-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ph3aQfOk2aueMwCOcMdMiyb+mhFhW56rgHB8bKqJ+SQeQ6xiAq4Elp1YujaYeLML 3QjNJzLCX7QGnxLjGo4cIw== 0000950123-02-002754.txt : 20020415 0000950123-02-002754.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950123-02-002754 CONFORMED SUBMISSION TYPE: F-4 PUBLIC DOCUMENT COUNT: 55 FILED AS OF DATE: 20020321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALLEY OF THE RIO DOCE CO CENTRAL INDEX KEY: 0000917851 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: F-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-84696-01 FILM NUMBER: 02581443 BUSINESS ADDRESS: STREET 1: AVENIDA GRACA ARANHA #26 CITY: RIO DE JANEIRO STATE: D5 ZIP: 20005-900 MAIL ADDRESS: STREET 1: AVENIDA GRACA ARANHA #26 CITY: RIO DE JANEIRO STATE: D5 ZIP: 20005-900 FORMER COMPANY: FORMER CONFORMED NAME: VALLEY OF THE DOCE RIVER CO DATE OF NAME CHANGE: 19950602 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALE OVERSEAS LTD CENTRAL INDEX KEY: 0001169446 FILING VALUES: FORM TYPE: F-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-84696 FILM NUMBER: 02581442 BUSINESS ADDRESS: STREET 1: AV. GRACA ARANHA STREET 2: #26 CITY: RIO DE JANEIRO STATE: D5 ZIP: 2005-900 BUSINESS PHONE: 011552138144845 MAIL ADDRESS: STREET 1: PO BOX 908 STREET 2: GT WALKER HOUSE CITY: GEORGETOWN STATE: E9 ZIP: 00000 F-4 1 y58436f-4.txt FORM F-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 21, 2002 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM F-4 --------------------- REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- COMPANHIA VALE DO RIO DOCE VALE OVERSEAS LIMITED (Exact name of Registrant as specified in its charter) Valley of the Rio Doce Company (Translation of Registrant's name into English) - --------------------------------------------------------------------- FEDERATIVE REPUBLIC OF BRAZIL CAYMAN ISLANDS (State or other jurisdiction of incorporation or organization) 1011 (Primary Standard Industrial Classification Code Number) NONE NONE (I.R.S. Employer Identification No.)
--------------------- AVENIDA GRACA ARANHA, NO. 26 P.O. BOX 908 GT, WALKER HOUSE 20005-900 RIO DE JANEIRO, RJ, BRAZIL GEORGETOWN, GRAND CAYMAN CAYMAN ISLANDS (55-21) 3814-4540 (345) 945-3727
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) CT CORPORATION SYSTEM 111 EIGHTH AVENUE NEW YORK, NEW YORK 10011 (212) 664-1666 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------------- COPIES TO: JOSEPH A. HALL DAVIS POLK & WARDWELL 450 LEXINGTON AVENUE NEW YORK, NEW YORK 10017 (212) 450-4000 --------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE 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. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- PROPOSED PROPOSED MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE - -------------------------------------------------------------------------------------------------------------- Series B 8.625% Enhanced Guaranteed Notes due 2007....... $300,000,000 100% $300,000,000 $27,600 - -------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the amount of the registration fee. 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, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. PROSPECTUS (SUBJECT TO COMPLETION) DATED MARCH 21, 2002 [COMPANHIA LOGO] VALE OVERSEAS LIMITED COMPANHIA VALE DO RIO DOCE (Valley of the Rio Doce Company) OFFER TO EXCHANGE SERIES B 8.625% ENHANCED GUARANTEED NOTES DUE 2007 FOR SERIES A 8.625% ENHANCED GUARANTEED NOTES DUE 2007 Vale Overseas is offering to exchange up to US$300,000,000 of its Series B 8.625% Enhanced Guaranteed Notes due 2007, the new securities, for up to US$300,000,000 of its existing Series A 8.625% Enhanced Guaranteed Notes due 2007, the old securities. The terms of the new securities are identical in all material respects to the terms of the old securities, except that the new securities have been registered under the Securities Act, and the transfer restrictions and registration rights relating to the old securities do not apply to the new securities. The exchange offer will expire at 5:00 p.m. New York City time on , 2002 unless extended. To exchange your old securities for new securities: - you are required to make the representations described on page 120 to Vale Overseas and CVRD - you must complete and send the letter of transmittal that accompanies this prospectus to the exchange agent, JPMorgan Chase Bank, by 5:00 p.m., New York time, on , 2002 - you should read the section called "The Exchange Offer" for further information on how to exchange your old securities for new securities The old securities are listed, and application has been made to list the new securities, on the Luxembourg Stock Exchange. SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF RISK FACTORS THAT SHOULD BE CONSIDERED BY YOU PRIOR TO TENDERING YOUR OLD SECURITIES IN THE EXCHANGE OFFER. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN THE EXCHANGE OFFER OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. March , 2002 TABLE OF CONTENTS INCORPORATION OF CERTAIN INFORMATION BY REFERENCE............................ i WHERE YOU CAN FIND MORE INFORMATION.... ii CERTAIN TERMS AND CONVENTIONS.......... iii PRESENTATION OF FINANCIAL INFORMATION.......................... iii PRESENTATION OF INFORMATION CONCERNING RESERVES............................. iii PROSPECTUS SUMMARY..................... 1 RISK FACTORS........................... 7 FORWARD-LOOKING STATEMENTS............. 16 USE OF PROCEEDS........................ 16 VALE OVERSEAS LIMITED.................. 17 EXCHANGE RATES......................... 18 CAPITALIZATION......................... 19 SELECTED CONSOLIDATED FINANCIAL DATA... 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................... 22 BUSINESS............................... 44 MANAGEMENT............................. 88 MAJOR SHAREHOLDERS..................... 94 RELATED PARTY TRANSACTIONS............. 99 DESCRIPTION OF NOTES................... 100 THE EXCHANGE OFFER..................... 114 MATERIAL TAX CONSEQUENCES OF THE EXCHANGE OFFER....................... 120 PLAN OF DISTRIBUTION................... 120 VALIDITY OF THE NEW NOTES.............. 122 EXPERTS................................ 122 ENFORCEMENT OF CIVIL LIABILITIES AGAINST NON-U.S. PERSONS............. 122 MINING TERMS........................... 124 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS........................... F-1
------------------------ When we use "CVRD Group," or personal pronouns such as "we" "us" or "our," we mean Companhia Vale do Rio Doce, its consolidated subsidiaries and its joint ventures and other affiliated companies. References to "affiliated companies" are to companies in which Companhia Vale do Rio Doce has a minority investment, and exclude controlled affiliates that are consolidated for financial reporting purposes. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The Securities and Exchange Commission allows us to incorporate by reference the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and some later information that we file with the Commission will automatically be deemed to update and supersede this information. We incorporate by reference the following document that has been filed with the Commission: - our Annual Report on Form 20-F, as amended, for the fiscal year ended December 31, 2000 (File No. 000-26030). We also incorporate by reference into this prospectus any future filings made with the Commission under Sections 13(a), 13(c), or 15(d) of the Exchange Act and, to the extent designated therein, reports on Form 6-K that we furnish to the Commission. Any statement contained in a document, all or a portion of which is incorporated or deemed to be incorporated by reference herein, shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute part of this prospectus. i We will provide without charge to each person to whom a copy of this prospectus is delivered, upon the written or oral request of any such person, a copy of any or all of the documents referred to above which have been or may be incorporated herein by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference in such documents). To obtain timely delivery, investors must request this information no later than five business days before the date they must make their investment decision. Requests should be directed to the Investor Relations Department, Avenida Graca Aranha, No. 26, 17th floor, 20005-900 Rio de Janeiro, RJ, Brazil (telephone no: 5521-3814-4557). WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form F-4 under the Securities Act with respect to the notes. This prospectus, which is part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For further information pertaining to us we refer you to the registration statement and the exhibits and schedules filed as part of the registration statement. If a document has been filed as an exhibit to the registration statement, we refer you to the copy of the document that has been filed. Each statement in this prospectus relating to a document filed as an exhibit is qualified in all respects by the filed exhibit. The registration statement, including exhibits and schedules thereto, may be inspected without charge at the Commission's public reference rooms at: - Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; - 233 Broadway, New York, New York 10279; or - Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part of the registration statement may be obtained from such office after payment of fees prescribed by the Commission. