at and for the one month ended September 30, 2005.

          Embraer’s per share information on a historical (U.S. GAAP) and on a pro forma basis for the nine months ended September 30, 2005 are summarized below.  The pro forma information gives effect to the restructuring and merger contemplated in this prospectus.  You should read this information in conjunction with Embraer’s historical financial statements and related notes contained in the report and other information of Embraer attached to this prospectus, and presented elsewhere in the prospectus.  You should not rely on the pro forma information as being indicative of the historical results Embraer would have had if the restructuring had occurred before such period or the future results that Rio Han will experience after the proposed restructuring and merger is implemented.

 

 

Embraer

 

 

 


 

 

 

Historical

 

Combined
 Pro Forma

 

 

 



 



 

Statement of Income Data – Year End December 31, 2002

 

 

 

 

 

 

 

Basic (loss)/earnings

 

 

 

 

 

 

 

Per Common Share:

 

 

0.30

 

 

0.31

 

Per Preferred Share:

 

 

0.33

 

 

—  

 

Diluted (loss)/earnings

 

 

 

 

 

 

 

Per Common Share:

 

 

0.30

 

 

0.31

 

Per Preferred Share:

 

 

0.33

 

 

—  

 

Dividend

 

 

 

 

 

 

 

Per Common Share:

 

 

0.17

 

 

0.21

 

Per Preferred Share:

 

 

0.19

 

 

—  

 

 

 

 

 

 

 

 

 

 

 

Embraer

 

 

 


 

 

 

Historical

 

Combined
Pro Forma

 

 

 



 



 

Statement of Income Data – Year End December 31, 2003

 

 

 

 

 

 

 

Basic (loss)/earnings

 

 

 

 

 

 

 

Per Common Share:

 

 

0.18

 

 

0.19

 

Per Preferred Share:

 

 

0.20

 

 

—  

 

Diluted (loss)/earnings

 

 

 

 

 

 

 

Per Common Share:

 

 

0.18

 

 

0.19

 

Per Preferred Share:

 

 

0.20

 

 

—  

 

Dividend

 

 

 

 

 

 

 

Per Common Share:

 

 

0.09

 

 

0.09

 

Per Preferred Share:

 

 

0.10

 

 

—  

 

 

 

 

 

 

 

 

 

24



 

 

Embraer

 

 

 


 

 

 

Historical

 

Combined
 Pro Forma

 

 

 



 



 

Statement of Income Data – Year End December 31, 2004

 

 

 

 

 

 

 

Basic (loss)/earnings

 

 

 

 

 

 

 

Per Common Share:

 

 

0.50

 

 

0.52

 

Per Preferred Share:

 

 

0.55

 

 

—  

 

Diluted (loss)/earnings

 

 

 

 

 

 

 

Per Common Share:

 

 

0.49

 

 

0.51

 

Per Preferred Share:

 

 

0.54

 

 

—  

 

Dividend

 

 

 

 

 

 

 

Per Common Share:

 

 

0.17

 

 

0.28

 

Per Preferred Share:

 

 

0.18

 

 

—  

 

 

 

 

 

 

 

 

 

 

 

Embraer

 

 

 


 

 

 

Historical

 

Combined
Pro Forma

 

 

 



 



 

Balance Sheet Data as of December 31, 2004

 

 

 

 

 

 

 

Book value

 

 

 

 

 

 

 

Per Common Share:

 

 

1.88

 

 

1.84

 

Per Preferred Share:

 

 

1.87

 

 

—  

 

 

 

 

 

 

 

 

 

 

 

Embraer

 

 

 


 

 

 

Historical

 

Combined
Pro Forma

 

 

 



 



 

Statement of Income Data – Nine Months Ended September 30, 2005

 

 

 

 

 

 

 

Basic (loss)/earnings

 

 

 

 

 

 

 

Per Common Share:

 

 

0.38

 

 

0.39

 

Per Preferred Share:

 

 

0.41

 

 

—  

 

Diluted (loss)/earnings

 

 

 

 

 

 

 

Per Common Share:

 

 

0.37

 

 

0.39

 

Per Preferred Share:

 

 

0.41

 

 

—  

 

Dividend

 

 

 

 

 

 

 

Per Common Share:

 

 

0.19

 

 

0.19

 

Per Preferred Share:

 

 

0.21

 

 

—  

 

Balance Sheet Data as of September 30, 2005

 

 

 

 

 

 

 

Book value

 

 

 

 

 

 

 

Per Common Share:

 

 

2.09

 

 

2.04

 

Per Preferred Share:

 

 

2.08

 

 

—  

 

25



Comparative Per Share Market Data

          As Rio Han is a closed company, its common shares are not currently listed on the BOVESPA or any other securities exchange, and, therefore, there is no reported sale price of its shares. 

          Embraer ADSs are listed on the NYSE under the symbol “ERJ.”  Each ADS represents four preferred shares.  In addition, Embraer preferred shares are traded on the BOVESPA under the symbol “EMBR4.”  Embraer common shares are traded on the BOVESPA under the symbol “EMBR3.”

          The table below sets forth the high and low sale prices of Embraer ADSs as reported on the NYSE, Embraer common shares as reported on the BOVESPA and Embraer preferred shares as reported on the BOVESPA, on a historical basis, on January 12, 2006, the last trading day prior to the Notice to the Market issued by Embraer on January 13, 2006, in response to rumors about the proposed restructuring and merger published in a local newspaper, and on [______] [__], 2006, the last practicable trading day before the date of this prospectus.

 

 

January 12, 2006

 

[______] [__], 2006

 

 

 


 


 

 

 

High

 

Low

 

High

 

Low

 

 

 



 



 



 



 

Embraer common shares (actual) (reais)

 

 

19.80

 

 

19.01

 

 

 

 

 

 

 

Embraer preferred shares (actual) (reais)

 

 

23.50

 

 

23.12

 

 

 

 

 

 

 

Embraer ADSs (actual) (US$)

 

 

40.79

 

 

39.99

 

 

 

 

 

 

 

          The market prices of the Embraer common and preferred shares and the Embraer ADSs are subject to fluctuation.  As a result, Embraer shareholders are urged to obtain current market quotations.

26



RISK FACTORS

          Before making an investment decision, you should carefully consider the risk factors set forth below.

Risks Relating to the Proposed Restructuring and Merger

          The controlling shareholders of Embraer may have actual or potential conflicts of interest with respect to the proposed restructuring and merger.

          The controlling shareholders of Embraer may have actual or potential conflicts of interest because they have the power to elect a majority of members of the Board of Directors of Embraer.  The controlling shareholders of Embraer have not negotiated the terms of the proposed restructuring and merger with any person acting on behalf of the minority shareholders of Embraer, with the exception of the Brazilian Government, as holder of the Golden Share and Dassault Aviation S.A., Thales S.A., European Aeronautic Defence and Space Company EADS N.V. and Safran S.A., or collectively, the European Aerospace and Defense Group.

          Your ownership percentage in Rio Han will, as a result of the proposed restructuring and merger, be less than your ownership percentage in Embraer.

           As of the date of this prospectus, holders of Embraer shares other than Rio Han hold approximately 79.84% in the aggregate of the total capital stock of Embraer.  Upon the completion of the merger, Cia. Bozano, PREVI and SISTEL will realize a premium of 9% on the Embraer control shares transferred to Rio Han by virtue of the exchange ratio applicable to such transfer when compared to the exchange ratio applicable to the merger.  As a result of this premium and assuming no holders of Embraer common shares exercise their appraisal rights, holders of Embraer shares other than Rio Han will hold approximately 78.03% in the aggregate of the total capital stock of Rio Han following the merger.

          The proposed restructuring and merger may not result in the benefits that Embraer is seeking to achieve, including improving access to capital markets and increasing financing resources for the development of new products and expansion programs.

           Embraer is proceeding with the proposed restructuring and merger because it believes that the restructuring and merger will create a basis for the sustainability, growth and continuity of Embraer’s businesses and activities by simplifying the capital structure of Embraer and thereby improving its access to capital markets and increasing financing resources for the development of new products and expansion programs.  However, the proposed restructuring and merger may not accomplish these objectives, because, even though the proposed restructuring and merger will simplify the capital structure of Embraer, any future offerings of Rio Han common shares will depend upon, among other things, Rio Han’s future performance, market conditions, investor interest and general economic, political and business conditions both in Brazil and abroad.

          If the proposed restructuring and merger is not implemented, the ability of Embraer to access capital markets and to fund the development of new products and expansion programs may be adversely affected.

          The development of new products and expansion programs by Embraer as well as the sustainability, growth and continuity of Embraer’s businesses and activities depend on the ability of Embraer to access capital markets and increase financing resources.  Embraer’s current capital structure, which restricts its ability to issue common shares or preferred shares in excess of the maximum 1/3 to 2/3 proportion permissible under Brazilian law, significantly limits its ability to access capital markets and increase financing resources.  As such, if the proposed restructuring and merger is not implemented, the ability of Embraer to access capital markets and to fund the development of new products and expansion programs may be adversely affected.

27



          The proposed restructuring and merger may not result in an increase in liquidity of the shares to be received by Embraer shareholders in the merger.

           Embraer believes that the proposed restructuring and merger will benefit Embraer shareholders through, among other things, a potential increase in liquidity of the shares to be received by such shareholders in the merger resulting from the expected dispersed ownership of such shares.  However, the proposed restructuring and merger may not result in an increase in liquidity of such shares, in which case Embraer shareholders may experience a decrease in their ability to sell such shares as compared to their ability to sell their Embraer shares or Embraer ADSs.

          The exercise of appraisal rights by holders of Embraer common shares could decrease Rio Han’s cash balances after the restructuring and merger and otherwise adversely affect its financial condition.

          As described in “The Proposed Restructuring and Merger—Appraisal Rights” on page 56 of this prospectus, holders of Embraer common shares at the close of business on January 19, 2006 will be entitled to exercise appraisal rights in connection with the merger.  If holders of a significant number of Embraer common shares exercise their appraisal rights, the requirement to make large cash payments could decrease the cash balances of Rio Han, limit its ability to borrow funds or fund expansion plans or prevent it from complying with its contractual obligations, including financial covenants.  In addition, under the Brazilian Corporate Law, if the management of Rio Han believes that the total value of the appraisal rights exercised by Embraer common shares may put at risk the financial stability of Rio Han, the management of Rio Han may, within ten days after the end of the appraisal rights period, call an extraordinary general meeting of Rio Han shareholders to ratify or unwind the merger.

          There is no clear guidance under Brazilian law regarding the Brazilian income tax consequences to non-Brazilian investors resulting from a merger.

           There is no specific legislation, nor administrative or judicial precedent regarding the income tax consequences to Embraer shareholders resulting from a merger.  Based on the opinion of its Brazilian counsel, Rio Han believes that the merger should not be subject to income tax by a non-Brazilian holder of Embraer ADSs or by a U.S. holder of Embraer common or preferred shares that are registered as a foreign portfolio investment under Resolution 2,689/00 of the National Monetary Council or are registered as a foreign direct investment under Law No. 4,131/62.  Rio Han’s Brazilian counsel believes that it is unlikely that the merger will be deemed to be a taxable transaction under Brazilian law, particularly if the investor maintains as the cost of acquisition of Rio Han’s shares the cost of acquisition of Embraer’s shares, for Brazilian tax purposes.  However, capital gains by holders of Embraer common shares resulting from the exercise of appraisal rights will be taxable.

           In the event this position does not prevail and Brazilian tax authorities succeed in making a tax assessment regarding this matter, Rio Han would be liable to the Brazilian tax authorities for withholding and collecting the taxable capital gains of shareholders resident abroad, if any.  In no event would these shareholders be liable to Brazilian tax authorities.  However, Rio Han would be entitled to reimbursement from these shareholders.

          See “Material Tax Considerations—Material Brazilian Tax Considerations” beginning on page 102 of this prospectus for further details.

          The capital gain arising from a disposition of Rio Han common shares registered as a direct foreign investment in Brazil could be calculated based on the historical amount in Brazilian currency of the investment, rather than the amount in foreign currency registered with the Central Bank of Brazil.

          There is uncertainty concerning the currency to be used for the purposes of calculating the cost of acquisition of shares registered with the Central Bank of Brazil as a direct investment.  Rio Han’s Brazilian counsel believes that the capital gains should be based on the positive difference between the cost of acquisition of the shares in the applicable foreign currency and the value of disposition of those shares in the same foreign currency.  Recent precedents issued by the Brazilian administrative court support this belief.  However, tax authorities are not bound by these precedents and, accordingly, may continue to assess taxpayers who adopt this line of interpretation.  For more details on the taxation of capital gains in Brazil, see “Material Tax Considerations—Material Brazilian Tax Considerations” beginning on page 102 of this prospectus.

28



          There is no clear guidance under U.S. federal income tax law regarding the U.S. income tax consequences to U.S. holders of Embraer shares and ADSs resulting from a merger.

          There are no judicial or administrative authorities under the U.S. federal income tax laws that directly address the specific circumstances of the merger and share exchange and thus the U.S. federal income tax consequences of the merger and share exchange are not entirely clear.  Shearman & Sterling LLP, U.S. tax counsel to Embraer and Rio Han, is providing an opinion, based in part on customary representations and assumptions set forth in such opinion and by analogy to existing authority, that the merger and resulting share exchange should qualify as one or more “reorganizations” for U.S. federal income tax purposes.  In the event the merger and share exchange so qualify, the exchange of Embraer common shares, preferred shares and ADSs for Rio Han common shares and ADSs pursuant to the merger generally will be tax-free for such purposes to exchanging U.S. Holders (for the definition of “U.S. Holders,” see “Material Tax Considerations—Material United States Federal Income Tax Considerations” beginning on page 104 of this prospectus) of Embraer common shares, preferred shares and ADSs.  If, however, contrary to the opinion of U.S. tax counsel, the merger and related exchange of shares does not qualify for tax-free reorganization treatment, then the share exchange will be taxable to U.S. Holders of Embraer shares and ADSs on the exchange of their Embraer shares or ADSs for Rio Han common shares or ADSs pursuant to the merger.

          For a discussion of certain other U.S. tax matters that may be relevant to U.S. Holders, including qualification of dividends on Rio Han common shares or ADSs paid to certain U.S. Holders for the maximum rate of 15% and the treatment of U.S. Holders in the event that Embraer or Rio Han is treated as a Passive Foreign Investment Company or PFIC, please refer to the discussion of Material United States Federal Income Tax Considerations.  See “Material Tax Considerations—Material United States Federal Income Tax Considerations” beginning on page 104 of this prospectus.

          Unless waivers are obtained on a timely basis, the merger may cause the acceleration of the debt payments under certain financing agreements entered into by Embraer or by its subsidiaries.

          A substantial number of financing agreements entered into by Embraer or by its subsidiaries, under which Embraer is a guarantor of such subsidiaries’ debt, contain clauses that provide for acceleration in the payment of such debt in the case of a direct or indirect change of control in Embraer or in the event Embraer ceases to exist.  Upon the effectiveness of the merger, if Embraer is not successful in obtaining waivers from the lenders under such financing agreements, debt payments under those financing agreements may be accelerated, which might have an adverse effect on Embraer’s and, after the effectiveness of the merger, Rio Han’s financial condition and results of operations.

Risks Relating to Rio Han’s Common Shares and ADSs

          The Brazilian Government has veto power over, among other things, change of control, change of corporate purpose and creation and alteration of defense programs, and the Brazilian Government’s interests could conflict with the interests of the holders of Rio Han common shares or Rio Han ADSs.

          The Brazilian Government currently holds one special class of Embraer’s common stock, called a “Golden Share,” and will continue to hold such a Golden Share in the capital of Rio Han.  The Golden Share carries veto power over, among other things, change of control, change of corporate purpose and creation and alteration of defense programs (whether or not the Brazilian Government participates in such programs).  The Brazilian Government may have an interest in vetoing transactions that may be in the interests of the holders of Rio Han common shares or Rio Han ADSs.

