[EMBRAER logo]
EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A.
NOTICE TO MARKET
Embraer - Empresa Brasileira de Aeronautica S.A. announces that its Board of
Directors will hold a meeting on January 19, 2006 at 2:00 p.m. EST to discuss
details of a proposal to change Embraer's capital structure (the "Proposal").
The Proposal was submitted by Embraer executive officers. If accepted, the
Company will be listed on the Novo Mercado segment of the Sao Paulo Stock
Exchange (the "BOVESPA") - a special trading segment for companies meeting the
highest levels of Brazilian corporate governance standards.
The Proposal's main goal is to provide long-term growth opportunities for
Embraer by facilitating access to the capital markets and increase financing
resources for future new program developments. Embraer executive officers
believe that if the Proposal is implemented, shareholders will benefit from a
potential increase in liquidity of the shares, resulting in a larger market
capitalization of the company, and from the adoption of enhanced corporate
governance practices and transparency standards, because all shareholders will
be given the right to vote.
If the Proposal is approved by the Board of Directors, it will be submitted for
approval in a General Shareholders' Meeting, where all shareholders, regardless
of the type of shares they own, will have the right to vote as described at the
end of this document.
References to shares issued by the Company and shares not subject to the Embraer
Shareholders' Agreement shall be deemed to also include American Depositary
Shares ("ADSs") issued under Embraer's American Depositary Receipt ("ADR")
program. References to Embraer shareholders shall be deemed to also include
holders of Embraer ADSs.
SUMMARY OF EMBRAER'S PROPOSAL
The implementation of the Proposal is summarized as follows:
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- The General Shareholders' Meeting of Embraer will be held to discuss
the merger of the Company with and into a new entity (the "New
Corporation"), created as a vehicle to implement the transactions
described in the Proposal, that will initially hold all 145,527,000
Embraer common shares subject to the Shareholders' Agreement - these
shares are currently owned by the controlling shareholders: Cia.
Bozano, and pension funds, Caixa de Previdencia dos Funcionarios do
Banco do Brasil - PREVI and Fundacao Sistel de Seguridade Social (the
"Current Controlling Shareholders").
- If the Proposal is implemented: (i) Embraer will cease to exist and,
consequently, its shares, including preferred shares and ADSs, will
cease to be outstanding. Embraer shareholders will receive common
shares (including in the form of ADSs) of the New Corporation which
will succeed Embraer in all its rights and obligations. Embraer's
Shareholders' Agreement will have no further effect. The bylaws of the
New Corporation will prohibit the issuance of preferred shares.
- The Golden Share, a special class of common share issued by Embraer to
the Federal Government, will be replaced by another Golden Share, to
be issued by the New Corporation. After the implementation of the
Proposal, if approved, the Federal Government will maintain its
special rights, established during the privatization of Embraer, in
order to protect the strategic interests of Brazil, inherent to
Embraer's business activities.
- If the Proposal is implemented, the New Corporation will be registered
as a public company with the Comissao de Valores Mobiliarios (CVM),
the Brazilian securities and exchange commission. As Embraer believes
in openness and transparency, it will ask for the approval of BOVESPA
to trade the common shares of the New Corporation on the Novo Mercado
segment. In addition, the necessary steps will be taken to list the
ADSs of the New Corporation on the New York Stock Exchange (NYSE). To
complete all actions included in the Proposal, the New Corporation
will have its name changed to Embraer - Empresa Brasileira de
Aeronautica S.A.
The General Shareholders' Meeting will only be held after registration with
the U.S. Securities and Exchange Commission - SEC.
- The bylaws of the New Corporation will have the following control
mechanisms:
(i) As the New Corporation will only issue common shares (including in the
form of ADSs), all shareholders - including the depositary bank of the ADR
program of the New Corporation, which will vote according to instructions
received by the holders of ADSs - will have voting rights. As a result, the
New Corporation will be able to be listed on the Novo Mercado segment of
the BOVESPA.
(ii) Dispersed ownership through a mechanism that limits each shareholder's
or group of shareholders' voting rights to 5%, regardless of the amount of
shares or ADSs owned.
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(iii)Votes attributed to all foreign shareholders at a shareholders'
meeting shall not exceed 40% of the total amount of votes of such meeting.
This provision preserves the restriction on foreign shareholders from
assuming control of Embraer established at the time Embraer was privatized.
(iv) The restrictions described above apply only to voting rights and do
not, with the exception of the provisions in item "v" below, limit the
number of shares or ADSs that can be owned, and the economic rights
associated with these shares or ADSs, including payment of dividends.
(v) The acquisition by any shareholder or group of shareholders of the New
Corporation of shares representing more than 35 percent of its capital
stock must be approved by the Federal Government, in its capacity of holder
of the Golden Share. If the Federal Government approves the acquisition, a
public offering for all outstanding shares and ADSs must be held, according
to the price established under the bylaws.
EXCHANGE RATIO OF EMBRAER SHARES AND ADSs FOR NEW
CORPORATION SHARES AND ADSs AND PREMIUM ATTRIBUTED TO
SHARES SUBJECT TO THE SHAREHOLDERS' AGREEMENT
Embraer executive officers understand that common shares held by the Current
Controlling Shareholders and subject to the Shareholders' Agreement, have a
higher value than all other shares not subject to the Shareholders' Agreement.