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms. In addition, the Commission maintains an Internet web site at www.sec.gov, from which you can electronically access the registration statement and its exhibits. Copies of reports and other information may also be inspected in the offices of the New York Exchange, 20 Broad Street, New York, New York 10005. We are subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith file reports, including annual reports on Form 20-F, and other information with the Commission. However, as a foreign private issuer, we are exempt from the rules under the Exchange Act relating to the furnishing and content of proxy statements and relating to short swing profits reporting and liability. In addition, we are not required to file annual, quarterly or current reports and financial statements as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we will file, as long as we are required to do so, within 180 days after the end of each fiscal year, an annual report on Form 20-F containing consolidated financial statements audited by an independent public accounting firm. We also file quarterly reports on Form 6-K with the Commission. Vale Overseas will not file separate financial statements with the Commission in reliance on the Commission's rules for wholly owned finance subsidiaries, and because we do not believe that those financial statements would be material to noteholders. However, we have included a balance sheet for Vale Overseas as at September 30, 2001, and the accompanying report by PricewaterhouseCoopers. Summarized financial information for Vale Overseas will be provided in a footnote to CVRD's annual audited financial statements filed with the Commission. You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date. ------------------------ ii CERTAIN TERMS AND CONVENTIONS As used in this prospectus, - "real," "reais" or "R$" refer to Brazilian reais (plural) and to the Brazilian real (singular), the official currency of Brazil. - "U.S. dollars," "dollars" or "US$" refer to United States dollars. - units refer to units in the metric system, e.g., tons refer to metric tons. PRESENTATION OF FINANCIAL INFORMATION We have prepared our financial statements appearing in this prospectus in accordance with generally accepted accounting principles in the United States (U.S. GAAP), which differ in certain respects from accounting principles in Brazil (Brazilian GAAP). Brazilian GAAP is determined by the requirements of Law No. 6,404, dated December 15, 1976, as amended (the Brazilian Corporation Law), and the rules and regulations of the Comissao de Valores Mobiliarios, or CVM, the Brazilian Securities Commission. We publish financial statements in Brazil, known as the Brazilian Corporation Law financial statements, and prepare them in accordance with Brazilian GAAP. We use our Brazilian Corporation Law financial statements for: - reports to Brazilian shareholders, - filings with the CVM, - determination of dividend payments, and - determination of tax liability. Our financial statements and the other financial information appearing in this prospectus have been remeasured (translated) from Brazilian reais to U.S. dollars on the basis explained in note 2(a) to our financial statements unless we indicate otherwise. Some of the figures included in this prospectus have been rounded. PRESENTATION OF INFORMATION CONCERNING RESERVES The estimates of proven and probable reserves at mines within the CVRD Group and the estimates of mine life, at December 31, 2000, included in this prospectus have been calculated according to the technical definitions required by the U.S. Securities and Exchange Commission, as described in "Mining Terms." We have derived estimates of mine life described in this prospectus from those reserve estimates. The National Mineral Research Department, Departamento Nacional de Pesquisa Mineral, or DNPM, compiles domestic and foreign mining reserve estimates using criteria which may differ from technical definitions required by the Commission. We have adjusted ore reserve estimates for extraction losses and metallurgical recoveries during extraction. iii PROSPECTUS SUMMARY VALE OVERSEAS LIMITED Vale Overseas is a finance company for the CVRD Group. It is wholly owned by CVRD. Vale Overseas' business is to borrow money outside Brazil by issuing securities to finance CVRD's activities outside Brazil or to on-lend it to other CVRD Group companies. Vale Overseas is a Cayman Islands exempted company incorporated with limited liability. The issuance of the notes was the first borrowing by Vale Overseas. Vale Overseas' registered office is at Walker House, PO Box 908 GT, Mary Street, Georgetown, Grand Cayman, Cayman Islands. Vale Overseas' telephone number is (345) 945-3727. COMPANHIA VALE DO RIO DOCE We are one of the world's largest producers and exporters of iron ore. We are the largest diversified mining company in the Americas by market capitalization and one of the largest companies in Brazil. We hold exploration claims that cover 7.0 million hectares (17.3 million acres). We operate two large railway systems that are integrated with our mining operations and that, taken together, transported approximately 58.5% of the rail tonnage shipped in Brazil in the first nine months of 2001. Through joint ventures, we have major investments in the production of aluminum. Our main lines of business are mining, logistics and energy and are generally grouped according to the business segments below: - ferrous minerals: comprised of iron ore, pellets as well as manganese and ferro alloys businesses, - non-ferrous minerals: comprised of gold, kaolin, potash and copper businesses, - logistics: comprised of railroads, ports and terminals and shipping businesses, - energy: comprised of power generation businesses, and - holdings: comprised of aluminum, steel, fertilizers and e-commerce businesses. The following table sets forth our ratio of earnings to fixed charges for the periods indicated.
AT DECEMBER 31, AT SEPTEMBER 30, ---------------------------------------------------- ------------------- 1996 1997 1998 1999 2000 2000 2001 -------- -------- -------- -------- -------- -------- -------- (IN MILLIONS OF US$) Ratio of earnings to fixed charges(1)... 2.95x 3.40x 4.28x 3.66x 3.43x 4.06x 3.52x
- --------------- (1) To calculate the ratio of earnings to fixed charges, we calculate earnings by adding interest before income taxes, equity results and minority interests, fixed charges, amortization of capitalized interest and distributed income of equity investments less capitalized interest. Fixed charges represent the total of capitalized interest, financial expenses and the preferred stock guaranteed dividend. ------------------------ CVRD's principal executive offices are located at Avenida Graca Aranha, No. 26, 20005-900, Rio de Janeiro, RJ, Brazil, and our telephone number is (011) 55-21-3814-4540. We maintain a website at www.cvrd.com.br. Information contained in our website does not constitute a part of this prospectus. 1 THE EXCHANGE OFFER SECURITIES OFFERED........... Vale Overseas is offering up to $300,000,000 aggregate principal amount of its Series B 8.625% Enhanced Guaranteed Notes due 2007 (the new securities), which have been registered under the Securities Act. THE EXCHANGE OFFER........... Vale Overseas is offering to issue the new securities in exchange for a like principal amount of your Series A 8.625% Enhanced Guaranteed Notes due 2007 (your old securities). Vale Overseas is offering to issue the new securities to satisfy its obligations contained in the registration rights agreement entered into when the old securities were sold in transactions permitted by Rule 144A and Regulation S under the Securities Act and therefore not registered with the SEC. For procedures for tendering, see "The Exchange Offer." TENDERS, EXPIRATION DATE, WITHDRAWAL................. The exchange offer will expire at 5:00 p.m. New York City time on , 2002 unless it is extended. If you decide to exchange your old securities for new securities, you must acknowledge that you are not engaging in, and do not intend to engage in, a distribution of the new securities. If you decide to tender your old securities in the exchange offer, you may withdraw them at any time prior to , 2002. If Vale Overseas decides for any reason not to accept any old securities for exchange, your old securities will be returned to you without expense to you promptly after the exchange offer expires. FEDERAL INCOME TAX CONSEQUENCES................. Your exchange of old securities for new securities in the exchange offer will not result in any income, gain or loss to you for Federal income tax purposes. See "Material United States Federal Income Tax Consequences of the Exchange Offer" on page 120 of this prospectus. USE OF PROCEEDS.............. Vale Overseas will not receive any proceeds from the issuance of the new securities in the exchange offer. EXCHANGE AGENT............... JPMorgan Chase Bank is the exchange agent for the exchange offer. FAILURE TO TENDER YOUR OLD SECURITIES................. If you fail to tender your old securities in the exchange offer, you will not have any further rights under the registration rights agreement, including any right to require Vale Overseas to register your old securities or to pay you additional interest. 2 YOU WILL BE ABLE TO RESELL THE NEW SECURITIES WITHOUT REGISTERING THEM WITH THE SEC IF YOU MEET THE REQUIREMENTS DESCRIBED BELOW Based on interpretations by the SEC's staff in no-action letters issued to third parties, Vale Overseas believes that new securities issued in exchange for old securities in the exchange offer may be offered for resale, resold or otherwise transferred by you without registering the new securities under the Securities Act or delivering a prospectus, unless you are a broker-dealer receiving securities for your own account, so long as: - you are not one of Vale Overseas' or CVRD's "affiliates", which is defined in Rule 405 of the Securities Act; - you acquire the new securities in the ordinary course of your business; - you do not have any arrangement or understanding with any person to participate in the distribution of the new securities; and - you are not engaged in, and do not intend to engage in, a distribution of the new securities. If you are an affiliate of Vale Overseas or CVRD, or you are engaged in, intend to engage in or have any arrangement or understanding with respect to, the distribution of new securities acquired in the exchange offer, you (1) should not rely on Vale Overseas' interpretations of the position of the SEC's staff and (2) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. If you are a broker-dealer and receive new securities for your own account in the exchange offer: - you must represent that you do not have any arrangement with Vale Overseas, CVRD or any of their affiliates to distribute the new securities; - you must acknowledge that you will deliver a prospectus in connection with any resale of the new securities you receive from Vale Overseas in the exchange offer; the letter of transmittal states that by so acknowledging and by delivering a prospectus, you will not be deemed to admit that you are an "underwriter" within the meaning of the Securities Act; and - you may use this prospectus, as it may be amended or supplemented from time to time, in connection with the resale of new securities received in exchange for old securities acquired by you as a result of market-making or other trading activities. For a period of 180 days after the expiration of the exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any resale described above. 3 THE NOTES The terms of the new notes and the old notes are identical in all material respects, except that the new notes have been registered under the Securities Act. The following summary contains basic information about the new notes and the old notes. It is not intended to be complete. It does not contain all the information that is important to you. For a more complete understanding of the notes, please refer to the section of this document entitled "Description of notes." ISSUER........................ Vale Overseas Limited. GUARANTOR..................... Companhia Vale do Rio Doce. SECURITIES.................... U.S.$300,000,000 in principal amount of Series B 8.625% Enhanced Guaranteed Notes due 2007. GUARANTY...................... CVRD has irrevocably and unconditionally guaranteed the full and punctual payment of principal, interest, additional amounts and all other amounts that may become due and payable in respect of the notes. If Vale Overseas fails to punctually pay any such amount, CVRD will immediately pay the same, subject to the limitation on CVRD due to restrictions on the transfer, conversion, use or control of currency imposed by the government of Brazil. POLITICAL RISK COVERAGE....... Vale Overseas has deposited in a reserve account held by the trustee for the benefit of the holders of notes cash or U.S. Treasury obligations in an aggregate amount of U.S.$41,421,565 or arranged for the issue of one or more letters of credit in favor of the trustee in lieu of all or a portion of such deposit. The aggregate of the reserve account deposit and any letters of credit will be an amount equal to the sum of (i) 18 months interest on the principal of the notes, (ii) an amount equal to 0.50% per annum interest on the principal of the notes for 18 months, (iii) 30 days of interest on the amounts in (i) and (ii) above at the rate of 10.125% per annum and (iv) the trustee's fees and reasonable expenses in connection with the notes for 18 months. This political risk coverage is currently being provided in the form of a letter of credit issued by Banco Bilbao Vizcaya Argentaria. The amount described in (ii) above will be returned to Vale Overseas upon the completion of its obligations under the registration rights agreement (which will occur upon completion of this exchange offer). The entire amount in the reserve account will be returned to Vale Overseas, and any letter of credit in favor of the trustee returned to its issuer for cancellation, if CVRD obtains a foreign currency rating of Baa2 from Moody's without benefit of collateral or other credit support. Vale Overseas will grant a security interest over the reserve account in favor of the trustee for the benefit of the holders of notes. The funds in the reserve account and the amounts available under the letters of credit will be used to pay interest on the notes in the event Vale Overseas or CVRD is unable to pay such interest due to restrictions on the transfer, conversion, use or control of currency imposed by the government of Brazil. 4 MATURITY...................... March 8, 2007. The maturity of the notes may be extended to no later than September 8, 2008 if the government of Brazil has in effect restrictions on the transfer, conversion, use or control of currency which have prevented Vale Overseas or CVRD from paying interest or principal on the notes and this restriction is continuing on March 8, 2007. INTEREST RATE................. The notes will bear interest at the rate of 8.625% per annum from March 8, 2002, based upon a 360-day year consisting of twelve 30-day months. INTEREST PAYMENT DATES........ Interest on the notes will be payable semi-annually on March 8 and September 8 of each year, commencing on September 8, 2002. RANKING....................... Except for the security interest in the reserve account described above, the notes will rank equally in right of payment with all other unsecured and unsubordinated debt obligations of Vale Overseas. The guaranty will rank equally in right of payment with all of CVRD's other unsecured and unsubordinated debt obligations. ISSUER RESTRICTIONS........... Vale Overseas will not issue any further securities without the trustee first receiving written confirmation from Moody's that such issue will not reduce the rating then currently assigned to the notes by Moody's. PAYMENT OF ADDITIONAL AMOUNTS....................... Vale Overseas and CVRD will pay additional amounts in respect of any payments of interest or principal so that the amount you receive after Brazilian or Cayman Islands withholding tax will equal the amount that you would have received if no withholding tax had been applicable, subject to some exceptions as described under "Description of Notes--Payments of Additional Amounts." TAX REDEMPTION................ If, due to changes in Brazilian or Cayman Islands laws relating to withholding taxes applicable to payments of interest, Vale Overseas is obligated to pay additional amounts on the notes in respect of Brazilian or Cayman Islands withholding taxes, Vale Overseas may redeem the outstanding notes in whole, but not in part, at any time, at a price equal to 100% of their principal amount plus accrued interest to the redemption date. TRUSTEE, PRINCIPAL PAYING AGENT AND REGISTRAR........... JPMorgan Chase Bank. GOVERNING LAW................. New York. RISK FACTORS.................. Prospective purchasers of the notes should consider carefully all of the information set forth in this offering memorandum and, in particular, the information set forth under "Risk factors" before making an investment in the notes. LUXEMBOURG LISTING............ The notes will be listed on the Luxembourg Stock Exchange in accordance with the rules and regulations of the Luxembourg Stock Exchange. 5 TIMETABLE FOR THE OFFERING Commencement of the exchange offer.......................... March , 2002 Expiration of the exchange offer............................ April , 2002
Vale Overseas may, at its sole discretion, extend the period of time for which the exchange offer is open. 6 RISK FACTORS You should carefully consider the risks described below, as well as the other information contained in this prospectus, in evaluating an investment in the notes. The risks described below are not the only ones facing our company. Additional risks may impair our business operations. Our business, results of operations or financial condition could be harmed if any of these risks materializes and, as a result, the trading price of the notes could decline and you could lose a substantial portion of your investment. We have included information in these risk factors concerning Brazil to the extent that information is publicly available to us. We believe this information is reliable, but we cannot guarantee that it is accurate. RISKS RELATING TO BRAZIL THE BRAZILIAN GOVERNMENT HAS EXERCISED, AND CONTINUES TO EXERCISE, SIGNIFICANT INFLUENCE OVER THE BRAZILIAN ECONOMY. BRAZILIAN POLITICAL AND ECONOMIC CONDITIONS HAVE A DIRECT IMPACT ON OUR BUSINESS AND THE MARKET PRICE OF OUR SECURITIES. The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes drastic changes in policy. The Brazilian government's actions to control inflation and effect other policies have often involved wage and price controls, currency devaluations, capital controls and limits on imports, among other things. Our business, financial condition and results of operations may be adversely affected by changes in policy involving tariffs, exchange controls and other matters, as well as other factors outside of our control such as: - currency fluctuations, - inflation, - monetary policy and interest rates, - fiscal policy, - energy shortages, and - other political, social and economic developments in or affecting Brazil. INFLATION AND CERTAIN GOVERNMENT MEASURES TO CURB INFLATION MAY CONTRIBUTE SIGNIFICANTLY TO ECONOMIC UNCERTAINTY IN BRAZIL AND TO HEIGHTENED VOLATILITY IN THE BRAZILIAN SECURITIES MARKETS AND, CONSEQUENTLY, MAY ADVERSELY AFFECT THE MARKET VALUE OF OUR SECURITIES. Brazil has historically experienced extremely high rates of inflation. Since the introduction of the real in July 1994 under the Real Plan, Brazil's inflation rate has been substantially lower than in previous periods. Inflation, as measured by the Indice Geral de Precos -- Mercado, the general market price index in Brazil, or IGP-M, fell to 1.8% in 1998 before increasing to 20.1% in 1999 as a result of the devaluation of the real beginning in January 1999, and decreasing again to 10.4% in 2001. There can be no assurance that recent lower levels of inflation will continue. Future governmental actions, including actions to adjust the value of the real, may trigger increases in inflation. If Brazil experiences substantial inflation again in the future, our operating expenses and borrowing costs may increase, our operating and net margins may decrease and, if investor confidence decreases, the price of our securities may fall. For a more detailed discussion about inflation, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview -- Inflation." Inflation itself and governmental measures to combat inflation have had significant negative effects on the Brazilian economy. Since 1999, governmental actions to curb inflation have included interest rate increases and intervention in the foreign exchange market through the sale of U.S. dollars and government bonds linked to the U.S. dollar. These actions may adversely affect the market value of our securities. 7 FLUCTUATIONS IN THE VALUE OF THE REAL AGAINST THE VALUE OF THE U.S. DOLLAR MAY RESULT IN UNCERTAINTY IN THE BRAZILIAN ECONOMY AND THE BRAZILIAN SECURITIES MARKET AND COULD LOWER THE MARKET VALUE OF OUR SECURITIES. The Brazilian currency has historically suffered frequent devaluations. In the past, the Brazilian government has implemented various economic plans and utilized a number of exchange rate policies, including sudden devaluations, periodic mini-devaluations during which the frequency of adjustments has ranged from daily to monthly, floating exchange rate systems, exchange controls and dual exchange rate markets. Although over long periods devaluations of the Brazilian currency generally have correlated with the rate of inflation in Brazil, devaluations over shorter periods have resulted in significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar and other currencies. In 1999, the real devaluated 48% against the U.S. dollar, and in 2000 it devaluated 9%. During 2001, the real experienced a period of significant devaluation, in part due to the economic uncertainties in Argentina, the global economic slowdown and the energy crisis in Brazil. The real depreciated 18.7% against the U.S. dollar during 2001. There are no guarantees that the exchange rate between the real and the U.S. dollar will stabilize at current levels or that the real will appreciate against the U.S. dollar. Devaluations of the real relative to the U.S. dollar may reduce the market value of our securities. Devaluations also create additional inflationary pressures in Brazil by generally increasing the price of imported products and requiring recessionary government policies to curb aggregate demand. On the other hand, appreciation of the real against the U.S. dollar may lead to a deterioration of the current account and the balance of payments, as well as dampen export-driven