29



          Exchange controls and restrictions on remittances abroad may adversely affect the holders of Rio Han common shares or Rio Han ADSs.

          The Brazilian Government may impose temporary restrictions on the conversion of Brazilian currency into foreign currencies and on the remittance to foreign investors of proceeds from their investments in Brazil.  The Brazilian Government imposed remittance restrictions for a number of months in 1989 and early 1990.  These restrictions would hinder or prevent the conversion of dividends, distributions or the proceeds from any sale of Rio Han common shares, as the case may be, from reais into U.S. dollars and the remittance of the U.S. dollars abroad.  Rio Han cannot assure you that the Brazilian Government will not take similar measures in the future.  Holders of Rio Han common shares and Rio Han ADSs could be adversely affected by delays in, or refusals to grant, any required governmental approval for conversion of real payments and remittances abroad in respect of the Rio Han common shares, including common shares underlying the ADSs.  In the case of Rio Han ADSs, the depositary for the ADSs will hold the reais it cannot convert for the account of the holders of Rio Han ADSs who have not been paid.  The depositary will not invest the reais and will not be liable for interest on those amounts.

          If holders of Rio Han ADSs exchange their ADSs for the underlying common shares, they risk losing the ability to remit foreign currency abroad and Brazilian tax advantages.

          After the implementation of the proposed restructuring and merger, the Brazilian custodian for the Rio Han common shares will obtain an electronic certificate of registration from the Central Bank of Brazil permitting it to remit foreign currency abroad for payments of dividends and other distributions relating to the Rio Han common shares or upon the disposition of the Rio Han common shares.  If holders of Rio Han ADSs decide to exchange their ADSs for the underlying common shares, they will be entitled to continue to rely on the custodian’s electronic certificate of registration for five business days from the date of exchange.  Thereafter, such holders of ADSs may not be able to obtain and remit foreign currency abroad upon the disposition of, or distributions relating to, their Rio Han common shares unless they obtain their own electronic certificate of registration or register their investment in Rio Han common shares pursuant to Resolution No. 2,689, which entitles certain foreign investors to buy and sell securities on the BOVESPA.  Holders who do not qualify under Resolution No. 2,689 will generally be subject to less favorable tax treatment on gains with respect to their Rio Han common shares.  If holders of Rio Han ADSs attempt to obtain their own electronic certificate of registration, they may incur expenses or suffer delays in the application process, which could delay their ability to receive dividends or distributions relating to the Rio Han common shares or the return of their capital in a timely manner.  In addition, Rio Han cannot assure you that the custodian’s electronic certificate of registration or any certificate of foreign capital registration obtained by a holder of Rio Han ADSs will not be affected by future legislative or other regulatory changes, or that additional restrictions applicable to such holder, to the disposition of the underlying Rio Han common shares or to the repatriation of the proceeds from such disposition will not be imposed in the future.

          Substantial sales of Rio Han common shares after the merger could cause the price of Rio Han common shares to decrease.

          Cia. Bozano, PREVI and SISTEL, have agreed that they will not issue or transfer, for six months after the effectiveness of the merger, Rio Han common shares, or any securities convertible into, or exchangeable for, or that represent the right to receive, Rio Han common shares.  After this lock-up expires, common shares that they own will, subject to applicable law, be eligible for sale in the public market.  The market price of Rio Han’s common shares could drop if Cia. Bozano, PREVI or SISTEL sell a substantial amount of Rio Han common shares or the market perceives that they intend to sell all or some of their shares.

           Holders of Rio Han common shares and ADSs may not receive any dividends.

          According to Rio Han’s proposed bylaws, Rio Han must generally pay its shareholders at least 25% of its adjusted net income in the form of dividends.  This adjusted net income may be appropriated as allowed under the Brazilian Corporate Law and may not be available to be paid as dividends.  In addition, Rio Han may elect not to pay dividends to its shareholders in any particular fiscal year if its Board of Directors determines that it does not have sufficient adjusted net income (or accumulated retained earnings) to distribute dividends, or that the distribution of dividends would be incompatible with Rio Han’s financial condition at the time.  As Rio Han has been recently incorporated and has had no operations, it has not yet distributed any dividends.

30



          Rio Han’s proposed bylaws contain provisions that could discourage its acquisition or prevent or delay transactions that you may favor.

          Rio Han’s proposed bylaws contain provisions that have the effect of avoiding the concentration of its common shares in the hands of a small group of investors so as to promote the dispersed ownership of such shares.  These provisions require any shareholder or group of shareholders that acquires or becomes the holder of (i) 35% or more of the total shares issued by Rio Han or (ii) other rights over shares issued by Rio Han that represent more than 35% of its capital to make a public tender offer to purchase all of the shares issued by Rio Han on the terms specified in Rio Han’s proposed bylaws or to sell all of such shareholders’ shares that exceed the 35% limit, in either case, as required by the Brazilian Government.  If the request is approved, such shareholder or group of shareholders must commence the public tender offer within 60 days of the date of approval.  If the request is refused, such shareholder or group of shareholders must sell such number of common shares within 30 days so that the holding of such shareholder group of shareholders is less than 35% of Rio Han’s capital stock.  These provisions may have anti-takeover effects and may discourage, delay or prevent a merger or acquisition, including transactions in which Rio Han shareholders might otherwise receive a premium for their common shares.  See “Description of Rio Han’s Capital Stock—Mechanism to Promote Dispersed Ownership of Rio Han’s Shares” beginning on page 128 of this prospectus. 

          Upon the implementation of the restructuring and merger, the absence of a single, controlling shareholder or group of controlling shareholders may leave Rio Han susceptible to shareholder disputes or other unanticipated developments.

          The absence of a single, controlling shareholder or group of controlling shareholders may create difficulties for Rio Han’s new shareholders to approve certain transactions, because the minimum quorum required by law for the approval of certain matters may not be reached.  Rio Han and other minority shareholders may not be afforded the same protections provided by the Brazilian Corporate Law against abusive measures taken by other shareholders and, as a result, may not be compensated for any losses incurred.  Any sudden and unexpected changes in Rio Han’s management team, changes in its corporate policies or strategic direction, takeover attempts or any disputes among shareholders regarding their respective rights may adversely affect Rio Han’s business and results of operations.

          Rio Han’s proposed bylaws contain provisions that limit the voting rights of certain shareholders including non-Brazilian shareholders.

          Rio Han’s proposed bylaws contain provisions that limit the right of a shareholder or group of shareholders to exercise voting rights in respect of more than 5% of the outstanding shares of Rio Han capital stock at any general meeting of shareholders.  See “Description of Rio Han’s Capital Stock—Limitation on the Voting Rights of Certain Holders of Common Shares” beginning on page 120 of this prospectus.

          Rio Han’s proposed bylaws also contain provisions that limit the right of non-Brazilian shareholders to exercise voting rights in respect of more than 2/3 of the voting rights that may be exercised by Brazilian shareholders present at any general meeting of shareholders.  This limitation will effectively prevent the takeover of Rio Han by non-Brazilian shareholders and limit the ability of non-Brazilian shareholders to effect control over Rio Han.  See “Description of Rio Han’s Capital Stock—Limitation on the Voting Rights of Non-Brazilian Shareholders” beginning on page 121 of this prospectus. 

          Holders of Rio Han ADSs might be unable to exercise preemptive rights with respect to the underlying common shares.

           Holders of Rio Han ADSs may not be able to exercise the preemptive rights relating to the common shares underlying their ADSs unless a registration statement under the U.S. Securities Act of 1933, as amended, or the Securities Act, is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available.  Rio Han is not obligated to file a registration statement with respect to the shares or other securities relating to these preemptive rights and Rio Han cannot assure holders of Rio Han ADSs that it will file any such registration statement.  Unless Rio Han files a registration statement or an exemption from registration applies, holders of its ADSs may receive only the net proceeds from the sale of their preemptive rights by the depositary or, if the preemptive rights cannot be sold, the rights will be allowed to lapse.

31



EXTRAORDINARY GENERAL MEETING OF EMBRAER SHAREHOLDERS

Extraordinary General Meeting

          Rio Han and Embraer have prepared this prospectus to provide Embraer shareholders with important information about the proposed restructuring, including important information about the merger, the Rio Han common shares (including common shares represented by Rio Han ADSs) to be issued to Embraer shareholders in the merger and the procedures to be followed by Embraer shareholders to attend and vote at the extraordinary general meeting of Embraer shareholders to approve the merger.

Date, Time, Place and Purpose of the Extraordinary General Meeting

          Embraer will hold the extraordinary general meeting of Embraer shareholders at [____] a.m., local time, on [__________], 2006, at Embraer’s principal executive offices at Avenida Brigadeiro Faria Lima, 2170, City of São José dos Campos, State of São Paulo, Brazil.

          Even though under Brazilian law holders of Embraer preferred shares and, consequently, Embraer ADSs, do not have the right to vote on the merger, the Board of Directors of Embraer proposes to extend voting rights to all holders of preferred shares, including preferred shares represented by Embraer ADSs, in respect of all proposals relating to the merger.  At the extraordinary general meeting of Embraer shareholders, holders of Embraer common shares will first be asked to consider and vote upon a proposal to insert a temporary provision in the bylaws of Embraer to confer voting rights upon all Embraer shareholders in respect of all proposals relating to the merger.  This first proposal must be approved by holders of a majority of the Embraer common shares present and voting at the extraordinary general meeting.  The Board of Directors of Embraer expects this first proposal to be approved because Rio Han and its shareholders Cia. Bozano, PREVI and SISTEL, which directly or indirectly hold 63.35% of the outstanding Embraer common shares, have indicated to the Board of Directors of Embraer that they intend to vote in favor of this first proposal.

          If this first proposal is approved, all Embraer shareholders will have the right to vote upon the following proposals relating to the merger:

 

 

the ratification of the appointment of ACAL and Goldman Sachs by the management of Embraer to prepare the valuation reports and the financial analyses, respectively, regarding the proposed restructuring and merger;

 

 

 

 

 

 

the approval of the valuation reports prepared by ACAL and the financial analyses prepared by Goldman Sachs;

 

 

 

 

 

 

the approval of the Merger Agreement; and

 

 

 

 

 

 

the approval of the merger of Embraer with and into Rio Han, pursuant to the terms of the Merger Agreement and related documents.

Record Date; Quorum

           Only Embraer shareholders who hold shares of record as of the close of business, local time, on [___________], 2006 will be entitled to attend and, in the case of holders of Embraer non-voting shares only if the first proposal is approved, vote at the extraordinary general meeting of Embraer shareholders to approve the merger.  The holders of record of Embraer ADSs as of [__] p.m. (New York City time) on [__________], 2006, the record date for the Embraer ADSs, will be entitled to provide the depositary for the Embraer ADSs with voting instructions in respect of the proposals to be considered at the extraordinary general meeting.  See “Specific Considerations for Holders of Embraer ADSs” beginning on page 68 of this prospectus for further details.

32



          At first call of the extraordinary general meeting, a quorum of at least two-thirds of Embraer common shares outstanding is necessary to hold the meeting.  If a quorum is not met at first call, the extraordinary general meeting may be held at second call, in accordance with the notice requirements of the Brazilian Corporate Law, regardless of the number of common shares represented.

Vote Required for Approval of the Merger

          The common shares of Embraer will first be asked to consider and vote upon a proposal to insert a temporary provision in the bylaws of Embraer to confer voting rights upon all Embraer shareholders, regardless of the type of shares held by them, in respect of all proposals relating to the merger.  This first proposal must be approved by holders of at least a majority of the Embraer common shares present and voting at the extraordinary general meeting.  If this first proposal is approved, the merger must be approved by holders of more than 50% of the outstanding common and preferred shares of Embraer.  The Board of Directors of Embraer has agreed that all Embraer shareholders (other than Rio Han, Cia. Bozano, PREVI, SISTEL and the directors and executive officers of Embraer), including the depositary of the Embraer ADSs that will vote as instructed by the holders of ADSs, will vote before Rio Han, Cia. Bozano, PREVI and SISTEL.  If the merger is rejected by holders of more than 50% of the outstanding common and preferred shares of Embraer (other than common or preferred shares held by Rio Han, Cia. Bozano, PREVI, SISTEL and the directors and executive officers of Embraer), then Rio Han, Cia. Bozano, PREVI and SISTEL will vote against the merger.  If the merger is not rejected as described in the preceding sentence, Rio Han, Cia. Bozano, PREVI and SISTEL will vote for the merger. 

          NEITHER RIO HAN NOR EMBRAER IS ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND RIO HAN OR EMBRAER A PROXY.

          At the close of business, local time, on February 20, 2006, directors and executive officers of Embraer beneficially owned, in the aggregate, approximately 18 Embraer common shares and 1,592,399 Embraer preferred shares (including preferred shares represented by Embraer ADSs), representing approximately 0.22% of Embraer’s total capital stock.  See “Interests of Certain Persons in, and Significant Shareholders of, Rio Han and Embraer” beginning on page 65 of this prospectus.

How to Vote Your Embraer Shares and ADSs

           If the proposal to extend voting rights to all holders of preferred shares (including preferred shares represented by Embraer ADSs) is approved, each Embraer common or preferred share outstanding on the record date will entitle the holder thereof to one vote on each proposal submitted to Embraer shareholders at the extraordinary general meeting (other than the proposal to insert a temporary provision in the bylaws of Embraer to confer voting rights upon all shareholders of Embraer, regardless of the type of shares held by them, which will only be voted on by the holders of Embraer common shares).

          Vote by Holders of Embraer common or preferred shares

           Holders of Embraer common or preferred shares must attend the extraordinary general meeting of Embraer shareholders in person or by proxy in order to vote.  Embraer’s shareholders must present a statement issued by the registrar of the Embraer share registry confirming their shareholders’ equity at least 48 hours prior to the extraordinary general meeting in order to attend the extraordinary general meeting.  A shareholder may be represented at the extraordinary general meeting by a proxy granted within one year of the date of the meeting to any other shareholder, any director or officer of Embraer, a lawyer or a financial institution.  A proxy will be required to show original or certified copies of the documents that grant him or her powers of representation.  An investment fund must be represented by its manager (administrador).

          Embraer shareholders should contact the registrar of the Embraer share registry, see details below, for information on how to receive a statement confirming their sharholders’ equity.

 

 

Banco Itaú S.A.

 

 

Rua Boa Vista, 185 - 2º andar

 

 

01014-001 - São Paulo – SP

 

 

Brazil

 

 

Tel: +55 11 3247 3138 / 3247 3139

 

 

Fax: +55 11 3247 3141

          Any powers-of-attorney granting special powers of representation for representation at the extraordinary general meeting on behalf of a shareholder must be delivered to Embraer (Attention:  Investor Relations) at the address listed below at least 48 hours prior to the extraordinary general meeting.

33



 

Embraer

 

Avenida Brigadeiro Faria Lima, 2170

 

12227-901 São José dos Campos

 

São Paulo, Brazil

 

Attention: Investor Relations

          Vote by Holders of Embraer ADSs

          Holders of Embraer ADSs are not entitled to attend the extraordinary general meeting in person, but instead may be represented at the meeting by the depositary of the Embraer ADSs or its representative.  Holders of Embraer ADSs should provide the depositary with timely voting instructions with respect to the preferred shares represented by their Embraer ADSs to enable the depositary to have such shares represented at the extraordinary general meeting.  The depositary has set [___] p.m. (New York City time) on [___________], 2006 as the record date for determining those holders of Embraer ADSs entitled to provide voting instructions.  See “Specific Considerations for Holders of Embraer ADSs” beginning on page 68 of this prospectus for further details.