This higher value is based on a financial-economic analysis specifically
conducted to assign an exchange ratio of these shares with the new shares issued
by the New Corporation. The implementation of the Proposal, if approved, will
result in dispersed share ownership of the New Corporation and, as a result,
will equalize the value of all shares of the New Corporation, giving all
shareholders the ability to influence its management.
If the Proposal is implemented, (i) each Embraer common share subject to the
Shareholders' Agreement will be exchanged for 1.1153 shares of New Corporation;
and (ii) the Proposal sets forth that, as a result of its implementation, if
approved, each other Embraer share, regardless of type, will be exchanged for
one New Corporation common share (including in the form of ADSs). As a result,
the Current Controlling Shareholders will gain a 9% premium with respect to the
exchange of Embraer shares subject to the Shareholders' Agreement.
After the implementation of the Proposal, if approved, holders of the Embraer
shares subject to the Shareholders' Agreement will have their participation in
the capital stock of the New Corporation increased from 20.16% to 21.97%. On the
other hand, all other holders of shares not subject to the Shareholders'
Agreement, including those owned by the Current Controlling Shareholders, will
have their participation in the capital stock reduced from 79.84% to 78.03%,
which implies a 2.3% dilution.
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Common and preferred shares owned by the Current Controlling Shareholders, but
not subject to the Shareholders' Agreement, will not receive a premium, and
therefore, be treated equally with the shares held by the minority shareholders.
The Current Controlling Shareholders will not be permitted to trade any of their
shares during six months after the General Shareholders' Meeting. This
restriction has the effect of confirming the commitment of the Current
Controlling Shareholders to the future of New Corporation. It also has the
effect of preventing that large volumes of New Corporation shares are sold
following the completion of the implementation of the Proposal.
VOTING PROCEDURES AT THE EMBRAER GENERAL SHAREHOLDERS'
MEETING TO APPROVE THE PROPOSAL
If approved by the Board of Directors, the Proposal will be submitted to all
shareholders, regardless of the class of shares they own, in two stages, subject
to the veto of the Golden Share held by the Federal Government.
In a first stage, the Proposal will be submitted to approval of all Embraer
shareholders (including the depositary bank of the ADR program, which will vote
as instructed by ADS holders), but excluding the Current Controlling
Shareholder, that will not vote, directly or indirectly, during the first stage.
If the Proposal is rejected by more than 50% of the outstanding shares
(outstanding shares, for this purpose, to be considered all shares issued and
outstanding by Embraer, excluding those held by Embraer's management and the
Current Controlling Shareholders, whether or not subject to the Shareholders'
Agreement) in the first stage, then in the second stage the Current Controlling
Shareholders will vote against the Proposal. If the Proposal is not rejected by
more than 50% of the outstanding shares in the first stage, then the Current
Controlling Shareholders may vote as they wish, whether directly or indirectly.
All information regarding the Proposal, including the merger agreement and its
exhibits, such as the valuation reports, evaluations, financial-economic
analysis, financial statements, and the new bylaws to be proposed, will become
available as soon after the meeting of the Board of Directors as practicable, at
www.embraer.com.
If the Proposal is approved, Embraer and the New Corporation will file important
documents with the SEC. If the Proposal is approved, investors and security
holders are urged to carefully read these documents when they become available,
because they will contain important information. Investors and security holders
may obtain copies of these documents for free, when available, at the SEC's web
site at www.sec.gov, as well as with the Company and on its web site at
www.embraer.com, or by requesting such documents from Embraer at Av. Brigadeiro
Faria Lima, 2,170, 12227-901 Sao Jose dos Campos, SP, Brazil, Attention: Anna
Cecilia Bettencourt (telephone 55-12-3927-4404; fax 55-12-3922-6070; email:
investor.relations@embraer.com.br).
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Embraer will provide further details regarding the Proposal promptly after the
meeting of its Board of Directors to be held on January 19, 2006.
Sao Jose dos Campos, January 16, 2006.
Antonio Luiz Pizarro Manso
Executive Vice President Corporate and CFO
Investor Relations Contact:
+55 12 3927-4440
investor.relations@embraer.com.br
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This communication may include forward-looking statements or statements
about events or circumstances which have not occurred, including forward-looking
statements regarding the timing of the meeting of the board of directors, fiscal
council and shareholders of the company, the approval of the Proposal at any
such meeting, and the expected changes that may be necessary if the Proposal is
approved. The company has based these forward-looking statements largely on its
current expectations about the Proposal, its implementation and the consequences
arising therefrom. These forward-looking statements are subject to risks,
uncertainties and assumptions, including, among other things: the non-approval
of the Proposal by the company's board of directors, fiscal council or
shareholders; political and business conditions, both in Brazil and in the
company's market; and existing and future government regulations in Brazil and
abroad.
The words "believes," "may," "will," "estimates," "continues,"
"anticipates," "intends," "expects" and similar words are intended to identify
forward-looking statements. The company undertakes no obligations to update
publicly or revise any forward-looking statements because of new information,
future events or other factors. In the light of these risks and uncertainties,
the forward-looking events and circumstances discussed in this communication
might not occur. Actual results could differ substantially from those
anticipated in the forward-looking statements.
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