growth. For a more detailed discussion about the floating exchange rate and Brazilian government measures aimed at stabilizing the real, see "Exchange Rates." DEVELOPMENTS IN OTHER EMERGING MARKET COUNTRIES MAY AFFECT THE BRAZILIAN SECURITIES MARKETS. International investors generally consider Brazil to be an emerging market. As a result, economic and market conditions in other emerging market countries, especially those in Latin America, influence the market for securities issued by Brazilian companies. Since the fourth quarter of 1997, the international financial markets have experienced significant volatility, and a large number of market indices, including those in Brazil, have declined significantly. For example, the Brazilian financial markets were adversely affected by the Asian financial crisis at the end of 1997 and the Russian financial crisis in 1998. After prolonged periods of recession, followed by political instability, Argentina in 2001 announced that it would not service its public sector debt. In order to address the worsening economic and social crisis, the Argentine government abandoned its decade-old fixed dollar-peso exchange rate and created a floating exchange rate regime in January 2002. Since Argentina is an important trade partner of Brazil, the continuation of the Argentine crisis could affect the revenues and profitability of Brazilian companies with important ties to Argentina. The Argentine crisis may also affect the perception of risk in Brazil by foreign investors. The expectation of many that similar problems would follow in Brazil, which did increase volatility in the market prices for Brazilian securities in early 2001, has not materialized. Nonetheless, if events in Argentina continue to deteriorate, they may adversely affect our ability to borrow funds at an acceptable interest rate and raise equity capital when needed. Since approximately 66.4% of our long-term debt at September 30, 2001 is scheduled to mature in 2003 and 2004, these events could cause us to delay our capital expenditure plans and adversely affect the price of our securities. THE BRAZILIAN GOVERNMENT'S ENERGY RATIONING PROGRAM COULD ADVERSELY AFFECT US. We are a significant consumer of Brazil's electricity production, and accounted for 4.5% of total consumption in Brazil in 2000. Brazil faced a shortage of energy during the second half of 2001 as a result of increased demand due to economic growth, inadequate expansion of generation in past years and unfavorable hydrological conditions. In response, the Brazilian government imposed an energy rationing program to alleviate the energy shortage, which aimed to decrease energy consumption by at least 20%. This program had a negative impact upon the country's economic performance and inflation levels. The 8 required percentage of energy reduction, however, could be higher than 20% depending on the type of activity. Aluminum and ferro-alloy activities were categorized as electric-intensive activities and were required to decrease their energy consumption by 25%. As a result of this program, we had a temporary reduction of our aluminum and ferro-alloy production. By the end of 2001, climate conditions improved, reducing the immediate risk of energy shortages. Therefore, the Brazilian government eliminated the restrictions on the use of energy on March 1, 2002. However, there currently remain forecasted shortfalls in generation capacity. We are unable to assess the impact that the government rationing program or future energy shortages may have on our operations. YOU MAY NOT BE ABLE TO EFFECT SERVICE OF PROCESS UPON, OR TO ENFORCE JUDGMENTS AGAINST, US, OUR DIRECTORS AND EXECUTIVE OFFICERS. We are organized under the laws of Brazil and substantially all of our assets are located outside of the United States. The majority of our directors and executive officers reside outside of the United States. As a result, it may be difficult for you to effect service of process upon us or those persons in the United States or to enforce against us or those persons judgments obtained in U.S. courts, including those based on the civil liability provisions of the federal securities laws of the United States. RISKS RELATING TO OUR BUSINESSES DUE TO OUR DEPENDENCE ON THE GLOBAL STEEL INDUSTRY, ANY FLUCTUATIONS IN THE DEMAND FOR STEEL COULD ADVERSELY AFFECT OUR BUSINESS. Sales prices and volumes in the worldwide iron ore mining industry depend on the prevailing and expected level of demand for iron ore in the world steel industry. The world steel industry is cyclical. A number of factors, the most significant of these being the prevailing level of worldwide demand for steel products, influence the world steel industry. During periods of sluggish or declining regional or world economic growth, demand for steel products generally decreases and leads to corresponding reductions in demand for iron ore. Global steel output in 2001 decreased by 0.68% to 823,937 tons from 829,609 tons produced during 2000. This may lead to decreases in the level of demand in the iron ore market and have an adverse effect on world contract prices and sales volumes for iron ore. Prolonged reductions or declines in world contract prices or sales volumes for iron ore would have a material adverse effect on our revenues. In addition, poor conditions in the global steel industry could result in the bankruptcy of some of our customers, which would increase our bad debt expenses. THE MINING INDUSTRY IS AN INTENSELY COMPETITIVE INDUSTRY, AND WE CANNOT ASSURE OUR ABILITY TO CONTINUE TO COMPETE EFFECTIVELY WITH OTHER MINING COMPANIES IN THE FUTURE. Intense competition characterizes the worldwide iron ore industry. We compete with a number of large mining companies, including international mining companies. Some of these competitors possess substantial iron ore mineral deposits at locations closer to our principal Asian and European customers and it is possible that competition from foreign or Brazilian iron ore producers in the future will result in our losing market share and revenues. Our gold, aluminum, manganese and other activities are also subject to intense competition. COMPETITION IN THE ENERGY GENERATION BUSINESS TENDS TO INTENSIFY. As a result of the Brazilian government's privatization and restructuring of the regulatory framework for the power industry, we expect an increase in competition in the generation of electricity, which could result in declining energy prices. Beginning on January 1, 2003, the provision of electricity services will be subject to further deregulation and competition may increase even further with the entry of new competitors. A sustained decrease in energy prices would lower the returns that we are expecting from our investments in the energy business. 9 WE ARE SUBJECT TO CYCLICALITY AND PRICE VOLATILITY FOR IRON ORE, ALUMINUM AND OTHER MINERALS. Cyclical and other uncontrollable changes in world market prices affect our iron ore, aluminum, gold and other mining activities. In particular, aluminum and gold are sold in an active world market and traded on exchanges, such as the London Metals Exchange and the Commodity Exchange, Inc. Therefore, the prices for these metals are more volatile than iron and pellet prices, as they respond to daily changes in supply and demand. Prolonged declines in world market prices, in nominal and real terms, for our products would have a material adverse effect on our revenues. OUR MINING ACTIVITIES DEPEND ON AUTHORIZATIONS OF REGULATORY AGENCIES. CHANGES IN REGULATIONS COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS. Our mining activities in Brazil depend on authorizations and concessions by regulatory agencies of the Brazilian government. Our exploration, mining and mineral processing activities are also subject to Brazilian laws and regulations which change from time to time. If these laws and regulations change in the future, modifications to our technologies and operations could be required, and we may be required to make unbudgeted capital expenditures which could lead to an increase in our borrowing costs. For a more detailed discussion about the authorizations and concessions by regulatory agencies of the Brazilian government upon which our mining activities depend, see "Business -- Regulatory Matters -- Mining." OUR ENERGY BUSINESS IS SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION. The Brazilian power generation business depends on concessions granted by the government and is regulated and supervised by the Brazilian electricity regulatory governmental agency, ANEEL. Given that Brazil may face future energy shortages like the one experienced in the second half of 2001, the Brazilian government has announced its intention to issue further regulations applicable to the power system. Changes in the laws, regulations or governmental policies regarding the power generation industry, the marketing of energy in the wholesale market or concession requirements could lower the returns we are expecting from our investments in this business. For more information on the regulations governing our energy business, see "Business -- Regulatory Matters -- Energy." OUR OPERATIONS ARE ALSO REGULATED BY BRAZILIAN ENVIRONMENTAL LAWS. CHANGES TO THESE LAWS IN THE FUTURE MAY ADVERSELY AFFECT OUR MINING AND ENERGY BUSINESSES. Our operations often involve using, handling, disposing and discharging hazardous materials into the environment, or the use of natural resources, and are therefore subject to the environmental laws and regulations of Brazil. Environmental regulation in Brazil has become stricter in recent years, and it is possible that more regulation or more aggressive enforcement of existing regulations will adversely affect us through imposing restrictions on our activities, creating new requirements for the issuance or renewal of environmental licenses, raising our costs, or requiring us to engage in expensive reclamation efforts. We are currently a defendant in an action brought by the municipality of Itabira, which is in the state of Minas Gerais, on the basis of environmental laws. If we do not prevail in this lawsuit, we could incur a substantial expense. For more information on environmental laws and the legal challenges we face, see "Business -- Environmental Matters" and "Business -- Legal Proceedings." OUR RESERVE ESTIMATES MAY BE MATERIALLY DIFFERENT FROM MINERAL QUANTITIES THAT WE MAY ACTUALLY RECOVER AND MARKET PRICE FLUCTUATIONS AND CHANGES IN OPERATING AND CAPITAL COSTS MAY RENDER CERTAIN ORE RESERVES OR MINERAL DEPOSITS UNECONOMICAL TO MINE. Our reported ore reserves and mineral deposits are estimated quantities of ore and minerals that under present and anticipated conditions have the potential to be economically mined and processed by the extraction of their mineral content. There are numerous uncertainties inherent