          Alternatively, holders of Embraer ADSs may, if they wish, attend the extraordinary general meeting in person (or nominate someone to attend on their behalf).  To do this, they must present their Embraer ADSs for cancellation and arrange for delivery of the underlying Embraer preferred shares, which, if registered in their name in a timely manner, will enable them to attend the extraordinary general meeting as a shareholder of Embraer.  Holders of Embraer ADSs should keep in mind the depositary’s fee of $5.00 per 100 ADS (or portion thereof) applicable to any and all cancellations thereof.  See “Specific Considerations for Holders of Embraer ADSs—Vote by Holders of Embraer ADSs” beginning on page 68 of this prospectus for further details.

          Vote by the Brazilian Government

          The Brazilian Government, which holds the Embraer “Golden Share,” a special class of common share that gives the Brazilian Government a veto right over certain transactions by Embraer, including the merger, has indicated to Embraer that it intends to vote in favor of the merger.

Questions About Voting Your Shares

          If you have any questions about how to vote your Embraer shares or provide instructions to the depositary of the Embraer ADSs, you may contact:

 

Embraer

 

Avenida Brigadeiro Faria Lima, 2170

 

12227-901 São José dos Campos

 

São Paulo, Brazil

 

Attention:  Investor Relations

 

Telephone (Brazil):  +55 12 3927-4404

 

Telephone (US):  +1 954 359 3721

34



THE PROPOSED RESTRUCTURING AND MERGER

The Proposed Restructuring and Merger

          The Board of Directors of Embraer has approved a restructuring of Embraer that consists of the adoption of a new capital structure and listing on the Novo Mercado, a special trading segment of the BOVESPA.  The proposed restructuring is intended to create a basis for the sustainability, growth and continuity of Embraer’s businesses and activities by simplifying the capital structure of Embraer and thereby improving its access to capital markets and increasing financing resources for the development of new products and expansion programs.

          The proposed restructuring involves two steps:

 

1.

the organization of Rio Han and the transfer by Cia. Bozano, PREVI and SISTEL of the Embraer control shares to Rio Han—this step was completed on January 18, 2006; and

 

 

 

 

2.

the merger under Brazilian law of Embraer with and into Rio Han.

Organization of Rio Han and the Transfer of Embraer control shares to Rio Han

          Rio Han was formed on September 2, 2005 and has not carried on any activities other than in connection with the proposed restructuring and merger.

          On January 12, 2006, Cia. Bozano purchased all of the common shares representing the capital stock of Rio Han.  On January 13, 2006, PREVI and SISTEL each purchased from Cia. Bozano an amount of common shares to enable each of Cia. Bozano, PREVI and SISTEL to hold nearly equal amounts of Rio Han’s capital stock.  On January 18, 2006, Cia. Bozano, PREVI and SISTEL transferred all of the Embraer control shares (which represent 60% of Embraer’s common shares and 20.16% of Embraer’s total capital) to Rio Han in exchange for 162,306,263 Rio Han common shares (or 1.1153 Rio Han common shares for each Embraer control share). 

           The exchange ratio for the transfer of the Embraer control shares to Rio Han was determined by the management of Rio Han and the management of Embraer and subsequently recommended for approval by the Conselho Fiscal (Audit Board) of Embraer. The exchange ratio was approved by the Board of Directors of Embraer based on, among other things, the Financial Analyses Regarding the Restructuring of the Capital Stock of Embraer prepared by Goldman Sachs, dated as of January 13, 2006.  See “—Financial Analyses of Goldman Sachs” beginning on page 43 of this prospectus for further details regarding the financial analyses.  The exchange ratio for the transfer of the Embraer control shares to Rio Han reflects a premium of 9% when compared to the exchange ratio for the merger.  The Board of Directors of Embraer understands that Cia. Bozano, PREVI and SISTEL have a legitimate and justified expectation in receiving a premium on the transfer of the Embraer control shares to Rio Han as compensation for their relinquishment of voting control over Embraer in favor of all Embraer shareholders in connection with the proposed restructuring and merger.  See “Merger Agreement” beginning on page 59 of this prospectus for further details.

35



          The current ownership structure of Rio Han (after giving effect to the transfer by Cia. Bozano, PREVI and SISTEL of the Embraer control shares to Rio Han on January 18, 2006) is as follows:

Message

          The current ownership structure of Embraer (after giving effect to the transfer by Cia. Bozano, PREVI and SISTEL of the Embraer control shares to Rio Han on January 18, 2006) is as follows:

Message

36



Merger of Embraer with and into Rio Han

          The proposed restructuring will be implemented through the merger of Embraer with and into Rio Han under the Brazilian Corporate Law.  Under the Brazilian Corporate Law, the merger must be approved by both Rio Han and Embraer shareholders at their respective general meetings.

          The general meeting of Rio Han shareholders to approve the merger will be held at Rio Han’s principal executive offices at Avenida Brigadeiro Faria Lima, 2170, F-56, térreo, sala 2656, São José dos Campos, São Paulo, Brazil, immediately following the extraordinary general meeting of Embraer shareholders.  At their general meeting, Rio Han shareholders will be asked to vote upon, among other things, the following proposals:

 

 

the approval of the proposed bylaws for Rio Han;

 

 

 

 

 

 

the election of a transition Board of Directors to serve until the annual general meeting of Rio Han shareholders in 2009 to approve the financial statements for the fiscal year ended December 31, 2008;

 

 

 

 

 

 

the ratification of the appointment of ACAL by the management of Rio Han to prepare the valuation reports of Embraer and Rio Han;

 

 

 

 

 

 

the approval of the valuation reports prepared by ACAL;

 

 

 

 

 

 

the approval of the Merger Agreement;

 

 

 

 

 

 

the approval of the merger of Embraer with and into Rio Han, pursuant to the terms of the Merger Agreement and related documents;

 

 

 

 

 

 

the increase of Rio Han’s capital as a result of the merger;

 

 

 

 

 

 

the approval of the renaming of Rio Han as Embraer – Empresa Brasileira de Aeronáutica S.A., which is Embraer’s current legal name; and

 

 

 

 

 

 

the restriction on transfers of Rio Han common shares by the current controlling shareholders of Rio Han and the management of Rio Han for a period of six months following the effectiveness of the merger.

          Rio Han expects that all of the resolutions submitted to Rio Han shareholders for approval at the general meeting of Rio Han shareholders will be approved because the current controlling shareholders of Rio Han have indicated to Rio Han and to the Board of Directors of Embraer that they intend to vote in favor of all of these proposals.

          In addition to approval by Rio Han and Embraer shareholders, the merger must also be approved by the Brazilian Government, as holder of the Golden Share, which gives the Brazilian Government a veto right over certain actions by Embraer, including the merger.  The Brazilian Government, as holder of the Golden Share, has a veto right in connection with the proposed restructuring and merger, because:  (i) there will no longer be a controlling shareholder of Embraer and (ii) the rights of the Golden Share to be issued by Rio Han will be different from the rights of the Golden Share currently held by the Brazilian Government.  The representative of the Brazilian Government on the Board of Directors of Embraer has approved the proposed restructuring and merger and the Brazilian Government has indicated to the Board of Directors of Embraer that it intends to vote in favor of the merger.

          As a result of the merger, Embraer will cease to exist and: 

 

 

Rio Han will succeed to all of the rights and obligations of Embraer, and will change its legal name to Embraer-Empresa Brasileira de Aeronáutica S.A., which is Embraer’s current legal name;

 

 

 

 

 

 

all of the assets and liabilities (including shareholders’ equity) of Embraer will be combined with the assets and liabilities (including shareholders’ equity) of Rio Han, and all of Embraer’s subsidiaries will become Rio Han’s subsidiaries;

 

 

 

 

 

 

each common share of Embraer (other than common shares held by Rio Han) will be exchanged for one Rio Han common share;

 

 

 

 

 

 

each preferred share of Embraer will be exchanged for one Rio Han common share, and Rio Han will be prohibited from issuing preferred shares;

 

 

 

 

 

 

each Embraer ADS will be exchanged for one Rio Han ADS; and

 

 

 

 

 

 

the Golden Share of Embraer held by the Brazilian Government will be exchanged for a Golden Share of Rio Han.

          Each common and preferred share of Embraer held by Cia. Bozano, PREVI or SISTEL not subject to the Shareholders’ Agreement will be exchanged for one Rio Han common share.

37



          Upon the effectiveness of the merger, the Shareholders’ Agreement will terminate and the new bylaws of Rio Han to be approved in connection with the merger will prohibit any shareholder or group of shareholders from exercising voting control over Rio Han. 

          The ownership structure of Rio Han after the merger will be as follows:

Message

          Upon approval of Rio Han’s proposed bylaws at the general meeting of Rio Han shareholders, Rio Han will only be permitted to issue one class of common shares and will be prohibited from issuing preferred shares.  For a description of Rio Han’s common shares, see “Description of Rio Han’s Capital Stock—Limitations on the Voting Rights of Certain Holders of Common Shares” beginning on page 120 of this prospectus.

          Upon the effectiveness of the merger, Rio Han will be renamed Embraer - Empresa Brasileira de Aeronáutica S.A., Embraer’s current legal name, provided that such change of name is approved at the general meeting of Rio Han shareholders.

Share Ownership After the Merger

          As of the date of this prospectus, holders of Embraer shares other than Rio Han hold approximately 79.84% in the aggregate of the total capital stock of Embraer.  As a result of the premium that will be realized by Cia. Bozano, PREVI and SISTEL by virtue of the exchange ratio for the transfer of the Embraer control shares to Rio Han when compared to the exchange ratio for the merger, and assuming no holders of Embraer common shares exercise their appraisal rights, holders of Embraer shares other than Rio Han will hold approximately 78.03% in the aggregate of the total capital stock of Rio Han after the merger.

38



           The financial impact of the merger on Embraer shareholders will be as follows:

 

 

Embraer Shares

 

Implied
Exchange
Ratio

 

Rio Han Shares

 

Implied
Premium /
(Dilution)

 

 

 


 

 


 

 

 

 

Shares

 

Economic
Stake (%)

 

 

Shares

 

Economic
Stake (%)

 

 

 

 



 



 



 



 



 



 

Embraer control shares

 

 

145,527,000

 

 

20.16

%

 

1.1153

x

 

162,306,763

 

 

21.97

%

 

9.0

%

Embraer shares held by Cia. Bozano, PREVI and SISTEL not subject to the Embraer Shareholders’ Agreement*

 

 

95,011,102

 

 

13.16

%

 

1.0

x

 

95,011,102

 

 

12.86

%

 

(2.3

)%

All other Embraer shareholders (including holders of ADSs)

 

 

481,293,955

 

 

66.68

%

 

1.0

x

 

481,293,955

 

 

65.16

%

 

(2.3

)%

Total

 

 

721,832,057

 

 

100

%

 

 

 

 

738,611,820

 

 

100

%

 

(2.3

)%



*

Includes 8,896,920 Embraer preferred shares held by Bozano Holdings, Ltd.

Background of the Proposed Restructuring and Merger

          In the first quarter of 2004, Mr. Maurício Novis Botelho, Chief Executive Officer of Embraer, and Mr. Antonio Luiz Pizarro Manso, Chief Financial Officer of Embraer, decided to evaluate the possible restructuring of Embraer’s capital structure as a means of improving Embraer’s access to capital markets and increasing financing resources for the development of new products and expansion programs.

          In April 2004, at a meeting of the then controlling shareholders of Embraer, Cia. Bozano, PREVI and SISTEL to discuss the possible restructuring, Mr. Botelho was authorized to undertake further evaluation of the possible restructuring.

          On July 1, 2004, Goldman Sachs and Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados, or Mattos Filho, were requested by Mr. Botelho and Mr. Manso to submit a proposal regarding the corporate structure of a possible restructuring and on July 15 2004, Goldman Sachs and Mattos Filho met with Mr. Botelho, Mr. Manso, Ms. Anna Cecília Bettencourt, Head of Capital Markets and Investor Relations of Embraer, and Mr. Carlos Rocha Villela, Execeutive Officer for Legal Matters of Embaer, to discuss their proposal.

          On July 18, 2004, Embraer retained Mattos Filho to advise on the Brazilian legal aspects of the possible restructuring.

          On August 10, 2004, a presentation regarding the proposed restructing was given by Goldaman Sachs and Mattos Filho to the then controlling shareholders of Embraer.  In attendance at this meeting was Mr. Vitor Sarquis Hallack, representing Cia. Bozano, Mr. Luiz Carlos Aguiar, representing PREVI, and Mr. Wilson Carlos Delfino, representing SISTEL.  At this meeting, the then controlling shareholders approved the retention of Goldman Sachs as financial advisor to Embraer in connection with the possible restructuring and to prepare financial analyses relating to the possible restructuring for the consideration of Board of Directors of Embraer.

          On August 18, 2004, Mr. Manso and Mr. Villela signed a mandate letter with Goldman Sachs as financial advisor to Embraer in connection with the possible restructuring.  This appointment was later ratified by the Board of Directors of Embraer at its meeting on January 19, 2006 and remains subject to approval by Embraer shareholders at their extraordinary general meeting convened to approve the merger.

          On or about the same date, Mr. Botelho and Mr. Manso authorized Mattos Filho to contact and retain Bulhões Pedreira, Bulhões Carvalho, Piva, Rosman e Souza Leão Advogados, Brazilian counsel, to advise on Brazilian legal aspects of the possible restructuring, an in particular on compliance with Embraer’s Privatisation Notice.

          On April 25 and 26, 2005, Ms. Bettencourt and representatives of Goldman Sachs, Messrs. Jairo Loureiro and Matheus Villares, met with representatives of SISTEL and PREVI, on the respective dates, to discuss the possible restructuring, including the proposed bylaws of Embraer to be adopted in connection with the possible restructuring.

          On August 10, 2005, at a meeting of the then controlling shareholders of Embraer, Cia. Bozano, PREVI and SISTEL approved the continued evaluation of the possible restructuring.

          On September 1, 2005, Embraer retained Shearman & Sterling LLP to advise on the U.S. legal aspects of the possible restructuring.

          In October 2005, a proposal regarding the restructuring of Embraer was presented by Mr. Mauricio Botelho to the Executive Officers of Embraer.

39



          On October 19, 2005, the Chief Executive Officer of PREVI, Mr. Sergio Rosa, presented the proposed restructuring transaction to the Board of Directors of PREVI, which approved in principle the proposal.  On October 21, 2005 the proposal was also presented to the Board of Directors of SISTEL, which subsequently sought the advice of a financial advisor to assist with its evaluation of the proposal.  Embraer also meet with the Brazilian Government, as holder of the Golden Share, to obtain its approval for the proposed restructuring.  Several meetings were held with representatives of the Brazilian Government, including with the President of Brazil, on October 18, 2005, the Minister of Finance, on October 24, 2005, and with Tenente Brigadeiro do Ar Luiz Carlos da Silva Bueno of the Brazilian Air Force, also on October 24, 2005.  During this same period, the proposed restructuring was presented to the President of the BOVESPA, the President of BNDES, and to representatives of Embraer’s strategic shareholders, the European Defence Group.

          On October 31, 2005, Embraer appointed ACAL to prepare the valuation reports of Embraer and Rio Han required under the Brazilian Corporate Law.  This appointment was later ratified by the Board of Directors of Embraer at its meeting on January 19, 2006, but remains subject to approval by Embraer shareholders at their extraordinary general meeting convened to approve the merger.

          On November 17, 2005, Mr. Manso met with members of the Ministry of Finance to discuss the proposed restructuring in more detail, including the effect that the proposed restructuring would have on the Golden Share.

          On November 18, 2005, Cia. Bozano and PREVI gave their approval for the proposed restructuring.

          On December 22, 2005, a meeting was held between the Treasury Secretary, Mr. Joaquim Levy, Treasury representatives and Mr. Manso and Ms. Bettencourt to provide Mr. Levy with more detailed information about the proposed restructuring.

          On January 13, 2006, Mr. Levy met with the then controlling shareholders of Embraer and representatives of Embraer to discuss the proposed restructuring.

          After taking into account the financial analyses regarding the proposed restructuring and merger prepared by Goldman Sachs, based on information provided by Embraer’s management, Embraer’s management met on January 13, 2006 to discuss a proposed exchange ratio for the Embraer control shares.  At a meeting held on January 13, 2006, Cia. Bozano, PREVI and SISTEL, after holding discussions with Embraer’s management and analyzing the applicable documents, accepted the proposal submitted by Embraer’s management and decided to call a meeting of the Board of Directors and of the Conselho Fiscal of Embraer to analyze the proposed restructuring.

          On January 13, 2006, a local newspaper, Valor Econômico, published an article disclosing certain details of the proposed restructuring.  On the same date, Embraer published a Notice to the Market informing that Embraer has been studying the possibility of adopting a new capital structure, and that the viability of the project was still being analyzed, and that it would promptly disclose details of the proposal should a new capital structure be proposed to its shareholders.

          On January 16, 2006, Embraer published a Notice to the Market informing the public that a meeting of the Board of Directors of Embraer had been called to analyze the proposed restructuring and merger and to approve all necessary documents and actions.

          On January 17, 2006, the Executive Committee of Embraer presented the proposed restructuring and merger to the Board of Directors of Embraer.

          In a meeting held on January 19, 2006, the Conselho Fiscal of Embraer was presented with and considered the proposal to implement the proposed restructuring and merger and the submission of the merger for approval by Embraer shareholders.  The Consehlo Fiscal unanimously recommended the approval of such proposals and the submission of such proposals to the Board of Directors.

40



          At a meeting held on January 19, 2006, which took place after the meeting of the Conselho Fiscal, the Board of Directors of Embraer was presented and considered the proposal to implement the proposed restructuring and merger and the submission of the merger for approval by Embraer shareholders.  In its meeting, the Board of Directors of Embraer discussed the details of the proposed restructuring and merger and its objectives, as well as the terms of the Merger Agreement regarding the merger of Embraer with and into Rio Han.  After such discussion and consideration, the Board of Directors of Embraer unanimously (1) approved the terms and conditions of the Merger Agreement and all other documents related to the merger, and its submission for the approval of the extraordinary general shareholders meeting of Embraer, (2) ratified the appointment of Goldman Sachs and ACAL and approved the financial analyses prepared by Goldman Sachs and the valuation reports prepared by ACAL, (3) approved the proposal of the merger of Embraer with and into Rio Han, including the exchange ratio of the shares of Embraer for the shares of Rio Han as a result of the merger, to be presented to the shareholders of Embraer, authorizing the Executive Officers to take all actions necessary to implement the merger, (4) approved the proposal to be presented to the extraordinary general meeting of Embraer shareholders, before the other items of the agenda, to include a temporary provision in the by-laws of the company, in order to extend voting rights to all of the Embraer shareholders regardless of the class or type of share held by them, (5) approved the terms of the notice to the market to be published by Embraer and (6) decided to call the extraordinary general meeting of Embraer shareholders to be held on March 31, 2006 to decide on all matters related to the merger.

          On January 19, 2006, the managements of Rio Han and Embraer executed the Merger Agreement, subject to approval by their respective shareholders at the [___________], 2006 extraordinary general meetings of Rio Han and Embraer shareholders.

          The merger remains subject to the approval of both Rio Han and Embraer shareholders at their respective general meetings scheduled to occur on [___________], 2006.  See “Extraordinary General Meeting of Embraer Shareholders Regarding the Merger—Vote Required for Approval of the Merger” for more information on the required vote at the extraordinary general meeting of Embraer shareholders to approve the merger.

Reasons for the Proposed Restructuring and Merger

          This discussion of the information and factors that the Board of Directors of Embraer considered in making its decision is not intended to be exhaustive but includes all material factors considered by the Board of Directors of Embraer.  In view of the wide variety of factors considered in connection with the evaluation of the proposed restructuring and merger and the complexity of these matters, the Board of Directors of Embraer did not find it useful to, and did not attempt to, quantify, rank or otherwise assign relative weights to these factors.  In addition, the individual members of the Board of Directors of Embraer may have given different weight to different factors.

          In reaching its decision to approve the proposed restructuring and merger and the terms of the Merger Agreement and all related documents, and the submission of the Merger Agreement and the merger to an extraordinary general meeting of Embraer shareholders for approval, the Board of Directors of Embraer carefully considered the following factors:

 

Creation of a solid foundation for the sustainability, growth and continuity of Embraer’s businesses and activities.  The development of new products and expansion programs by Embraer as well as the sustainability, growth and continuity of its businesses and activities depend on its ability to access capital markets and increase financings resources.  A simplified capital structure (only common shares) is expected to provide Embraer (through its successor Rio Han) with greater access to capital markets and increase financing resources because Embraer will be able to issue common shares without regard to the restrictions on the maximum proportion of common shares and preferred shares that can be issued under Embraer’s current capital structure and the Brazilian Corporate Law.

 

 

 

Increased capacity to obtain new resources and possibility of international expansion.  The proposed restructuring and merger is expected to enhance Embraer’s capacity to obtain new resources to fund its activities, and to enable Embraer to use its common shares as acquisition currency, for new acquisitions and to facilitate potential international expansions.

 

 

 

The extension of voting rights to all Embraer shareholders.  Currently, holders of Embraer preferred shares (including preferred shares represented by Embraer ADSs) do not have voting rights.  As a result of the proposed restructuring and merger, Embraer will adopt a simplified capital structure that will extend voting rights to all Embraer shareholders.

 

 

 

The relinquishment of voting control by the controlling shareholders of Embraer in favor of all Embraer shareholders.  In connection with the proposed restructuring and merger, Cia. Bozano, PREVI and SISTEL have agreed to terminate the Shareholders’ Agreement and relinquish voting control over Embraer in favor of all Embraer shareholders.  Following the implementation of the restructuring and merger, Cia. Bozano, PREVI and SISTEL will no longer have the ability to control the outcome of matters submitted to a vote of Embraer shareholders.  In addition to reducing their voting power, the restructuring and merger will result in a reduction in the controlling shareholders’ representation on the Board of Directors of Embraer.  Currently, Cia. Bozano, PREVI and SISTEL have six representatives on the Board of Directors of Embraer.  Until the annual general meeting of Embraer shareholders in 2009 to approve the financial statements for the fiscal year ended December 31, 2008, the controlling shareholders will each have the right to appoint one representative to the Board of Directors of Embraer.  Following the annual general meeting of Embraer shareholders in 2009, the controlling shareholders will no longer have the right to appoint any representative to the Board of Directors of Embraer.

 

 

 

A potential increase in the liquidity of the shares to be received by Embraer shareholders in the merger.  The proposed restructuring and merger is expected to result in a potential increase in the liquidity of the shares to be received by Embraer shareholders in the merger as a result of the expected dispersed ownership of such shares.

 

 

 

Adoption of enhanced corporate governance practices and transparency standards.  Upon implementation of the proposed restructuring and merger, all Embraer shareholders will have voting rights, Embraer will apply to list on the Novo Mercado segment of the BOVESPA and will, as a consequence, be subject to enhanced corporate governance practices and transparency standards.

 

 

 

Financial Analyses of Goldman Sachs.  The financial analyses, dated as of January 13, 2006, presented by Goldman Sachs to the Board of Directors of Embraer for its consideration of the proposed exchange ratio applicable to the transfer by the controlling shareholders of the Embraer control shares to Rio Han and the premium to be realized by such shareholders when compared to the exchange ratio for the merger.

41



          The Board of Directors of Embraer also carefully considered the following factors:

          Benefits to the Brazilian Capital Markets:

 

 

the creation of the first major Brazilian company with dispersed ownership and simplified capital structure (only common shares) to be listed on the Novo Mercado; and

 

 

the creation of a new corporate governance benchmark for Brazilian public companies.

 

 

          Benefits to the Brazilian Government:

 

 

the continuation of the rights of the Golden Share;

 

 

the assurance that a majority of the voting rights of Rio Han common shares will be held by Brazilian shareholders as provided in the Privatisation Notice of Embraer;

 

 

the control over the ownership of Rio Han common shares in amounts equal to or greater than 35%;

 

 

the assurance of a dispersed capital structure due to the adoption of restrictions on voting rights contained in Rio Han’s proposed bylaws; and

 

 

the assurance that Rio Han will remain as a technological and industrial partner of the Brazilian Army.

 

 

          The Board of Directors also carefully considered the following potential effects arising from the proposed restructuring and merger:

 

 

the ownership percentage of holders of Embraer shares other than Rio Han will be diluted as a result of the merger (assuming no holders of Embraer common shares exercise appraisal rights); and

 

 

holders of Embraer preferred shares (including preferred shares represented by Embraer ADSs) will no longer be entitled to receive dividends at least 10% higher than dividends conferred upon each Embraer common share.

Delivery of Rio Han Common Shares and ADSs

          If you are a registered holder of Embraer common or preferred shares, you will not need to take any action with respect to your shares.  Upon the effectiveness of the merger, all Embraer common and preferred shares will automatically be exchanged for Rio Han common shares.  As Embraer shares are registered in book-entry form and Rio Han common shares will be registered in book-entry form, an entry or entries will be made by in the Rio Han share registry to evidence the Rio Han common shares issued in the merger.  You will not receive certificates evidencing you Rio Han common shares.  After the merger is completed, the registrar of the Rio Han share registry will provide a statement of shareholding to each registered holder of Rio Han common shares confirming their ownership of Rio Han common shares.

          If you are a registered holder to Embraer ADSs, you will not need to take any action with respect to your Embraer ADSs.  If you hold your Embraer ADSs in book-entry form through the direct registration system maintained by JPMorgan Chase Bank, N.A., the depositary for the Embraer ADSs, an entry or entries will be made in the direct registration system after the effectiveness of the merger to evidence that your Embraer ADSs represent Rio Han common shares rather than Embraer preferred shares.  If you hold ADRs evidencing your Embraer ADSs, your ADRs will evidence you Rio Han ADSs after the effectiveness of the merger.  In all cases, the number of Embraer ADSs you hold will remain unchanged.  If you are not a registered holder of your Embraer ADSs but hold your Embraer ADSs in “street name” through a broker, bank, custodian or other nominee, you will not need to take any action unless your broker, bank, custodian or other nominee informs you otherwise.

Approval of the Conselho Fiscal (Audit Board) and of the Board of Directors of Embraer Regarding the Merger

          The Conselho Fiscal (Audit Board) of Embraer has reviewed the proposed restructuring and merger, including the Merger Agreement, and the valuation reports and financial analyses and proposed bylaws of Rio Han attached as exhibits thereto, and has unanimously recommended the submission of the Merger Agreement and the merger to an extraordinary general meeting of Embraer shareholders for approval.

          The Board of Directors of Embraer has also reviewed the proposed restructuring and merger, including the Merger Agreement and all exhibits thereto, and has unanimously approved the proposed restructuring and merger and the terms of the Merger Agreement and all related documents, and has approved the submission of the Merger Agreement and the merger to an extraordinary general meeting of Embraer shareholders for approval.

          In determining whether to approve the proposed restructuring and merger, the Board of Directors of Embraer consulted with its senior management and legal counsel, as well as its financial advisors, ACAL and Goldman Sachs, considered the recommendation of the Conselho Fiscal, and considered the respective strategic, financial and other considerations referred to under “The Proposed Restructuring and Merger—Reasons for the Proposed Restructuring and Merger” beginning on page 41 of this prospectus.

42



          For more information on Embraer’s Audit Board and Board of Directors and their respective members, see “Item 6A. Directors and Senior Management” and “Item 6C. Conselho Fiscal” included in the Annual Report of Embraer on Form 20-F for the Fiscal Year Ended December 31, 2004 attached as Annex A to this prospectus.

Financial Analyses of Goldman Sachs

          General

          The financial analyses discussed herein have been prepared based on prospective financial information prepared by the management of Rio Han and Embraer.  Rio Han and Embraer do not as a matter of course make public projections as to future sales, earnings, or other results.  The prospective financial information used to prepare these analyses was not prepared with a view toward public disclosure or with a view toward complying with the published guidelines of the SEC or the American Institute of Certified Public Accountants with respect to prospective financial information.

          Embraer retained Goldman Sachs to perform certain financial analyses with respect to Rio Han and Embraer in connection with the merger of Embraer with and into Rio Han.  On January 15, 2006, Goldman Sachs presented financial analyses, prepared as of January 13, 2006, to the Board of Directors of Embraer for its consideration in determining the proposed exchange ratio applicable to the shares of Embraer held by Cia. Bozano, PREVI and SISTEL.

          You should consider the following when reading the discussion of the financial analyses of Goldman Sachs below:

 

 

Rio Han urges you to read carefully the entire financial analyses of Goldman Sachs, which are contained in Annex C of this prospectus and are incorporated by reference in this summary and which you can obtain as described in “Where You Can Find More Information.”  The description of Goldman Sachs’ financial analyses set forth below is qualified in its entirety by reference to the full text of the analyses.

 

 

 

 

 

 

Goldman Sachs’ financial analyses were prepared for the exclusive use of the Board of Directors of Embraer in connection with its analysis of the merger, as described further below, and should not be used for any other purposes, including, without limitation, for the formation of capital under the terms of the Brazilian Corporate Law, including, but not limited to, Article 8 of such law.

 

 

 

 

 

 

The financial analyses were exclusively addressed to Embraer and do not address the underlying business decision by Embraer to engage in the merger and do not constitute a recommendation to Embraer and/or its shareholders (including, but not limited to, as to whether any Embraer shareholder should vote in favor of the merger or exercise any appraisal rights or other rights with respect to the merger).

          In rendering its financial analyses, Goldman Sachs:

 

 

reviewed certain internal financial analyses and forecasts for Embraer prepared and approved by its senior management;

 

 

 

 

 

 

reviewed publicly available financial statements for the nine months ended September 30, 2005 and for years ended December 31, 2004, 2003 and 2002 of Embraer, which were audited by Embraer’s independent auditors; and

 

 

 

 

 

 

reviewed certain other financial information with respect to Embraer, including, but not limited to, its cash and bank balances, loans and other debt obligations and hedging and contingencies provisions as of September 30, 2005, reflecting the best judgment of such auditors in accordance with generally accepted accounting procedures in Brazil.

43



          Goldman Sachs also held discussions with members of the senior management of Embraer with respect to its assessment of the past and current business operations, financial condition and prospects of Embraer.

          In preparing its financial analyses, Goldman Sachs assumed and relied, with Embraer’s express consent and without independent verification, on the accuracy, content, truthfulness, consistency, completeness, sufficiency and integrity of the financial, accounting, legal, tax and other information reviewed by or discussed with it, and Goldman Sachs did not assume any responsibility to independently verify any of the information or to make an independent verification or appraisal of any of the assets or liabilities (contingent or otherwise) of Embraer, nor did Goldman Sachs examine the solvency or fair value of Embraer under any laws concerning bankruptcy, insolvency or similar matters.  To this effect, Goldman Sachs assumed no responsibility or liability with respect to the accuracy, truthfulness, integrity, consistency or sufficiency of such information, for which Embraer is solely and exclusively responsible.  In addition, Goldman Sachs did not assume any obligation to conduct, and did not conduct, any physical inspection of Embraer’s properties or facilities.  With Embraer’s consent, Goldman Sachs assumed that the financial analyses and forecasts prepared by Embraer’s senior management were reasonably prepared on a basis reflecting best currently available estimates and judgments of Embraer.