in estimating quantities of reserves and in projecting potential future rates of mineral production, including many factors beyond our control. In addition, reserve engineering is a subjective process of estimating underground deposits of minerals that cannot be measured in an exact manner and the accuracy of any reserve estimate is a 10 function of the quality of available data and engineering and geological interpretation and judgment. Estimates of different engineers may vary and results of our mining and production subsequent to the date of an estimate may justify revision of estimates. Reserve estimates may require revision based on actual production experience and other factors. For example, fluctuations in the market price of metals, reduced recovery rates or increased production costs due to inflation or other factors may render proven and probable reserves containing relatively lower grades of mineralization uneconomic to exploit and may ultimately result in a restatement of reserves. WE FACE A NUMBER OF RISKS WHICH COULD LEAD TO ECONOMICALLY HARMFUL CONSEQUENCES TO US. Our businesses are generally subject to a number of risks and hazards, including: - industrial accidents, - labor disputes, - unexpected geological conditions, - slope failures, - environmental hazards, - electricity stoppages, - equipment or vessel failures, and - weather and other natural phenomena. These occurrences could result in damage to, or destruction of, mineral properties, production facilities, transportation facilities, equipment or vessels. They could also result in personal injury or death, environmental damage, waste of resources or intermediate products, delays or interruption in mining, production or transportation activities, monetary losses and possible legal liability. The insurance we maintain against these risks may not provide adequate coverage. Insurance against some risks (including liabilities for environmental pollution or certain hazards or interruption of certain business activities) may not be available at a reasonable cost or at all. Therefore, accidents or other negative developments involving our mining, production or transportation facilities could have a material adverse effect on our operations. OUR MINERAL EXPLORATION EFFORTS MAY NOT LEAD TO A REPLENISHMENT OF OUR GOLD RESERVES, WHICH COULD ADVERSELY AFFECT OUR MINING PROSPECTS. We engage in mineral exploration, principally related to copper and gold. Mineral exploration is highly speculative in nature, involves many risks and frequently is nonproductive. With respect to our gold operations, it is possible that our exploration programs will not result in the expansion or replacement of reserves depleted by current production. If we do not develop new reserves, we may not be able to sustain our current level of production beyond the remaining life of existing mines. EVEN IF WE DISCOVER MINERALS, WE REMAIN SUBJECT TO DRILLING AND PRODUCTION RISKS, WHICH COULD ADVERSELY AFFECT THE MINING PROCESS. Once we discover mineralization, it may take us a number of years from the initial phases of drilling until production is possible, during which the economic feasibility of production may change. It takes substantial time and expenditures to: - establish ore reserves through drilling, - determine appropriate metallurgical processes for optimizing the recovery of metal contained in ore, - obtain the ore or extract the metals from the ore, and - construct mining and processing facilities for greenfield properties. 11 It is possible that a project will prove uneconomical by the time we are able to exploit it, in which case we may incur substantial write-offs. WE FACE RISING EXTRACTION COSTS AS OUR DEPOSITS DECREASE. Ore reserves gradually decrease in the ordinary course of a given mining operation. As reserves decrease, it becomes necessary for mining companies to use more expensive processes to extract remaining ore. As a result, mining companies, over time, usually experience rising unit extraction costs with respect to a particular mine. Several of our mines have operated for long periods, and we will likely experience rising extraction costs per unit in the future at these operations. RISKS RELATING TO THE CVRD GROUP SOME OF OUR OPERATIONS DEPEND ON JOINT VENTURES AND COULD BE ADVERSELY AFFECTED IF OUR JOINT VENTURE PARTNERS DO NOT OBSERVE THEIR COMMITMENTS. We currently operate important parts of our pelletizing, copper exploration, logistics, energy, and aluminum businesses through joint ventures with other companies. Our forecasts and plans for these joint ventures assume that our joint venture partners will fulfill their obligations to contribute capital, purchase products and, in some cases, provide managerial talent. If any of our joint venture partners does not observe its commitments, it is possible that the affected joint venture would not be able to operate in accordance with its business plans or that we would have to increase the level of our investment to give effect to these plans. For more information on our joint ventures, see "Business -- Our Lines of Business -- Ferrous Minerals -- Pellets," "Business -- Our Lines of Business -- Non-Ferrous Minerals -- Current Copper Prospects," "Business -- Our Lines of Business -- Logistics" and "Business -- Our Lines of Business -- Holdings -- Aluminum Business." OUR ALBRAS JOINT VENTURE IS SUBJECT TO SUBSTANTIAL ELECTRICITY COST INCREASES. Electricity costs are a significant component of the cost of producing aluminum. Our aluminum plant, Albras -- Aluminio Brasileiro S.A., or Albras, obtains electric power at competitive rates from Eletronorte, a state-owned electric power utility. The contract through which Albras purchases electricity from this utility expires in 2004. It is not likely that Albras will continue to benefit from below-market electricity costs following expiration of the contract. Albras is currently trying to negotiate a new contract and is examining other alternatives. We cannot predict the impact that this will have on Albras's cost structure. AN ELECTRICITY STOPPAGE THAT AFFECTS OUR ALUMINUM OPERATIONS COULD CAUSE SUBSTANTIAL DAMAGE. A single 300-kilometer power line supplies electricity to Albras. Any interruption in the supply of electrical power to Albras lasting longer than six hours can cause substantial damage to cells at the Albras facility. Cells are equipment used in the process of transforming alumina into aluminum. Cells will cool off if they are deprived of energy for six consecutive hours and may experience serious damage as a result of the cooling off process. Albras experienced an outage of four hours and several outages of less than one hour in 1996 because of a faulty Tucurui substation, which has since been repaired. Interruptions in the supply of electricity to Albras lasting more than six hours may occur in the future. WE ARE VULNERABLE TO ADVERSE DEVELOPMENTS AFFECTING OTHER ECONOMIES. In the first nine months of 2001, 9.7% of our consolidated gross operating revenues were attributable to sales to Japanese customers, 14.2% were attributable to sales to other Asian customers and 25.9% were attributable to sales to European customers. A number of important Asian economies, including Japan and South Korea, have experienced difficulties in recent periods. Continuing economic difficulties in the Asian market could reduce local demand for iron ore and pellets, which, in turn, could have a material adverse effect on us. Asian economies could be harmed by a weak U.S. economy, and a slow U.S. economy could have an adverse effect on the European economy. A weakened economy in Asia or Europe could reduce demand for our products in our primary markets. 12 OUR PRINCIPAL SHAREHOLDER AND THE BRAZILIAN GOVERNMENT COULD HAVE A GREAT DEAL OF INFLUENCE ON OUR COMPANY. Valepar, our principal shareholder, currently owns 43.0% of our outstanding common stock and 27.5% of our total outstanding capital. Litel Participacoes S.A. holds 42% of Valepar's stock and directly owns 10% of our outstanding common shares. For a description of our share ownership, see "Major Shareholders." As a result of their stock ownership, Valepar and Litel have significant influence in determining the outcome of any action requiring shareholder approval, such as the election of our directors. BNDESPAR, a wholly-owned subsidiary of BNDES, has a golden share in Valepar, giving the Brazilian government special voting rights over certain actions of Valepar. Further, the Brazilian government, in addition to its ownership stake in us, owns a golden share in us, which gives it veto powers over certain actions that we could propose to take. OUR RISK MANAGEMENT STRATEGY MAY NOT BE EFFECTIVE. We are exposed to fluctuations in interest rates, foreign currency exchange rates, and commodity prices relating to our iron ore, aluminum and gold production. In order to partially protect ourselves against unusual market volatility, we periodically enter into hedging transactions to manage these risks. We do not hedge risks relating to iron ore price fluctuations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Market Risk." However, our hedging strategy may not be successful in minimizing our exposure to these fluctuations. In addition, to the extent we hedge our commodity price exposure, we forego the benefits we would otherwise experience if commodity prices were to increase. RISKS RELATING TO THE NOTES CVRD'S SUBSIDIARIES, AFFILIATED COMPANIES AND JOINT VENTURES ARE NOT OBLIGATED UNDER THE NOTES OR THE GUARANTY, AND THESE COMPANIES' OBLIGATIONS TO THEIR OWN CREDITORS WILL EFFECTIVELY RANK AHEAD OF CVRD'S OBLIGATIONS UNDER THE GUARANTY. Vale Overseas is the obligor under the notes, and only the parent company CVRD is obligated under the guaranty of the notes. Vale Overseas has no operations or assets. In the future it may hold unsecured obligations from other CVRD subsidiaries to repay loans. These other subsidiaries will not be liable under the notes or the guaranty, and they may not have the ability to repay their loans from Vale Overseas. CVRD conducts a significant amount of business through subsidiaries, affiliated companies and joint ventures, none of which are obligated under the notes or the guaranty. In 2000 these companies were responsible for approximately 30% of CVRD's consolidated U.S. GAAP revenues from operations and approximately 26% of CVRD's consolidated U.S. GAAP net cash flows provided by operating activities. The claims of any creditor of a subsidiary, affiliated company or joint venture of CVRD would rank ahead of CVRD's ability to receive dividends and other cash flows from these companies. As a result, claims of these creditors would rank ahead of CVRD's ability to access cash from these companies in order to satisfy its obligations under the guaranty. In addition, these subsidiaries, affiliated companies