          Goldman Sachs’ financial analyses assumed a stable macroeconomic scenario for Brazil.  The financial analyses and their results do not purport to reflect the prices at which Embraer or its securities could be sold, nor do they take into account any element of value that may arise from the accomplishment or expectation of the merger.  Goldman Sachs is not an accounting firm and did not provide accounting or audit services in connection with the financial analyses.  In addition, because the financial analyses are based upon forecasts of future financial results, they are not necessarily indicative of actual subsequent results, which may be significantly more or less favorable than those suggested by the analyses.  Given, further, that these analyses are intrinsically subject to uncertainties and various events or factors outside the control of Embraer and Goldman Sachs, neither Goldman Sachs, nor any of its affiliates and representatives, assumed any responsibility or liability if subsequent results differ substantially from the projections presented in the financial analyses and made no representation or warranty with respect to such projections.

          Goldman Sachs’ financial analyses are necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Goldman Sachs as of, January 13, 2006, the date of the financial analyses.  As a result, the financial analyses are valid exclusively as of that date, as subsequent events and developments may affect the conclusions reached in the analyses.  Goldman Sachs did not assume any obligation to update, review, revise or revoke the financial analyses as a result of any subsequent event or development.  With respect to the financial analyses, Embraer and its Board of Directors did not authorize Goldman Sachs to solicit, nor did Goldman Sachs solicit, any indication of interest from third parties to acquire, in whole or in part, any Embraer shares.  Therefore, the results determined in the financial analyses do not necessarily correspond to, and should not be construed as representative of, the prices at which Embraer could be sold in a third-party acquisition transaction, at which its shares or, where applicable, ADSs traded on the date of the financial analyses or traded at any subsequent time, or at which Embraer’s shares or ADSs will trade after the merger.

          In addition, the financial analyses (1) treat Embraer as a stand-alone operation, and therefore do not include any operational, tax or other benefits or losses, or synergies, incremental value and/or costs for Embraer, if any, which may arise from the consummation of the merger; and (2) do not address the treatment of the different classes of shares of Embraer, and any adjustments intended to offset, or that may reflect, any specific rights associated with any specific class of shares of Embraer.  In preparing the valuation analyses, in accordance with applicable laws and regulations, Goldman Sachs did not take into account (1) the tax consequences of the merger for the holders of Embraer shares or ADSs; and (2) the impact of any fees and expenses that may result from the consummation of the merger, including, but not limited to, those related to any depositary services that may be charged to the holders of Embraer ADSs.  The financial calculations contained in the valuation analyses may not always result in a precise sum due to rounding.

          The following are summaries of the material analyses conducted by Goldman Sachs in preparation of its financial analyses for Embraer, prepared as of January 13, 2006 and delivered on January 15, 2006, and do not purport to be complete descriptions of the analyses performed by Goldman Sachs.  The following summaries of financial analyses include information presented in tabular format.  You should read these tables together with the text of each summary.

44



Discounted Cash Flow Analysis

          Goldman Sachs performed a discounted cash flow analysis to generate a range of indicative equity values per share of Embraer treating Embraer as a stand-alone entity.  Analyses were performed as of September 30, 2005, based on a projection period from 2005 to 2014.  Unlevered free cash flows (operating income less income taxes, plus depreciation and amortization, less increases in working capital and less capital expenditures) before financing costs were projected by Embraer in U.S. dollars and based on financial statements of Embraer in conformity with U.S. GAAP and therefore did not include any benefits or losses that may arise from the consummation of the merger.

          A range of illustrative enterprise values for Embraer was obtained by the sum of (i) the net present value calculated as of September 30, 2005 with respect to the unlevered free cash flows for the projection period and (ii) the net present value calculated as of September 30, 2005 with respect to the terminal value, determined using the perpetuity growth methodology applied to a normalized unlevered free cash flow (assuming capital expenditures equal to depreciation and excluding temporary tax benefits). “Terminal Value” refers to the value of a particular asset at a specific future time.  “Present Value” refers to the current value of future cash flows (including terminal value) obtained by discounting such future cash flows (including terminal value) based on an interest rate that takes into account risk, the opportunity cost of capital, expected returns and other appropriate factors.  The present values of the unlevered free cash flows were calculated using a weighted average cost of capital (“WACC”) between 11.3% and 12.3%.  The perpetuity growth rate utilized for calculating the unlevered free cash flow was between 4% and 5%.

          The indicative equity values calculated for Embraer were determined by subtracting from the enterprise values previously calculated the total value of the net debt and minority interest, as set forth in the audited balance sheets as of September 30, 2005.  The indicative equity value per share for Embraer was determined by dividing the indicative equity value by the total number of shares outstanding, excluding treasury shares.  The analyses result in aggregate equity value indications for Embraer and do not allocate value between any classes of shares.  No adjustments were made as to potential benefits that may arise from the transaction, such as synergies or tax gains.

          Based on these assumptions, the indicative per share equity values for Embraer ADRs ranged from US$39.90, assuming a perpetuity growth rate of 4% and a WACC of 12.3%, to US$48.90, assuming a perpetuity growth rate of 5% and a WACC of 11.3%.

          The results of Goldman Sachs’ analysis are set forth in the following table.

 

 

 

 

 

Perpetuity Growth Rate

 

 

 

 

 

 


 

 

 

 

 

 

4%

 

4.5%

 

5%

 

 

 

 

 

 



 



 



 

Weighted

 

 

11.3

%

 

45.0

 

 

46.8

 

 

48.9

 

Average

 

 

11.6

%

 

43.6

 

 

45.2

 

 

47.1

 

Cost of Capital

 

 

11.8

%

 

42.3

 

 

43.8

 

 

45.5

 

 

 

 

12.1

%

 

41.1

 

 

42.5

 

 

44.0

 

 

 

 

12.3

%

 

39.9

 

 

41.2

 

 

42.7

 

          Based on these indicative ranges of per share equity values, Goldman Sachs also determined the ranges of implied premiums over the Embraer ADR market price, as follows:  a premium ranging from (3.1)% to 18.6% relative to the ADR price as of January 13, 2006; a premium ranging from (0.9)% to 21.4% relative to the preceding 30-day average ADR price; and a premium ranging from 1.6% to 24.4% relative to the preceding 60-day average ADR price.

Precedent Transactions Analysis — Share Reclassification Transactions

          Goldman Sachs reviewed selected transactions involving publicly traded corporations where two classes of stock of a single company with different voting rights were reclassified or combined into a single class of common stock.  Goldman Sachs divided these transactions into two groups: 

45



 

 

Transaction With Relinquishment of Control.  Goldman Sachs reviewed four reclassification transactions occurring between June 2000 and September 2005 where the reclassification resulted in a relinquishment of control by a controlling shareholder.  The transactions in this group were:  Sotheby’s, Royal Group, Reader’s Digest, and Mitchell Energy.

 

 

 

 

 

 

Transactions Without Change of Control.  Goldman Sachs reviewed 13 reclassification transactions occurring between May 2001 and June 2005 and involving “high vote” and “low vote” shares but not involving a controlling shareholder.  The transactions in this group were:  Gartner, Inc., Gildan Activewear, MIPS Technologies, Jo-Ann Stores, Commonwealth Telephone Enterprises, Florida East Coast Industries, Home Capital Group, Cabot Oil & Gas, Freeport McMoran Copper & Gold, Conoco Phillips, Waddell & Reed Financial, Raytheon, and SAP.

          For each of the precedent reclassification transactions, Goldman Sachs determined the implied premium paid to the controlling shareholder or “high vote” shares by dividing the total value that those shares represented after the transaction by the total value that those shares represented before the transaction.  In transactions where a payment or a targeted repurchase was made by the company, Goldman Sachs added the cash component to the value received by the “high vote” shares or controlling shareholder, and adjusted the pro forma market capitalization of the company to reflect the cash payment and shares repurchased.  In transactions involving a controlling shareholder, Goldman Sachs determined that the implied premium paid to the controlling shareholder varied from 0% to 19.4%; in transactions involving “high vote” shares but no controlling shareholder, Goldman Sachs determined that the implied premium for “high vote” shares ranged from 0% to 8.2%, with 11 transactions having no implied premium.

          No company utilized in Goldman Sachs’ analysis of historical share reclassification transaction is identical to Embraer.  In this analysis, Goldman Sachs made judgments and assumptions with regard to, among other things, the capital structure and shareholder base of the companies involved in these transactions.

Precedent Transactions Analysis — Aerospace and Defense Industry

          Goldman Sachs reviewed 16 private-market transactions in the aerospace and defense industry, involving changes of control, having transaction values in excess of US$500 million and occurring between December 1996 and September 2005.  These included the following transactions (in each case, the first named entity is the acquiring entity and the second named entity is the acquired entity in the transaction):  DRS Technologies / Engineered Support Systems Inc, Zodiac SA / C&D Aerospace Group, BAE Systems / United Defense Industries, Pratt & Whitney / Boeing Rocketdyne Propulsion and Power, Onex Corporation / Boeing Commercial Airplanes - Tulsa Div., Aurora Capital / K&F Industries, Meggitt/Carlyle / Dunlop Standard, BAE / Alvis, Finmeccanica / AgustaWestland, Kohlberg Kravis Roberts / MTU Aero Engines (Daimler Chrysler), Precision Castparts / SPS Technologies, DRS / Integrated Defense, Warburg Pincus / TransDigm, EU Consortium / Embraer, General Dynamics / Gulfstream and Boeing / McDonnell Douglas.

          Goldman Sachs derived the implied ratios of enterprise value to “LTM EBITDA” multiples resulting from these transactions, which ranged from 9.0x to 13.1x, with a median of 11.3x.  Goldman Sachs then applied these ratios to the corresponding LTM EBITDA figures for Embraer and translated the resulting range of per share prices into implied premiums over Embraer’s ADR price as of January 13, 2006, preceding 30-day average ADR price and preceding 60-day average ADR price.  These implied premiums ranged from (26.8)% to 6.3% relative to the ADR price as of January 13, 2006, (25.0)% to 8.8% relative to the 30-day average ADR price, and (23.2)% to 11.5% relative to the preceding 60-day average ADR price.  “LTM” refers to the preceding 12-month period for which relevant data is available and “EBITDA” refers to earnings before interest, taxes, depreciation and amortization. 

          No company utilized in Goldman Sachs’ analysis of certain selected private market transactions is identical to Embraer.  In evaluating these private market transactions, Goldman Sachs made judgments and assumptions with regard to, among other things, the capital structure and shareholder base of the companies involved in these transactions.

46



Selected Companies Analysis

          Goldman Sachs reviewed and compared certain financial information for Embraer to corresponding financial information, ratios and public market multiples for the following publicly traded corporations in the aircraft manufacturing industry:

 

 

Boeing

 

 

 

 

 

 

Bombardier

 

 

 

 

 

 

EADS

          Goldman Sachs reviewed and compared certain financial information for Embraer to corresponding financial information, ratios and public market multiples for the following publicly traded corporations in the aircraft components industry:

 

 

BE Aerospace

 

 

 

 

 

 

Heico

 

 

 

 

 

 

Hexcel

 

 

 

 

 

 

K&F Industries

          Goldman Sachs reviewed and compared certain financial information for Embraer to corresponding financial information, ratios and public market multiples for the following publicly traded corporations in the aircraft manufacturing industry:

 

 

General Dynamics

 

 

 

 

 

 

Northrop Grumman

 

 

 

 

 

 

Raytheon

          Goldman Sachs calculated and compared various financial multiples and ratios and growth rates based on market data as of January 13, 2006 and estimates reported by “IBES” (the Institutional Brokerage Estimate System, a data service that compiles earnings estimates of securities research analysts), including certain enterprise value multiples (including LTM sales multiples and 2006 and 2007 EBITDA multiples), 2006 and 2007 price-to-earnings multiples, earnings per share long-term growth rates, 2007 price/earnings per share long-term growth rates, and LTM margins/EBITDA.  The multiples, ratios and growth rates for each of the selected companies were based on IBES estimates and the most recent publicly available information as of January 13, 2006.

47



          The following table presents the result of this analysis:

 

 

 

Selected Companies

 

 

 

 

 

 

 


 

 

 

 

 

 

 

Range
(including
Embraer)

 

Median
(including
Embraer)

 

Embraer

 

 

 



 



 



 

Aircraft Manufacturers / Components

 

 

 

 

 

 

 

 

 

 

Enterprise Value Multiples

 

 

 

 

 

 

 

 

 

 

LTM Sales

 

 

0.5x-3.7x

 

 

1.8x

 

 

2.1

x

LTM EBITDA

 

 

5.0-16.2

 

 

11.6

 

 

12.3

 

2006E EBITDA

 

 

6.3-15.6

 

 

9.1

 

 

9.8

 

2007E EBITDA

 

 

5.5-11.9

 

 

8.4

 

 

9.7

 

2006 P/E Multiples

 

 

13.8-23.5

 

 

19.9

 

 

17.3

 

2007 P/E Multiples

 

 

11.9-20.0

 

 

16.9

 

 

15.2

 

5-Year EPS Growth Rate

 

 

10%-18%

 

 

16

%

 

16.7

%

2007 P/E / 5-Year EPS Growth Rate

 

 

0.9x-1.7x

 

 

1.2

x

 

0.9

x

LTM/EBITDA Margins

 

 

6.1%-38.9%

 

 

14.7

%

 

16.7

%

 

 



 



 



 

Defense

 

 

 

 

 

 

 

 

 

 

Enterprise Value Multiples

 

 

 

 

 

 

 

 

 

 

LTM Sales

 

 

0.8x-1.2x

 

 

1.1

x

 

2.1

x

LTM EBITDA

 

 

8.8-11.0

 

 

10.4

 

 

12.3

 

2006E EBITDA

 

 

7.8-9.5

 

 

8.7

 

 

9.8

 

2007E EBITDA

 

 

8.0-9.0

 

 

8.1

 

 

9.7

 

2006 P/E Multiples

 

 

14.3-16.3

 

 

14.6

 

 

17.3

 

2007 P/E Multiples

 

 

13.2-14.1

 

 

13.2

 

 

15.2

 

5-Year EPS Growth Rate

 

 

10%-12.0%

 

 

10.3

%

 

16.7

%

2007 P/E / 5-Year EPS Growth Rate

 

 

1.2x-1.3x

 

 

1.3

x

 

0.9

x

LTM/EBITDA Margins

 

 

9.5%-11.9%

 

 

9.8

%

 

16.7

%

 

 



 



 



 

Share Exchange Analysis; Breakeven Analysis

          Assuming no change in the market value of the surviving entity following the merger, Goldman Sachs prepared illustrative pro forma analyses of the financial impact of the merger on the current shareholders of Embraer assuming a range of premiums from 0% to 20% being paid for the control shares relative to Embraer ADR price as of January 13, 2006.  Goldman Sachs determined that this range of control premiums would result in an implied price being paid for all the shares held by the control group (consisting of Cia. Bozano, PREVI and SISTEL) representing a premium ranging from 0% to 10.1% relative to the current market value of their shares (based on the preceding 60-day average Embraer ADR price of US$39.30, as of January 13, 2006), which, based on Embraer’s estimated 2006 EBITDA projections, implies estimated 2006 EBITDA multiples ranging from 10.3x to 11.4x.  Goldman Sachs also determined that this range of control premiums would result in an implied price being paid for all the shares held by minority shareholders representing a discount ranging from 0.0% to 5.1% relative to the current market value of their shares (based on the preceding 60-day average Embraer ADR price), which, based on Embraer’s estimated 2006 EBITDA projections, implies estimated 2006 EBITDA multiples ranging from 10.3x to 9.8x.

48



          On the basis of these determinations, Goldman Sachs computed illustrative breakeven analyses.  For the above-described range of premiums being paid for the control shares (ranging from 0% to 20% relative to the preceding 60-day average Embraer ADR), Goldman Sachs computed the corresponding required implied enterprise value to 2006 EBITDA multiple expansion, which ranged from 0.0x to 0.6x, that would yield a value to minority shareholders equal to the current value of their shares based on the preceding 60-day average Embraer ADR price.  For this same range of premiums being paid for the control shares, Goldman Sachs also computed the corresponding percentage increases in Embraer’s share price following the merger, which ranged from 0.0% to 5.3%, that would be required to yield a value to minority shareholders equal to the current value of their shares based on the preceding 60-day average Embraer ADR price.