and joint ventures may be restricted by their own loan agreements, governing instruments and other contracts from distributing cash to CVRD to enable CVRD to perform under its guaranty. At December 31, 2000, 25% of CVRD's consolidated U.S. GAAP liabilities were owed by subsidiaries of CVRD, which is the only obligor under the guaranty, meaning that the creditors under these liabilities would rank ahead of investors in the notes in the event of CVRD's insolvency. The indenture governing the notes contains restrictions on the conduct of business by Vale Overseas and CVRD, including limits on their ability to grant liens over their assets for the benefit of other creditors. These restrictions do not apply to CVRD's other subsidiaries, affiliated companies and joint ventures, and these companies are not limited by the indenture in their ability to pledge their assets to 13 other creditors. At December 31, 2000, approximately 2% of CVRD's consolidated U.S. GAAP assets were owned by entities other than the parent company, which is the only obligor under the guaranty. THERE MAY NOT BE A LIQUID TRADING MARKET FOR THE NOTES. The notes are new securities with no established trading markets. There can be no assurance that a liquid trading market for the notes will develop or, if one develops, that it will be maintained. The initial purchasers are not obligated to make a market in the notes, and if they begin to do so they may stop at any time without notice. If an active market for the notes does not develop, the price of the notes and the ability of a holder of notes to find a ready buyer will be adversely affected. WE MAY NOT BE ABLE TO MAKE PAYMENTS IN U.S. DOLLARS. In the past, the Brazilian economy has experienced balance of payment deficits and shortages in foreign exchange reserves, and the government has responded by restricting the ability of Brazilian or foreign persons or entities to convert reais into foreign currencies generally, and U.S. dollars in particular. The government may institute a restrictive exchange control policy in the future. Any restrictive exchange control policy could prevent or restrict our access to U.S. dollars to meet our U.S. dollar obligations and could also have a material adverse effect on our business, financial condition and results of operations. We cannot predict the impact of any such measures on the Brazilian economy. WE WOULD BE REQUIRED TO PAY BANKRUPTCY JUDGMENTS ONLY IN REAIS. If proceedings are brought in Brazil seeking to enforce in Brazil our obligations in respect of the notes, we would be required to discharge our obligations only in Brazilian reais. Under the Brazilian exchange control limitations, an obligation to pay amounts denominated in a currency other than reais, which is payable in Brazil, may be satisfied in reais at the rate of exchange, as determined by the Central Bank, in effect on the date of payment. DEVELOPMENTS IN OTHER COUNTRIES MAY AFFECT PRICES FOR THE NOTES. The market value of securities of Brazilian companies is, to varying degrees, affected by economic and market conditions in other countries. Although economic conditions in such countries may differ significantly from economic conditions in Brazil, investors' reactions to developments in any of these other countries may have an adverse effect on the market value of securities of Brazilian issuers. For example, in October 1997, prices of both Brazilian debt securities and Brazilian equity securities dropped substantially, precipitated by a sharp drop in the value of Asian markets. The market value of the notes could be adversely affected by events elsewhere, especially in emerging market countries. VALE OVERSEAS' ABILITY TO MEET ITS OBLIGATIONS UNDER THE NOTES DEPENDS ON ITS RECEIPT OF MONEYS FROM ON-LENDING ACTIVITIES WITHIN THE CVRD GROUP. Vale Overseas will on-lend the note proceeds to entities within the CVRD Group. Vale Overseas' ability to meet its obligations to pay principal of, and interest on, the notes without recourse to the guaranty of CVRD will be dependent on its receipt of moneys due under those loans. To the extent any such entity fails to make payments in respect of Vale Overseas' loan to it, Vale Overseas will have insufficient funds available to pay interest on the notes. In these circumstances, you would have recourse to CVRD under the guaranty, unless a Political Risk Event had occurred, in which case you would have recourse to the reserve account. A Political Risk Event exists if one of the following events occurs and is continuing: - Vale Overseas or CVRD cannot convert Brazillian currency into U.S. dollars and/or remit U.S. dollars outside Brazil as a result of any measures taken by the government of Brazil; or 14 - the government of Brazil (or entities authorized under the laws of Brazil to operate in the foreign exchange markets) fails to effect the conversion of Brazilian currency into U.S. dollars and/or the remittance of U.S. dollars outside Brazil by Vale Overseas or CVRD; or - the government of Brazil expropriates, confiscates or takes other measures which have the effect of depriving Vale Overseas or CVRD of the use or control of Brazillian currency or U.S. dollars. In determining whether a Political Risk Event exists on any interest payment date, the fact that Vale Overseas or CVRD may be able to make an interest payment under the notes in U.S. dollars from offshore sources outside of Brazil will be ignored. Vale Overseas and CVRD have agreed to notify the trustee whenever a Political Risk Event occurs. THE MATURITY DATE OF THE NOTES MAY BE EXTENDED IF A POLITICAL RISK EVENT EXISTS ON THE ORIGINALLY SCHEDULED MATURITY DATE. The original maturity date of the notes is March 8, 2007. That maturity date may be extended if a Political Risk Event is in existence on that date and Vale Overseas and CVRD are unable to repay principal of the notes. This extension may last up to 18 months, to September 8, 2008. If a Political Risk Event is still in existence on September 8, 2008, Vale Overseas and CVRD have been unable to fund themselves alternatively and CVRD has been unable to pay under its guaranty, Vale Overseas will be unable to repay the notes. In these circumstances, you may be repaid on a date later than the original maturity date, and you may not be repaid what you are owed. THE PROTECTION PROVIDED IN THE NOTES AGAINST THE CONSEQUENCES OF A POLITICAL RISK EVENT LASTS FOR 18 MONTHS. The notes have the benefit of a reserve account or letters of credit which can be used by the trustee to pay up to three installments of interest on the notes if, at the time of payment of that interest, Vale Overseas does not otherwise have the funds to make that payment and CVRD cannot pay under its guaranty as a result of the existence of a Political Risk Event. Once the reserve account or letters of credit are depleted, they will not be replenished, so if Vale Overseas has been unable to fund itself alternatively and CVRD has been unable to pay under its guaranty, Vale Overseas may be unable to pay interest on the notes. In these circumstances, you will be able to call an event of default and accelerate repayment of principal on the notes, but if you do so you may not be repaid what you are owed. THE TRUSTEE WILL DEPEND ON RECEIPT OF NOTICE FROM VALE OVERSEAS OR CVRD THAT A POLITICAL RISK EVENT HAS OCCURRED. Under the indenture, the trustee is authorized to use the reserve account or letters of credit to pay interest on the notes if a Political Risk Event is in existence on the date for payment of interest on the notes and Vale Overseas has not been able to fund the interest payment from other sources. The trustee is entitled to assume that no Political Risk Event has occurred until it has received written notice of it from Vale Overseas or CVRD. The trustee will not be liable to you for any loss suffered by you as a result of any failure on the part of Vale Overseas or CVRD to provide the trustee with notice, although that failure will be a breach of covenant by Vale Overseas and CVRD which may give rise to an event of default. 15 FORWARD-LOOKING STATEMENTS We have made statements under the captions "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and in other sections of this prospectus that are forward-looking statements. Many of the forward looking statements contained in this prospectus are identified by the use of forward-looking words such as "anticipate," "believe," "could," "expect," "should," "plan," "estimate," and "potential," among others. These statements appear in a number of places in this prospectus and include statements regarding our intent, belief or current expectations with respect to: - our direction and future operations, - the implementation of our principal operating strategies, including our potential participation in privatization, acquisition or joint venture transactions or other investment opportunities, - our divestiture plans, - the implementation of our financing strategy and capital expenditure plans, - the exploration of mineral reserves and development of mining facilities, - depletion and exhaustion of mines and mineral reserves, - the declaration or payment of dividends, - other factors or trends affecting our financial condition or results of operations, and - the factors discussed under "Risk Factors" beginning on page 10. We caution that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward looking statements as a result of various factors, including competition in the iron ore industry, the cyclicality and price volatility of our business, the instability of the real and global economic conditions. The information in this prospectus identifies important factors that could cause these differences. USE OF PROCEEDS Vale Overseas will not receive any cash proceeds from the issuance of the new securities. The new securities will be exchanged for old securities as described in this prospectus upon our receipt of old securities. Vale Overseas will cancel all of the old securities surrendered in exchange for the new securities. Our net proceeds from the sale of the old securities were approximately $298,500,000, after deduction of the initial purchasers' discounts and commissions and other expenses of the offering. We used those net proceeds for the CVRD Group's general corporate purposes. 16 VALE OVERSEAS LIMITED GENERAL Vale Overseas was registered and incorporated as a Cayman Islands exempted company with limited liability on April 3, 2001, registration number 113637. Vale Overseas has been incorporated for an indefinite period. Its registered office is at Walker House, PO Box 908 GT, Mary Street, Georgetown, Grand Cayman, Cayman Islands. Vale Overseas' authorized share capital is U.S.$50,000 divided into 50,000 ordinary shares of U.S.$1.00 each, 1,000 of which have been issued. All of the issued shares are fully-paid and are held by CVRD. BUSINESS Vale Overseas is a finance company for the CVRD Group. Its business is to borrow money outside Brazil by issuing securities under the indenture referred to under "Description of Notes" to finance CVRD's activities outside Brazil or to on-lend it to other CVRD Group companies. The issuance of the notes was its first borrowing. The is not permitted to issue further securities under the indenture unless Moody's has confirmed that the issue of further securities will not result in the reduction of the then current rating of the notes. DIRECTORS Vale Overseas' Directors are as follows:
NAME PRINCIPAL OCCUPATION AGE ---- -------------------- --- Francisco Rohan de Lima................. Deputy General Counsel, CVRD 47 Gabriel Stoliar......................... Executive Officer, CVRD 47 Tito Botelho Martins.................... Finance Director, CVRD 40
Mr. Stoliar also serves as Vale Overseas' principal executive officer and Mr. Martins also serves as Vale Overseas' principal financial and accounting officer. The business address of the Directors is Avenida Graca Aranha, 26, 17th floor, 20005-900 Rio de Janeiro, RJ, Brazil. 17 EXCHANGE RATES There are two principal foreign exchange markets in Brazil: - the commercial rate exchange market, and - the floating rate exchange market. Most trade and financial foreign-exchange transactions are carried out on the commercial rate exchange market. These transactions include the purchase or sale of shares or the payment of dividends or interest with respect to shares. Foreign currencies may only be purchased through a Brazilian bank authorized to operate in these markets. In both markets, rates are freely negotiated but may be strongly influenced by Central Bank intervention. In 1999, the Central Bank unified the exchange positions of the Brazilian banks in the floating rate exchange market and commercial exchange market, which led to a convergence in the pricing and liquidity of both markets. Since February 1, 1999, the floating market rate has been the same as the commercial market rate. However, there is no guarantee that the rates will continue to be the same in the future. Despite the convergence in the pricing and liquidity of both markets, each market continues to be regulated differently. From its introduction on July 1, 1994 through March 1995, the real appreciated against the U.S. dollar. In 1995, the Central Bank announced that it would intervene in the market and buy or sell U.S. dollars, establishing a band in which the exchange rate between the real and the U.S. dollar could fluctuate. This policy resulted in a gradual devaluation of the real relative to the U.S. dollar. On January 13, 1999, the band was set between R$1.20 and R$1.32 per US$1.00. Two days later, on January 15, 1999, due to market pressures, the Central Bank abolished the band system and allowed the real/U.S. dollar exchange rate to float freely. As a result, the exchange rate dropped to R$2.1647 per US$1.00 on March 3, 1999. Since then, the real/U.S. dollar exchange rate has been established by the interbank market, and has fluctuated considerably. In the past, the Central Bank has intervened occasionally to control unstable movements in the foreign exchange rate. It is not possible to predict whether the Central Bank will continue to let the real float freely or whether the real will remain at its present level. Accordingly, it is not possible to predict what impact the Brazilian government's exchange rate policies may have on us. The Brazilian government could impose a band system in the future or the real could devalue or appreciate substantially. For more information on these risks, see "Risk Factors -- Risks Relating to Brazil." The following table sets forth the commercial selling rate, expressed in reais per U.S. dollar (R$/ US$) for the periods indicated.
AVERAGE FOR PERIOD-END PERIOD LOW HIGH ---------- ----------- ----- ----- YEAR ENDED December 31, 1997....................................... 1.116 1.088(1) 1.040 1.116 December 31, 1998....................................... 1.209 1.168(1) 1.117 1.209 December 31, 1999....................................... 1.789 1.851(1) 1.208 2.165 December 31, 2000....................................... 1.955 1.835(1) 1.723 1.985 December 31, 2001....................................... 2.320 2.353(1) 1.936 2.801 MONTH ENDED September 30, 2001...................................... 2.671 2.678(2) 2.559 2.801 October 31, 2001........................................ 2.707 2.735(2) 2.687 2.783 November 30, 2001....................................... 2.529 2.571(2) 2.460 2.682 December 31, 2001....................................... 2.320 2.380(2) 2.293 2.467 January 31, 2002........................................ 2.418 2.366(2) 2.293 2.438 February 28, 2002....................................... 2.348 2.409(2) 2.348 2.469
- --------------- (1) Average of the rates on the last day of each month in the period. (2) Average of the high and low exchange rates for each month. Source: Central Bank. On March 20, 2002, the commercial selling rate was R$2.338 per US $1.00. 18 CAPITALIZATION CVRD The table below sets forth CVRD's current liabilities and capitalization at September 30, 2001. You should read the table together with our consolidated financial statements and the notes thereto appearing elsewhere in this prospectus.
AT SEPTEMBER 30, 2001 ---------------- (IN MILLIONS OF US$) Current liabilities: Current portion of long-term debt......................... US$ 260 Short-term debt........................................... 649 Other..................................................... 1,266 -------- Total current liabilities......................... 2,175 -------- Long-term liabilities: Long-term debt: Secured................................................ 495 Unsecured(1)........................................... 1,616 -------- Total long-term debt.............................. 2,111 Loans from related parties................................ 4 Other..................................................... 753 -------- Total long-term liabilities....................... 2,868 -------- Minority interest........................................... 8 -------- Shareholders' equity: Preferred shares -- 600,000,000 shares authorized and 138,575,913 issued..................................... 820 Common shares -- 300,000,000 shares authorized and 249,983,143 issued..................................... 1,479 Treasury shares -- 4,249,970 common and 91 preferred shares................................................. (79) Additional paid-in capital.................................. 498 Retained earnings: Appropriated.............................................. 2,321 Unappropriated............................................ 2,473 Other cumulative comprehensive income....................... (3,889) -------- Total shareholders' equity........................ 3,613 -------- Total capitalization.............................. US$8,664 ========
- --------------- (1) We issued US$300 million in debt, represented by the old notes, during the first quarter of 2002. The old notes mature in 2007. VALE OVERSEAS The table below sets forth Vale Overseas' capitalization at March 20, 2002.
AT MARCH 20, 2002 ------------- (IN THOUSANDS OF U.S.$) Long-term debt.............................................. U.S.$300,000 Shareholders equity......................................... 1 ------------ Total............................................. U.S.$300,001 ============
19 SELECTED CONSOLIDATED FINANCIAL DATA The tables below present selected consolidated financial data for CVRD at and for the periods indicated. The data at and for the five years ended December 31, 2000 has been derived from our consolidated financial statements, which were audited by PricewaterhouseCoopers Auditores Independentes. The data at and for the nine months ended September 30, 2000 and 2001 has been derived from our unaudited interim financial statements, included elsewhere in this prospectus, which, in the opinion of management, reflect all adjustments which are of a normal recurring nature necessary for a fair presentation of the results for such periods. The results of operations for the nine months ended September 30, 2001 are not necessarily indicative of the operating results to be expected for the entire year ended December 31, 2001. The data at and for the five years ended December 31, 2000 and at and for the nine months ended September 30, 2001 and 2000 have been restated to reflect the accounting changes described in notes 21 and 19 to our consolidated financial statements and our unaudited interim financial statements, respectively. You should read the information below in conjunction with our audited and unaudited consolidated financial statements and notes thereto included elsewhere in this prospectus, as well as "Presentation of Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
FOR THE NINE MONTHS FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, --------------------------------------------------------- --------------------- 1996 1997 1998 1999 2000 2000 2001 --------- --------- --------- --------- --------- --------- --------- (IN MILLIONS OF US$) STATEMENT OF INCOME DATA Net operating revenues........................ US$ 3,585 US$ 3,748 US$ 3,553 US$ 3,076 US$ 3,935 US$ 2,996 US$ 2,997 Cost of products and services................. (2,724) (2,653) (2,272) (1,806) (2,429) (1,865) (1,715) Selling, general and administrative expenses.................................... (245) (207) (171) (138) (225) (140) (188) Research and development...................... (59) (51) (48) (27) (48) (34) (31) Employee profit sharing plan.................. (51) (46) (29) (24) (29) (31) (21) Banco Nacional de Desenvolvimento Economico e Social (BNDES) -- cost reimbursement under Mineral Risk Contract....................... -- 37 -- -- -- -- -- Restructuring costs........................... -- (87) (9) -- -- -- -- Other income (expenses)....................... 40 (104) (170) (161) (220) (231) (335) --------- --------- --------- --------- --------- --------- --------- Operating income.............................. 546 637 854 920 984 695 707 --------- --------- --------- --------- --------- --------- --------- Non-operating income (expenses): Financial income............................ 167 235 394 200 208 136 80 Financial expenses.......................... (230) (238) (243) (233) (315) (204) (240) Foreign exchange and monetary gain (loss)... 15 15 (108) (213) (142) (10) (700) Gain on sale of investments................. -- -- -- -- -- 54 784 Translation gain (loss)..................... (1) (8) -- -- -- -- -- Other....................................... (56) (12) (5) (4) (4) (11) (43) --------- --------- --------- --------- --------- --------- --------- (105) (8) 38 (250) (253) (35) (119) --------- --------- --------- --------- --------- --------- --------- Income before income taxes, equity results, minority interests and extraordinary items....................................... 441 629 892 670 731 660 588 Income taxes benefit (charge)................. 43 (32) -- (33) 32 1 43 Equity in results of affiliates and joint ventures.................................... 115 155 80 41 260 187 (8) Change in provision for losses and write-downs on equity investments....................... (21) (59) (273) (268) 62 53 (45) Minority interests............................ (4) (2) (1) 2 1 -- 7 --------- --------- --------- --------- --------- --------- --------- Income before extraordinary items............. 574 691 698 412 1,086 901 585 Extraordinary items (net of taxes)(1)......... -- (372) -- -- -- -- -- --------- --------- --------- --------- --------- --------- --------- Net income.................................... US$ 574 US$ 319 US$ 698 US$ 412 US$ 1,086 US$ 901 US$ 585 ========= ========= ========= ========= ========= ========= ========= Total cash distributions...................... US$ 146 US$ 302 US$ 607 US$ 452 US$ 246 US$ 246 US$ 639