          The preparation of financial analyses such as those conducted in the preparation of the financial analyses is a complex process that involves subjective judgment and is not susceptible to partial analysis or summary description.  In arriving at its conclusions, Goldman Sachs did not attribute any particular weight to any particular factor considered by it; rather, Goldman Sachs made qualitative judgments as to the importance and relevance of all the factors considered in the financial analyses.  Accordingly, Goldman Sachs believes that the financial analyses should be considered as a whole and that selecting portions of its analyses or the factors considered as part of those analyses could result in an incomplete and incorrect understanding of the conclusions of the financial analyses.  The results presented in the financial analyses refer solely to the merger of Embraer with and into Rio Han, and do not extend to any other present or future matters or transactions regarding Embraer, the economic group to which it belongs or the sector in which it operates.

          Goldman Sachs and its affiliates, as part of their investment banking business, are continually engaged in performing financial analyses with respect to businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and other transactions as well as for estate, corporate and other purposes.  Goldman Sachs was retained by Embraer on August 18, 2004.  Pursuant to the engagement letter entered into as of the same date between Embraer and Goldman Sachs, Goldman Sachs will receive a fee for its services.  Moreover, Embraer has agreed to reimburse Goldman Sachs’ expenses and indemnify it for certain liabilities that may arise as a result of this engagement.  Goldman Sachs also may provide investment banking services to Embraer and its affiliates in the future.  In connection with the above-described services, Goldman Sachs has received, and may receive, compensation.

          Goldman Sachs is a full-service securities firm engaged, either directly or through its affiliates, in securities trading, investment management, financial planning and benefits counseling, risk management, hedging, financing and brokerage activities for both companies and individuals.  In the ordinary course of these activities, Goldman Sachs and its affiliates may actively trade the debt and equity securities (or related derivative securities) of Embraer and its affiliates for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities.  Goldman Sachs does not have a direct interest in the merger; provided, however, that in accordance with usual market practice, part of the compensation payable by Embraer in connection with the services rendered by Goldman Sachs depends on the implementation of the merger.  Except as may result from the activities described in the first and second sentences of this paragraph, Goldman Sachs does not have a direct or indirect interest in Embraer.  Without limiting any other statement in this summary, to the best of Goldman Sachs’ knowledge, neither the controlling shareholders of Embraer nor the management of Embraer directed, limited, obstructed or otherwise took any action that compromised or could have compromised access to, or use or knowledge of, information, documents or work methodologies relevant to the quality of the financial analyses.

Valuation Reports of ACAL

          ACAL was retained by Rio Han and Embraer to render valuation reports for the purpose of appraising:  (i) the book value of the shareholders’ equity of Embraer as of September 30, 2005 in order to determine the capital increase of Rio Han that will result from the merger and (ii) the market value of the shareholders’ equity of Embraer and Rio Han as of September 30, 2005, as required by Article 264 of the Brazilian Corporate Law, in order to (i) compare the ratio between such values with the exchange ratio stipulated in the Merger Agreement and (ii) determine the appraisal value of the Embraer common shares.

49



          The valuation reports prepared by ACAL are subject to the assumptions and considerations set forth in such valuation reports and summarized in this prospectus.  The valuation reports prepared by ACAL were presented to the management of Rio Han and the Board of Directors of Embraer on January 18, 2006 for their evaluation of the proposed restructuring and merger.  The valuation reports are not intended to be and do not constitute a recommendation to any shareholder as to how such shareholder should vote on any matters relating to the merger.  ACAL did not make a recommendation with respect to the exchange ratio applicable to the transfer of the Embraer control shares to Rio Han or the exchange ratio for the merger.  Rio Han urges you to read carefully the entire valuation reports of ACAL, which are contained in Annexes D, E and F of this prospectus.

          The valuation reports were prepared according to the same criteria and the same base date (September 30, 2005) and were based on the financial statements of Embraer and Rio Han as of September 30, 2005.  The Embraer financial statements were audited for Brazilian law purposes and the consolidated financial statements were reviewed for U.S. law purposes by Deloitte.  The Rio Han financial statements were audited for Brazilian law purposes by ACAL.

          In connection with its preparation of the valuation reports, ACAL represented that:  (i) it had no direct or indirect interest in Embraer or Rio Han, and that there was no significant circumstance that may characterize a conflict of interest for the issuance of its report and (ii) there had been no attempt by Embraer’s controlling shareholders or management to direct, limit, hinder or perform any action that might have affected the access to and the use and knowledge of any information, assets, documents or work methodologies relevant to its conclusions.

Summary of Valuation Report of Market Value of Embraer’s Shareholders’ Equity

          ACAL prepared a valuation report of the market value of Embraer’s shareholders’ equity.  In its analysis, ACAL considered the nature of Embraer’s business as both an operating company and a holding company for its subsidiaries.  Determining the value of Embraer as a holding company entailed making independent valuations of the market value of Embraer’s subsidiaries and, accordingly, ACAL made valuations of Embraer Aircraft Holding, Embraer Liebherr Equipment Brazil, Embraer Representation LLC, Embraer Spain Holding Company and Harbim Embraer Aircraft Industrial Company.  ACAL determined the value of Embraer’s investment in its subsidiaries to be R$948,770,000, equal to 6.74% of Embraer’s total assets, which represented significant assets in the valuation of Embraer’s shareholders’ equity.

          ACAL utilized the equity method of accounting to determine the market value of Embraer’s net assets.  Equity accounting was also used to recognize adjustments to Embraer’s shareholders’ equity.  Equity accounting is used to determine the fair market value of specific assets, provide a basis for certain adjustments to net book value and serve as a starting point to estimate the liquidation value of a company as if the company would cease operations and be sold to a third party.  ACAL’s market value adjustment of Embraer’s net assets was calculated by taking into consideration the legal definitions and precepts of Article 264 of the Brazilian Corporate Law and the approach established in Article 183, § 1, of the Brazilian Corporate Law.  Under this latter provision, market value is determined:  (i) for raw materials and storeroom supplies, at the price at which they may be replaced through purchase in the market; (ii) for goods and rights intended for sale, at the net realization price through sales to the market, less taxes and other expenses necessary for the sale and the profit margin and (iii) for investments, at the net value at which they can be sold to third parties.

50



          ACAL’s valuation was also based on a limited review of Embraer’s financial statements as of September 30, 2005.

          ACAL preformed its review using Brazilian GAAP, which included tests on the accounting records necessary for determining the equity value of certain items at market value.  ACAL concluded that the financial statements of Embraer were prepared in accordance with all legal formalities, including the uniform and consistent observance of Brazilian GAAP.  In addition, Embraer’s financial statements had been examined by Deloitte as of September 30, 2005, whose Audit Report, dated November 10, 2005, was unqualified.

          In connection with its analysis, ACAL noted that Embraer’s financial statements, audited under Brazilian GAAP, as of September 30, 2005, contained the following provisions:

 

 

allowance for doubtful accounts;

 

 

 

 

 

 

provision for adjustment to realization value;

 

 

 

 

 

 

provision for depreciation; and

 

 

 

 

 

 

provision for amortization.

          In order to adjust Embraer’s financial statements to market value, ACAL made adjustments in the following accounts:

 

 

prepaid expenses;

 

 

 

 

 

 

deferred tax assets calculated on tax losses, available for offset against future income;

 

 

 

 

 

 

unamortized goodwill/negative goodwill on the acquisition of investments; and

 

 

 

 

 

 

deferred assets.

51



          The adjustments made by ACAL were as follows (amounts in reais):

Description

 

Value -
R$1,000.00

 


 



 

Book Value of Shareholders’ Equity of EMBRAER as of 09/30/2005

 

 

4,771,726

 

(-) Debit Adjustments to Shareholders’ Equity:

 

 

(2,146,399

)

Write-off of deferred income tax and social contribution (Current Assets)

 

 

(207,816

)

Write-off of prepaid expenses (Current Assets)

 

 

(239,021

)

Write-off of deferred income and social contribution taxes (Long-Term Liabilities)

 

 

(294,547

)

Write-off of prepaid expenses (Long-Term Liabilities)

 

 

(151,442

)

Write-off of deferred assets

 

 

(1,149,861

)

Equity loss on adjustments to shareholders’ equity of Harbim

 

 

(134

)

Equity loss on adjustments to shareholders’ equity of Liebherr

 

 

(31,048

)

Equity loss on adjustments to shareholders’ equity of Aircraft

 

 

(23,128

)

Equity loss on adjustments to shareholders’ equity of Aviation Europe

 

 

(3,370

)

Write-off of unrecoverable escrow deposits

 

 

(46,032

)

(+) Credit Adjustments to Shareholders’ Equity:

 

 

131,393

 

Equity gain on adjustments to shareholders’ equity of Spain Holding

 

 

50,903

 

Tools recorded in deferred charges

 

 

80,490

 

 

 



 

Shareholders’ Equity of EMBRAER adjusted to market value as of 09/30/2005

 

 

2,756,720

 

 

 



 

          Considering the above factors and in accordance with the requirements of the Brazilian Corporate Law, ACAL verified the accounting books and records that were used in creating Embraer’s balance sheet, which verifications were based on selective tests and sampling.

          Through ACAL’s examination of the relevant documents and its analysis, ACAL concluded that Embraer’s shareholders’ equity value, based on the equity value approach, was R$2,756,720,000.00, or R$3.22 per Embraer share, as of September 30, 2005.

Summary of Valuation Report of Market Value of Rio Han’s Shareholders’ Equity

          ACAL prepared a valuation report of the market value of Rio Han’s shareholders’ equity.  For the purpose of their report and in accordance with the requirements of the Brazilian Corporate Law, ACAL used the adjusted market value of the net assets of Rio Han, as of September 30, 2005, except for Rio Han’s interest in the 145,527,000 Embraer control shares transferred to Rio Han by Cia. Bozano, PREVI and SISTEL.  ACAL’s analysis contemplates Rio Han’s net assets as of September 30, 2005, as adjusted to reflect the transfer of the Embraer control shares to Rio Han on January 18, 2006.

          ACAL’s determination of the market value of Rio Han’s shareholders’ equity was also based on a limited review of Rio Han’s financial statements as of September 30, 2005, which were audited under Brazilian GAAP by ACAL.  ACAL’s review included tests on the accounting records necessary for determining Rio Han’s equity value at market value.  ACAL’s examinations found that Rio Han’s financial statements were prepared in accordance with all legal formalities, including uniform and consistent observance of Brazilian GAAP.

          In connection with its analysis, ACAL noted that Rio Han financial statements, audited under Brazilian GAAP, as of September 30, 2005, contained the following provisions:

52



 

 

allowance for doubtful accounts;

 

 

 

 

 

 

provision for adjustment to realization value;

 

 

 

 

 

 

provision for depreciation; and

 

 

 

 

 

 

provision for amortization.

          In order to adjust Rio Han’s financial statements to market price, ACAL made adjustments in the following accounts:

 

 

prepaid expenses;

 

 

 

 

 

 

deferred tax assets calculated on tax losses, available for offset against future income;

 

 

 

 

 

 

unamortized goodwill/negative goodwill on the acquisition of investments; and

 

 

 

 

 

 

deferred assets.

          The adjustments made by ACAL were as follows (amounts in reais):

Book Value of Shareholders’ Equity of RIO HAN as of 09/30/2005

 

 

50.00

 

(-) Debit Adjustments to Shareholders’ Equity

 

 

(406,240,912.29

)

Adjustment to market price for the EMBRAER shares paid as capital

 

 

(406,240,912.29

)

(+) Credit Adjustments to Shareholders’ Equity

 

 

962,017,269.89

 

EMBRAER control shares value - 20.16% of total capital

 

 

962,017,269.89

 

 

 



 

Shareholders’ Equity of Rio Han adjusted to market value as of 09/30/2005

 

 

555,776,407.60

 

 

 



 

          Considering the above factors and in accordance with the requirements of the Brazilian Corporate Law, ACAL verified the accounting books and records that were used in creating Rio Han’s balance sheet at September 30, 2005, which verifications were based on selective tests and by sampling.

          Through ACAL’s examination of the relevant documents and its analysis, ACAL concluded that Rio Han’s shareholders’ equity value, based on the equity value approach, was R$555,776,407.60, or R$3.42 per Rio Han share, on January 18, 2006.

Summary of Valuation Report of Book Value of Embraer’s Shareholders’ Equity

          ACAL prepared a valuation report of the book value of Embraer’s shareholders’ equity as of September 30, 2005.  ACAL’s analysis was conducted and the report was prepared in accordance with the rules and regulations of the CVM.

          In conducting its valuation, ACAL used the book valuation approach, as it considered such method to be the most appropriate in determining the value of a merger of companies of the same business group.  This approach was also considered appropriate by ACAL because Embraer’s shares had not been exposed to any fact or situation that may have caused the overvaluation of such shares.

53



          ACAL’s determination of the book value of Embraer’s shareholders’ equity was also based on a limited review of Embraer’s financial statements, audited under Brazilian GAAP as of September 30, 2005.  ACAL’s review included tests on the accounting records necessary for determining the book value of Embraer’s shareholders’ equity.  ACAL’s examination found that Embraer’s financial statements were prepared in accordance with all legal formalities, including the uniform and consistent observance of Brazilian GAAP.  In addition, the financial statements of Embraer and its subsidiaries were audited by Deloitte, as of September 30, 2005, whose opinion thereon, dated November 10, 2005, was unqualified.

          In accordance with the Brazilian Corporate Law, ACAL verified the accounting books and records that were used in the preparation of Embraer’s balance sheet.  Such verifications were based on selective tests and by sampling.

          Through ACAL’s examination of the relevant documents and its analysis, ACAL concluded that the shareholders’ equity, based on the book valuation report, of Embraer was R$4,771,725,554.66 or R$6.61 per Embraer share, as of September 30, 2005.

Opinion of Citigroup Global Markets Inc.

          Embraer requested that Citigroup evaluate the fairness, from a financial point of view, to the holders of the Embraer non-voting shares (other than the controlling shareholders of Embraer and their respective affiliates) of the one-for-one exchange ratio provided for in the merger for the Embraer non-voting shares.  Citigroup has delivered to the Board of Directors of Embraer a written opinion, dated February 15, 2006, to the effect that, as of that date and based on and subject to the matters described in its opinion, the one-for-one exchange ratio provided for in the merger for the Embraer non-voting shares was fair, from a financial point of view, to the holders of the Embraer non-voting shares (other than the controlling shareholders of Embraer and their respective affiliates).  Citigroup was not requested to, and it did not, make any written or oral presentation to the Board of Directors of Embraer, or otherwise provide the Board of Directors of Embraer with, any financial analyses in connection with the rendering of Citigroup’s opinion and, accordingly, such analyses were not reviewed, considered or relied upon by the Board of Directors of Embraer for purposes of its evaluation of the merger. 

          The full text of Citigroup’s written opinion, dated February 15, 2006, which describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken, is attached to this prospectus as Annex G and is incorporated into this prospectus by reference.  Citigroup’s opinion was provided to the Board of Directors of Embraer and relates only to the fairness, from a financial point of view, to the holders of the Embraer non-voting shares (other than the controlling shareholders of Embraer and their respective affiliates) of the one-for-one exchange ratio provided for in the merger for the Embraer non-voting shares, does not address any other term, aspect or implication of the merger and does not constitute a recommendation to any security holder as to how such security holder should vote or act on any matters relating to the proposed merger.

          In arriving at its opinion, Citigroup:

 

 

reviewed the Merger Agreement;

 

 

 

 

 

 

held discussions with senior officers, directors and other representatives and advisors of Embraer concerning Embraer’s business, operations and prospects;

 

 

 

 

 

 

examined publicly available business and financial information relating to Embraer;

 

 

 

 

 

 

examined financial forecasts and other information and data relating to Embraer which were provided to or otherwise discussed with Citigroup by Embraer’s management;

54



 

 

reviewed the financial terms of the merger as described in the Merger Agreement in relation to, among other things, current and historical market prices of the Embraer non-voting shares and the common shares of Embraer (other than the Golden Share of Embraer held by the Brazilian Government and the common shares of Embraer held by Rio Han); the dividend preference attributable to the Embraer non-voting shares; historical returns on equity of the Embraer non-voting shares and the common shares of Embraer; historical and projected earnings and other operating data of Embraer; and Embraer’s capitalization and financial condition;

 

 

 

 

 

 

considered certain stock market information of certain other Brazilian publicly traded companies and, to the extent publicly available, the financial terms of share reclassifications and Brazilian change of control transactions which Citigroup considered relevant; and

 

 

 

 

 

 

conducted other analyses and examinations and considered other financial, economic and market criteria as Citigroup deemed appropriate in arriving at its opinion.

          In rendering its opinion, Citigroup assumed and relied, without assuming any responsibility for independent verification, on the accuracy and completeness of all financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with it and on the assurances of Embraer’s management that it is not aware of any relevant information that was omitted or remained undisclosed to Citigroup.  With respect to financial forecasts and other information and data provided to or otherwise reviewed by or discussed with Citigroup relating to Embraer, Citigroup was advised by Embraer’s management and assumed, with Embraer’s consent, that the forecasts and other information and data were reasonably prepared on bases reflecting the best currently available estimates and judgments of Embraer’s management as to the future financial performance of Embraer.  Citigroup assumed, with Embraer’s consent, that the merger would be consummated in accordance with its terms, without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the necessary regulatory or third party approvals, consents, releases and waivers for the merger, no delay, limitation, restriction or condition has been or would be imposed that would have an adverse effect on Embraer, Rio Han or the merger.  Citigroup assumed, with Embraer’s consent, that neither Embraer nor Rio Han will incur any Brazilian income tax liabilities as a result of the merger.

          Citigroup’s opinion with respect to the one-for-one exchange ratio provided for in the merger for the Embraer non-voting shares related to the pro forma dilutive impact of the merger on the Embraer non-voting shares.  Citigroup’s opinion did not address any terms or other aspects or implications of the merger (other than the one-for-one exchange ratio provided for in the merger for the Embraer non-voting shares to the extent expressly specified in Citigroup’s opinion), including, without limitation, the number of common shares of Rio Han that have been or will be issued in the merger or related transactions in exchange for any securities of Embraer other than the Embraer non-voting shares or the relative fairness of such exchanges to the holders of Embraer non-voting shares.  Citigroup did not express any opinion as to the actual value of the common shares Rio Han or the Rio Han ADSs when issued or the prices at which the Embraer non-voting shares, the common shares of Embraer, the common shares of Rio Han or the Rio Han ADSs will trade or otherwise be transferable at any time.  Citigroup’s opinion does not address, and Citigroup did not consider, any operational, tax or other benefits, synergies, losses or costs, if any, that may result from the consummation of the merger.  Citigroup did not make, and was not provided with, an independent evaluation or appraisal of the assets or liabilities, contingent or otherwise, of Embraer, and did not make any physical inspection of the properties or assets of Embraer.  Citigroup did not express any view as to, and its opinion did not address, Embraer’s underlying business decision to effect the merger, the relative merits of the merger as compared to any alternative business strategies that might exist for Embraer or the effect of any other transaction in which Embraer might engage.  Citigroup was not requested to, and it did not, solicit third party indications of interest in the acquisition of Embraer or any securities of Embraer nor was Citigroup requested to, and it did not, participate in the negotiation or structuring of the merger.  Citigroup’s opinion was necessarily based on information available to Citigroup, and financial, stock market and other conditions and circumstances existing and disclosed to Citigroup, as of the date of its opinion.  Except as described above, Embraer imposed no other instructions or limitations on Citigroup with respect to the investigations made or procedures followed by Citigroup in rendering its opinion.

          The type and amount of consideration payable in the merger and related transactions was determined by Embraer and the decision to enter into the proposed merger and related transactions was solely that of the Board of Directors of Embraer.  Citigroup’s opinion should not be viewed as determinative of the views of the Board of Directors of Embraer or Embraer’s management with respect to the proposed merger or related transactions or with respect to the consideration payable in the merger or related transactions.

55



          Citigroup was engaged by Embraer solely for purposes of rendering an opinion in connection with the merger.  Pursuant to the terms of Citigroup’s engagement, Embraer has agreed to pay Citigroup for its opinion services a fee of US$400,000, which was payable in connection with the delivery of its opinion.  Embraer also has agreed to indemnify Citigroup and related persons against liabilities, including liabilities under the United States federal securities laws, arising out of its engagement.

          In the ordinary course of business, Citigroup and its affiliates may actively trade or hold the securities of Embraer, and in the future may actively trade or hold the securities of Rio Han, for their own account or for the account of customers and, accordingly, may at any time hold a long or short position in those securities.  Certain of Citigroup’s Brazilian affiliates in the past have provided and currently are providing corporate banking and other financial services to Embraer, and in the future may provide services to Rio Han, unrelated to the proposed merger, for which services such affiliates have received and expect to receive compensation.  In addition, Citigroup and its affiliates, including Citigroup Inc. and its affiliates, may maintain relationships with Embraer and affiliates of Embraer and Rio Han.

          Embraer selected Citigroup to deliver an opinion in connection with the merger based on Citigroup’s reputation and experience.  Citigroup is an internationally recognized investment banking firm which regularly engages in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes.

Appraisal Rights

          Holders of record of Embraer common shares at the close of business on January 19, 2006, the date of the first announcement of the merger, are entitled to exercise appraisal rights, in connection with the merger.

          If you held Embraer common shares of record at the close of business on January 19, 2006, you will have the right to elect to receive, instead of the Rio Han common shares to be issued in the merger, an amount in cash equal to R$6.61 in cash per common share, being the greater of (i) the shareholders’ equity per share of Embraer determined in accordance with Brazilian GAAP as of September 30, 2005, using the methodology described in the Valuation Report of Shareholders’ Equity of Embraer prepared by ACAL Consultoria e Auditoria S/S, or ACAL, dated as of January 18, 2006 and (ii) the market value of Embraer’s shareholders’ equity as of September 30, 2005, using the methodology described in the Valuation Report of Embraer’s Shareholders’ Equity prepared by ACAL, dated as of January 18, 2006.  See “The Proposed Restructuring and Merger—Valuation Reports of ACAL—Summary of the Valuation Report of Book Value of Embraer’s Shareholder’s Equity” beginning on page 53 of this prospectus.  As the extraordinary general meeting of Embraer shareholders will take place more than 60 days after the date of the last approved balance sheet, a shareholder may demand that their shares be valued on the basis of a new balance sheet that is as of a date within 60 days of such meeting.

          If you have appraisal rights, you must exercise your rights within 30 days of the publication of the minutes of the extraordinary general meeting of Embraer shareholders convened to approve the merger, or the appraisal rights period, otherwise your rights will lapse.  Embraer expects to publish the minutes of the extraordinary general meeting in the Vale Paraibano in São José dos Campos and in the Gazeta Mercantil in São Paulo on or about [________], 2006.  Embraer will furnish an English translation of the minutes of the extraordinary general meeting to the SEC (www.sec.gov) on the same date as their publication in Brazil and will also make an English translation of the minutes of the extraordinary general meeting available on its website (www.embraer.com.br).

          You can exercise your appraisal rights by delivering written notice to Embraer (Attention: Investor Relations) prior to the expiration of the appraisal rights period at the following address:

 

Embraer

 

Avenida Brigadeiro Faria Lima, 2170

 

12227-901 São José dos Campos

 

São Paulo, Brazil

 

Attention: Investor Relations

          You cannot exercise your appraisal rights if you vote in favor of the merger.

          Under the Brazilian Corporate Law, holders of Embraer preferred shares and Embraer ADSs are not entitled to appraisal rights in connection with the merger.

56



Unwinding of the Merger

          Under the Brazilian Corporate Law, if the management of Rio Han believes that the total value of appraisal rights exercised by holders of Embraer common shares may put at risk the financial stability of Rio Han, the management may, within ten days after the end of the appraisal rights period, call an extraordinary general meeting of Rio Han shareholders to ratify or unwind the merger.

          The factors that may put at risk the financial stability of Rio Han will depend on the financial condition of Rio Han after the merger and the general economic environment in its markets at the time the appraisal rights are exercised.  These factors may include, but are not limited to, the cash balances of Rio Han, its ability to borrow funds or fund expansion plans and continuing operations, and compliance with existing contractual obligations, including financial covenants.  The decision to call the extraordinary general meeting of Rio Han shareholders to ratify or unwind the merger is at the discretion of Rio Han’s management.

          Payment relating to the exercise of appraisal rights will not be due if the merger is unwound by Rio Han’s shareholders.

Prospectus Availability

          Rio Han will make this prospectus available to (1) record holders of Embraer common and preferred shares who must receive this prospectus under the applicable U.S. federal securities laws, (2) holders of Embraer ADSs whose names appear on the list of record holders of ADSs maintained by the depositary and (3) brokers, banks and similar persons whose names, or the names of whose nominees, appear on Embraer’s shareholders’ list or, if applicable, who are listed as participants in a clearing agency’s security position listing for subsequent transmission to beneficial owners of Embraer ADSs.

Brokerage Commissions and Cancellation Fees

          You will not have to pay brokerage commissions if your Embraer shares or ADSs are registered in your name.  However, if your securities are held through a bank or broker or a custodian linked to a stock exchange, you should inquire as to whether any other transaction fee or service charges may be charged in connection with the merger.

Stock Exchange Listings

          Upon the effectiveness of the merger, Rio Han will apply to register as a public company with the CVM and to list the Rio Han common shares to be issued in the merger on the Novo Mercado segment of the BOVESPA under the ticker symbol “EMBR3,” which is currently the ticker symbol for the Embraer common shares.  Rio Han anticipates the registration and listing process to be completed within approximately 60 days from the date of the filing of its applications with the CVM and the BOVESPA.  Until Rio Han is registered as a public company with the CVM and the Rio Han common shares are listed on the BOVESPA, holders of Embraer common and preferred shares may continue to trade their Embraer shares under their current ticker symbols “EMBR3” and “EMBR4,” respectively. 

          Rio Han will also submit a listing application to the NYSE to list the Rio Han ADSs to be issued to holders of Embraer ADSs in the merger under the ticker symbol “ERJ,” which is currently the ticker symbol for the Embraer ADSs.  Until the Rio Han ADSs are authorized for listing on the NYSE, subject to official notice of issuance, holders of Embraer ADSs may continue to trade their Embraer ADSs under their current ticker symbol.  Rio Han expects that the Rio Han ADSs will be authorized for listing on the NYSE, subject to official notice of issuance, by the same time that Rio Han is registered as a public company with the CVM and the Rio Han common shares are listed on the BOVESPA.

57



Accounting Treatment

          Under Brazilian GAAP, the merger will be accounted for considering net assets acquired at book value.

          Under U.S. GAAP, the merger of Embraer with and into Rio Han will be recorded using the historical carrying values of the assets and liabilities of Embraer.  The merger will be treated as a recapitalization that results in no change in accounting basis from the accounting basis of Embraer, because, in accordance with U.S. GAAP, Embraer is regarded as the acquiring party for accounting purposes.  The creation of Rio Han, a holding company with no operations, and the subsequent merger with Embraer do not involve any new shareholders nor result in any one shareholder or group of shareholders obtaining unilateral control of Rio Han.

Exchangeable Notes Issued by BNDES

          On June 19, 2001, Banco Nacional de Desenvolvimento Econômico e Social - BNDES, the Brazilian National and Social Development Bank, or BNDES, conducted a private offering of notes that are exchangeable into Embraer ADSs representing Embraer preferred shares currently owned by BNDES Participações S.A. - BNDESPAR, or BNDESPAR, a wholly owned subsidiary of BNDES.  The holders of the exchangeable notes have the right to acquire the Embraer ADSs at any time prior to June 18, 2006, which is the stated maturity of the notes.  In connection with the offering of such exchangeable notes, Embraer became a party to a registration rights agreement, pursuant to which it agreed, among other things, to register resales of the ADSs and underlying preferred shares relating to the exchangeable notes.  Embraer filed a resale registration statement on Form F-3 with the U.S. Securities and Exchange Commission, or SEC, on October 17, 2001.

          As a result of and after completion of the merger, Rio Han will be required to file a post-effective amendment to the Embraer resale registration statement in order to update the disclosure contained in the registration statement, because the bonds will be exchangeable into Rio Han ADSs representing Rio Han common shares held by BNDESPAR, under the same terms and conditions as under the 2001 offering made by BNDES.

58



MERGER AGREEMENT

          The following description of the material provisions of the Merger Agreement is qualified in its entirety by reference to the Merger Agreement, a copy of which is attached as Annex B to and incorporated by reference into this prospectus.  All Embraer shareholders are encouraged to read the Merger Agreement in its entirety for a more complete description of the terms and conditions of the merger.

Structure of the Merger

          The Merger Agreement provides for the merger of Embraer with and into Rio Han, which will become the successor of Embraer and, by operation of law, assume all of Embraer’s rights and obligations, pursuant to Articles 224, 225, 227 and 264 of the Brazilian Corporate Law.

          As a result of the merger, Embraer will cease to exist and:

 

 

each common share of Embraer (other than the common shares held by Rio Han) will be exchanged for one Rio Han common share;

 

 

 

 

 

 

each preferred share of Embraer will be exchanged for one Rio Han common share, and Rio Han will be prohibited from issuing preferred shares;

 

 

 

 

 

 

each Embraer ADS will be exchanged for one Rio Han ADS; and

 

 

 

 

 

 

the Golden Share issued by Embraer and held by the Brazilian Government will be exchanged for a Golden Share of Rio Han.

Rationale, Purpose and Interests of Embraer and Rio Han in the Implementation of the Proposed Restructuring and Merger

          The Merger Agreement provides that the proposed restructuring and merger is intended to create a basis for the sustainability, growth and continuity of the businesses and activities of Embraer, through its successor Rio Han.  This will be achieved by facilitating its access to capital markets and increasing financing resources for the development of new products and expansion programs.

          As set forth in the Merger Agreement, the management of Embraer expects that the following benefits to result from the proposed restructuring and merger:

 

 

Benefits to Embraer:

 

 

 

 

 

 

 

 

enhance the capacity to attract resources to support its expansion programs because of increased access to capital markets; and

 

 

 

 

 

 

 

 

potential use of Rio Han common shares as acquisition currency.

 

 

 

 

 

 

 

Benefits to Embraer Shareholders:

 

 

 

 

 

 

 

 

extension of voting rights to all Embraer shareholders;

 

 

 

 

 

 

 

 

potential increase in the liquidity of the shares to be received by Embraer shareholders in the merger resulting from the expected dispersed ownership of such shares;

 

 

 

 

 

 

 

 

adoption of enhanced corporate governance practices and transparency standards; and

 

 

 

 

 

 

 

 

for Cia. Bozano, PREVI and SISTEL, realization of a premium on the Embraer control shares transferred to Rio Han by virtue of the exchange ratio applicable to such transfer when compared to the exchange ratio applicable to the merger, such premium being compensation for their agreement to relinquish their controlling ownership of Embraer and to terminate the Shareholders’ Agreement.

59



 

 

Benefits to the Brazilian Capital Markets:

 

 

 

 

 

 

 

 

creation of the first major Brazilian company with dispersed corporate control and adequate share capital structure to be listed on the Novo Mercado segment of the BOVESPA, creating a precedent for similar transactions; and

 

 

 

 

 

 

 

 

creation of a new corporate governance benchmark.

 

 

 

 

 

 

 

Benefits to the Brazilian Government:

 

 

 

 

 

 

 

 

maintenance of the rights attributed to the Golden Share and improvement of the conditions for its application;

 

 

 

 

 

 

 

 

assurance that the majority of the voting rights of Rio Han will be held by Brazilian shareholders as provided in the Privatization Notice of Embraer;

 

 

 

 

 

 

 

 

control over the concentration of equity interest in the capital stock of Rio Han equal to or greater than 35%;

 

 

 

 

 

 

 

 

assurance of a dispersed capital structure due to the adoption of restrictions on voting rights contained in Rio Han’s proposed bylaws; and

 

 

 

 

 

 

 

 

assurance that Rio Han will remain as a technological and industrial partner of the Brazilian Army.

Approval of the Merger

           The merger will be submitted to the extraordinary general meetings of Embraer and Rio Han shareholders to take place on [_______], 2006, which will be called and convened as set forth in the Brazilian Corporate Law and Embraer’s and Rio Han’s bylaws.

Valuation Reports and Financial Analyses

 

(i)

ACAL Consultoria e Auditoria S/S Valuation Reports

          Valuation Reports of Market Value of Shareholders’ Equity

          Pursuant to Article 264 of the Brazilian Corporate Law, valuation reports of the market value of shareholders’ equity of Embraer and Rio Han were prepared by ACAL for the purpose of calculating the amount per share that holders of Embraer common shares would be entitled to receive if they decided to exercise their appraisal rights.  These valuation reports were prepared according to the same criteria and the same base date (September 30, 2005) and were based on the financial statements of each company, dated September 30, 2005, audited under Brazilian GAAP.  For such purposes, ACAL accounted for the necessary adjustments in the balance sheet of Rio Han to reflect the transfer of the Embraer control shares into Rio Han’s capital stock on January 18, 2006, based on the following assumptions:

 

 

Rio Han holds the Embraer control shares as its sole assets; and

 

 

 

 

 

 

Rio Han does not have any liability or obligation that could adversely affect its net equity.

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           See “The Proposed Restructuring and Merger—Valuation Reports of ACAL—Summary of Valuation Report of Market Value of Embraer Shareholders’ Equity” beginning on page 50 of this prospectus for further details.

          Valuation Report of Shareholders’ Equity of Embraer

          The capital increase of Rio Han resulting from the merger will be calculated based on the Valuation Report of Shareholders Equity of Embraer.  According to this valuation report, Embraer’s net equity on September 30, 2005 amounted to R$4,771,725,554.66.  See “The Proposed Restructuring and Merger—Valuation Reports of ACAL—Summary of Valuation Reports of Book Value of Embraer’s Shareholders’ Equity” beginning on page 53 of this prospectus for further details.

 

(ii)

Financial Analyses of Goldman Sachs

          In order to support the determination of the exchange ratio between the shares issued by Embraer for those issued by Rio Han, Goldman Sachs was retained by Embraer to undertake certain financial analyses regarding the proposed restructuring and merger.  The Merger Agreement provides that the management of each of Rio Han and Embraer understand that, among the several valuation methods addressed in the financial analyses undertaken by Goldman Sachs, a discounted cash flow analysis best reflected the value of Embraer and, consequently, of Rio Han, since the assets of Rio Han comprise solely the Embraer control shares.  See “The Proposed Restructuring and Merger—Financial Analyses of Goldman Sachs” beginning on page 43 of this prospectus for a more detailed discussion of the financial analyses undertaken by Goldman Sachs.

Exchange Ratio

          Since Rio Han:  (i) has the sole purpose to serve as a vehicle for implementation of the proposed restructuring and merger, (ii) has as its sole asset the Embraer control shares and (iii) does not have any liability or obligation of any kind which could adversely affect its net equity, the management of each of Rio Han and Embraer determined that each Embraer share or Embraer ADS not subject to the Shareholders’ Agreement would be exchanged for one Rio Han common share or Rio Han ADS, respectively.

Premium for Embraer Control Shares

          The Merger Agreement provides that based on, among other things, and taking into account:  (i) Goldman Sachs’ financial analyses and (ii) the recognition that Cia. Bozano, PREVI and SISTEL have a legitimate and justified expectation in receiving a premium on the Embraer control shares transferred by them to Rio Han, the management of each of Rio Han and Embraer determined that such transfer would be made at the ratio of 1.1153 common shares of Rio Han for each Embraer control share.  Each common or preferred share of Embraer (including preferred shares represented by Embraer ADSs) not subject to the Shareholders’ Agreement, regardless of the type of share, would be exchanged for one Rio Han common share or Rio Han ADS, respectively.

Capital Increase

          The Merger Agreement provides that Rio Han will undergo a capital increase to reflect its increased capital stock created by the transfer of the total amount of the capital stock of Embraer into Rio Han as a result of the merger.  Therefore, as a result of the merger and based on the valuation reports prepared by ACAL, the capital stock of Rio Han will be increased by R$3,809,708,284.77, from R$962,017,769.89 to R$4,771,726,054.66, and the number of shares issued by Rio Han to Embraer shareholders may vary if holders of Embraer common shares exercise their appraisal rights in connection with the merger.  Upon implementation of the merger, the capital stock of Rio Han will comprise 738,611,819 common shares and one Golden Share held by the Brazilian Government.

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Holders of Embraer Preferred Shares

          As a result of the merger and the receipt of Rio Han common shares, holders of Embraer preferred shares will no longer have priority in capital reimbursement and in receiving dividends per share 10% higher than those granted to holders of Embraer common shares.  The holders of Rio Han common shares as a result of the merger will be entitled to all rights prescribed thereto in Rio Han’s bylaws.

          The Merger Agreement provides that the management of each of Rio Han and Embraer considers equitable the application of the same exchange ratio for the exchange of the common shares and preferred shares (including preferred shares of Embraer represented by ADSs) for Rio Han common shares (including common shares represented by ADSs) given that the equity losses suffered by holders of preferred shares (including preferred shares represented by ADSs) will be offset by the extension of voting rights to all Embraer shareholders.

Appraisal Rights

          Appraisal rights will only be available to holders of Embraer common shares because the Embraer common shares meet the requirements of Brazilian Corporate Law:  (1) such shares are considered illiquid and (2) more than 50% of such shares are held by controlling shareholders.  Pursuant to the Merger Agreement and the Brazilian Corporate Law, holders of Embraer common shares that vote against the merger at the meeting, abstain from voting or do not attend the extraordinary general meeting that approves the merger can exercise appraisal rights if they already hold shares of Embraer on January 19, 2006, the date of the first announcement of the merger. The appraisal right must be exercised within 30 days after the publication of the minutes of the extraordinary general meeting.

          As set forth in Article 264 of the Brazilian Corporate Law, the reimbursement to holders of Embraer common shares that exercise their appraisal rights will be made based on the greater of the following amounts:

 

 

Embraer’s book value, calculated on September 30, 2005; and

 

 

 

 

 

 

Embraer’s market value, calculated on September 30, 2005.

          Based on the valuation reports prepared per share by ACAL, the reimbursement price calculated on the basis of Embraer’s book value is R$6.61 per share, which exceeds Embraer’s market value of R$3.82 per share, in each case calculated as of September 30, 2005.

          The management of Rio Han may call a shareholders’ meeting to ratify or unwind the merger if the amount paid to Embraer common shareholders who exercise their appraisal rights would risk the financial stability of Rio Han after the merger.

Renaming of Rio Han

          Rio Han will be renamed “Embraer—Empresa Brasileira de Aeronáutica S.A.,” Embraer’s current name, upon the approval of such change in the name by Rio Han shareholders at the general meeting of such shareholders convened to approve the merger.

Rio Han Board of Directors

          Rio Han’s proposed bylaws provide that, after the proposed restructuring and merger, Rio Han’s Board of Directors will consist of 11 members and 11 alternates.  The Brazilian Government will have the right to appoint one director and one alternate by virtue of its Golden Share.  The employees of Rio Han will have the right to appoint two directors and two alternates.  The eight remaining directors and their alternates will be elected by Embraer shareholders at a general meeting.

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          According to the Novo Mercado regulations, the members of Rio Han’s Board of Directors will serve a unified two-year term.  However, as an interim measure, the first term of Rio Han’s Board of Directors will be for three years, ending at the annual general meeting of Rio Han shareholders that approves the financial statements for the fiscal year ended December 31, 2008.  Additionally, the members of Rio Han’s Board of Directors to serve during this interim term will be elected at the extraordinary general meeting of Rio Han shareholders to approve the merger immediately prior to the proposal to approve the merger.  See “Management of Rio Han Before and After the Proposed Restructuring and Merger” beginning on page 110 of this prospectus for further details.

Chairman and Chief Executive Officer

          The shareholders of Rio Han will appoint Mr. Maurício Novis Botelho as the Chairman of Rio Han’s Board of Directors.  Mr. Botelho will also serve as CEO of Rio Han until the annual general meeting of Rio Han shareholders to approve the financial statements for the fiscal year ended December 31, 2006.  At this time, a new CEO will be elected by Rio Han’s Board of Directors and the proposed Rio Han bylaws will expressly forbid any executive officer from serving simultaneously as a Director of Rio Han.

Officers of Rio Han

          Rio Han’s Board of Directors will elect Rio Han’s officers.  The initial term of Rio Han’s officers will be three years and thereafter the officers will serve a term of two years.  Until the annual general meeting of Rio Han shareholders to be held in 2009, a majority vote of the members of Rio Han’s Board of Directors will be necessary to remove an executive officer.  Thereafter, pursuant to the proposed Rio Han bylaws, the dismissal of a member of the executive committee will require the affirmative vote of at least seven members of the Board of Directors.

Listing of Rio Han

          If the merger is approved at the general meeting of Rio Han shareholders convened for that purpose, a proposal for listing of Rio Han as a public company on the Novo Mercado segment of the BOVESPA will be submitted to Rio Han shareholders at the general meeting.  The listing of Rio Han will be implemented within 120 days of the general meeting.  The Rio Han ADSs and the underlying common shares to be received by holders of Embraer ADSs will be listed on the NYSE.

Lock-up of Controlling Shareholders

          If the merger is approved at the general meeting of Rio Han shareholders convened for that purpose, a proposal will be submitted to Rio Han shareholders, as set forth in the Merger Agreement, at such general meeting providing that the Rio Han common shares held by the current controlling shareholders of Rio Han and by the management of Rio Han will be subject to a lock-up whereby they cannot trade their common shares of Rio Han for six months.

Rio Han Bylaws

          Before the approval of the merger at the extraordinary general meeting of Rio Han shareholders, the current controlling shareholders of Rio Han will approve new bylaws for Rio Han substantially in the form attached as Annex H to this prospectus.

General Limitation on the Exercise of Voting Rights

          Pursuant to Rio Han’s proposed bylaws, the maximum number of votes allowed to any shareholder or group of shareholders at any general meeting of Rio Han shareholders is limited to 5% of the capital stock, regardless of the number of shares (including those represented by ADSs) held by such shareholder or group of shareholders. See “Description of Rio Han’s Capital Stock—Limitations on the Voting Rights of Certain Holders of Common Shares” beginning on page 120 of this prospectus for further details.

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Limitation on the Exercise of the Voting Rights of Non-Brazilian Shareholders

          Pursuant to Rio Han’s proposed bylaws, the total votes that may be cast by a non-Brazilian shareholder, or a group of non-Brazilian shareholders, in any general meeting of Rio Han shareholders, may not exceed 2/3 of the votes that may be exercised by Brazilian shareholders present at such meeting.  See “Description of Rio Han’s Capital Stock—Limitation on the Voting Rights of Non-Brazilian Shareholders” beginning on page 121 of this prospectus.

Requirement of a Public Tender Offer

          Pursuant to Rio Han’s proposed bylaws, the acquisition of more than 35% of Rio Han’s share capital by any shareholder or group of shareholders is subject to the approval of the Brazilian Government, as holder of the Golden Share.  Upon approval by the Brazilian Government, such increase in participation will require such shareholder or group of shareholders to make a public tender offer for all of Rio Han shares at a price calculated and based on the criteria established in the proposed bylaws.  See “Description of Rio Han’s Capital Stock—Mechanism to Promote Dispersed Ownership of Rio Han’s Shares” beginning on page 128 of this prospectus.

Rights of the Golden Share

          Rio Han’s proposed bylaws maintain the rights currently granted to the Brazilian Government, as holder of the Golden Share.  The proposed bylaws further assure that the Brazilian Government, as holder of the Golden Share, is granted a veto right over, among other things, any decision related to:  (i) changes in the limitations on the exercise of voting rights described above; (ii) statutory amendments involving changes to the rights granted to the Golden Share and (iii) statutory changes to the provisions related to the acquisition of equity interests equal to or higher than 35% of the capital stock.  See “Description of Rio Han’s Capital Stock—Rights of the Golden Share” on page 125 of this prospectus.

Monitoring of Equity Shareholders

          Pursuant to Rio Han’s proposed bylaws, Rio Han’s Officer of Investor Relations is responsible for monitoring changes in Rio Han’s shareholding composition and alerting the proper authorities of any violations of Rio Han’s bylaws.

Breaching of Legal and Statutory Provisions

          Any violations of the Brazilian Corporate Law or Rio Han’s proposed bylaws will, upon approval of Rio Han’s shareholders at a special shareholders’ meeting, result in the suspension of the violating shareholder’s voting rights.  Such suspension will cease as soon as the violation ceases.

General Provisions

          Upon approval of the merger by Embraer shareholders and Rio Han shareholders, the management of each of Embraer and Rio Han will register and publish all acts related to the proposed restructuring and merger.

          Any dispute arising from the Merger Agreement will be venued in São Paulo, Brazil.

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INTERESTS OF CERTAIN PERSONS IN, AND SIGNIFICANT
SHAREHOLDERS OF, RIO HAN AND EMBRAER

Rio Han

          Rio Han has 162,306,763 common shares outstanding as of the date of this prospectus and at January 18, 2006.  Rio Han’s current shareholders are Cia Bozano, PREVI and SISTEL and its capital stock is divided among them in nearly equal amounts.

          In order to ensure stability during the proposed restructuring and merger and continuity of Embraer’s management guidelines, Rio Han’s proposed bylaws contain a temporary provision specifying that Rio Han’s Board of Directors will be appointed by the general meeting of Rio Han shareholders convened to approve the proposed restructuring and merger immediately prior to the proposal to approve the merger and will hold office for a term of three years, expiring at the annual general meeting of Rio Han shareholders in 2009 to approve the financial statements of Rio Han for the fiscal year ending December 31, 2008.  Under this arrangement, each current Rio Han shareholder will appoint one representative to, and all current Rio Han shareholders, as a group, will appoint four other members of, the Rio Han transition Board of Directors.  See “Management of Rio Han Before and After the Proposed Restructuring and Merger” beginning on page 110 of this prospectus for further details.  If the proposed restructuring and merger is approved at the general meeting of Rio Han shareholders convened for that purpose, a proposal will be submitted to the general meeting of Rio Han shareholders, as set forth in the Merger Agreement, to approve a restriction on transfers of Rio Han common shares by the current controlling shareholders of Rio Han and the management of Rio Han for a period of six months following the effectiveness of the merger.

Embraer

          Embraer has total authorized capital of 1,500,000,000 shares, with a total aggregate of 721,831,057 shares outstanding at January 19, 2006.  Of this total, 242,544,448 are common shares (including the Golden Share held by the Brazilian Government) and 479,287,609 are preferred shares.  The table below sets forth the amount of Embraer shares held by each of Rio Han, Cia. Bozano, PREVI and SISTEL, as well as the amount of shares held by Embraer’s shareholders that owned 5% or more of the common shares or preferred shares of Embraer as of January 19, 2006:

 

 

Common Shares

 

Preferred Shares

 

Total Shares

 

 

 


 


 


 

 

 

Shares

 

(%)

 

Shares

 

(%)

 

Shares

 

(%)

 

 

 



 



 



 



 



 



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