- --------------- (1) Extraordinary items in 1997 relate to transactions in connection with the first step of our privatization. 20
AT DECEMBER 31, AT SEPTEMBER 30, ------------------------------------------------------- ------------------- 1996 1997 1998 1999 2000 2000 2001 --------- --------- --------- -------- -------- -------- -------- (IN MILLIONS OF US$) BALANCE SHEET DATA Current assets............................... US$2,469 US$2,603 US$2,845 US$2,490 US$2,502 US$2,318 US$2,995 Property, plant and equipment, net........... 5,451 5,557 5,261 3,943 3,955 4,024 3,320 Investments in affiliated companies and joint ventures and other investments............. 1,714 1,666 1,557 1,203 1,795 1,709 818 Other assets................................. 1,580 1,791 1,385 1,052 1,543 1,531 1,531 --------- --------- --------- -------- -------- -------- -------- Total assets............................. 11,214 11,617 11,048 8,688 9,795 9,582 8,664 ========= ========= ========= ======== ======== ======== ======== Current liabilities.......................... 1,846 2,057 2,030 2,072 2,136 2,169 2,175 Long-term liabilities........................ 1,099 1,157 1,169 601 1,061 975 757 Long-term debt(2)............................ 1,256 1,428 1,389 1,321 2,020 1,525 2,111 Minority interest............................ 71 69 68 3 9 26 8 --------- --------- --------- -------- -------- -------- -------- Total liabilities........................ 4,272 4,711 4,656 3,997 5,226 4,695 5,051 --------- --------- --------- -------- -------- -------- -------- Stockholders' equity: Capital stock.............................. 1,313 1,288 1,740 1,927 1,927 1,927 2,220 Additional paid-in capital................. 180 498 498 498 498 498 498 Reserves and retained earnings............. 5,449 5,120 4,154 2,266 2,144 2,462 895 --------- --------- --------- -------- -------- -------- -------- Total stockholders' equity............... US$6,942 US$6,906 US$6,392 US$4,691 US$4,569 US$4,887 US$3,613 --------- --------- --------- -------- -------- -------- -------- Total liabilities and stockholders' equity................................. US$11,214 US$11,617 US$11,048 US$8,688 US$9,795 US$9,582 US$8,664 ========= ========= ========= ======== ======== ======== ========
- --------------- (2) Excludes current portion. At December 31, 2000, we had extended guarantees for borrowings of joint ventures and affiliated companies in an aggregate amount of US$788 million. These contingent liabilities do not appear on the face of our consolidated balance sheets, but appear in note 15(a) to our consolidated financial statements. ADDITIONAL DATA
AT DECEMBER 31, AT SEPTEMBER 30, ---------------------------------------------------- ------------------- 1996 1997 1998 1999 2000 2000 2001 -------- -------- -------- -------- -------- -------- -------- (IN MILLIONS OF US$) Ratio of earnings to fixed charges(1)................. 2.95x 3.40x 4.28x 3.66x 3.43x 4.06x 3.52x
- --------------- (1) To calculate the ratio of earnings to fixed charges, we calculate earnings by adding interest before income taxes, equity results and minority interests, fixed charges, amortization of capitalized interest and distributed income of equity investments less capitalized interest. Fixed charges represent the total of capitalized interest, financial expenses and the preferred stock guaranteed dividend. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is based on and should be read in conjunction with CVRD's consolidated financial statements and notes thereto and other financial information included elsewhere in this prospectus. OVERVIEW Several factors will affect CVRD's results of operations, liquidity and capital resources, including, but not limited to: - contract prices for iron ore and pellets and world market prices for aluminum and gold, - the level of demand for our iron ore and pellets, - the level of demand for our third-party transportation services, - the relationship between the real and the U.S. dollar, in which most of our sales are denominated, - the results of operations of joint ventures and affiliated companies (in particular our aluminum operations and pellet joint ventures) recorded under the equity method in our financial statements, - Brazil's electricity shortage, and - Brazilian tax legislation. Prices The prices for our core mineral products fluctuate, although iron ore and pellet prices are less volatile than those of aluminum and gold. We expect these fluctuations to continue. The table below sets forth our quarterly sinter feed reference prices in U.S. dollars for iron ore and pellet export sales and world quarterly market prices for gold and aluminum for the periods indicated.
IRON ORE ------------------------------------- ASIAN EUROPEAN MARKET(1) MARKET(1)(2) PELLETS(3) GOLD ALUMINUM --------- ------------ ---------- --------- -------------- (PER TROY (PER TON) OUNCE)(4) (PER POUND)(5) 1Q98........................................ US$15.82 US$19.21 US$34.66 US$301 US$0.66 2Q98........................................ 15.78 19.21 34.66 296 0.60 3Q98........................................ 15.78 19.21 34.66 294 0.61 4Q98........................................ 15.78 19.21 34.66 288 0.57 1Q99........................................ 15.78 17.10 30.07 279 0.62 2Q99........................................ 14.48 17.10 30.07 261 0.60 3Q99........................................ 14.48 17.10 30.07 299 0.68 4Q99........................................ 14.48 17.10 30.07 290 0.71 1Q00........................................ 14.48 17.82 31.87 277 0.75 2Q00........................................ 15.35 17.82 31.87 288 0.68 3Q00........................................ 15.35 17.82 31.87 274 0.72 4Q00........................................ 15.35 17.82 31.87 274 0.67 1Q01........................................ 15.35 18.68 32.46 258 0.69 2Q01........................................ 16.01 18.68 32.46 269 0.67 3Q01........................................ 16.01 18.68 32.46 293 0.62 4Q01........................................ 16.01 18.68 32.46 278 0.61
22 - --------------- (1) Represents our quarterly standard sinter feed reference prices for export sales for periods indicated (FOB Tubarao -- Asian market and FOB Sao Luis -- European market) and not actual prices realized on sales. (2) Brazilian iron ore prices are generally based on the European market reference price. (3) Represents our quarterly standard pellet reference prices for export sales for period indicated (FOB Tubarao) and not actual prices realized on sales. (4) Represents London Gold Market prices. (5) Represents London Metals Exchange prices (cash/three-month average quotations). Iron Ore. Our iron ore export sales are generally made pursuant to long-term supply contracts which provide for annual price adjustments. Cyclical changes in the world demand for steel products affect sales prices and volumes in the world iron ore market. Different factors, such as the iron content of specific ore deposits, the various beneficiation and purifying processes required to produce the desired final product, particle size, moisture content, and the type and concentration of contaminants (such as phosphorus, alumina and manganese) in the ore, influence contract prices for iron ore. Contract prices also depend on transportation costs. Fines, lump ore and pellets typically command different prices. We generally conduct annual price negotiations from November to February of each year, with separate prices established for the Asian and European iron ore markets. In the Asian market, the renegotiated prices are effective from April of the current year until March of the following year. In the European market, the renegotiated prices are effective for the calendar year. Because of the wide variety of iron ore and pellet quality and physical characteristics, iron ore and pellets are less commodity-like than other minerals. This factor combined with the structure of the market has prevented the development of an iron ore futures market. We do not hedge our exposure to iron ore price volatility. Gold. We sell gold in an active world market in which prices respond to daily changes in supply and demand. We generally seek to manage the risks associated with changes in gold prices through hedging. For more information about our gold hedging activities, see "-- Market Risk." Aluminum. We sell our aluminum in an active world market where prices are determined by reference to prices prevailing on terminal markets, such as the London Metals Exchange and the Commodity Exchange, Inc., or COMEX, at the time of delivery. We sell aluminum purchased from the Albras aluminum joint venture pursuant to a take-or-pay commitment for 51% (representing our proportional ownership interest) of the joint venture's annual aluminum production. Although our annual purchase commitment can be substantial, approximately US$241 million in the first nine months of 2001 and US$280 million in 2000, prevailing world market prices for aluminum (subject to discount in accordance with the terms of our joint venture agreements) determine our aluminum purchase prices. Albras seeks to manage the risks associated with changes in aluminum prices by hedging. For more information about aluminum hedging, see "-- Market Risk." Demand Demand for our iron ore products is a function of worldwide demand for steel, which is, in turn, heavily influenced by worldwide economic activity. Worldwide demand for steel had a downward trend in 2001 from 2000. A slowdown in economic activity in Europe or Asia will directly affect demand for our iron ore products, although there will typically be a lag effect. Demand for our other mineral products is also influenced to varying degrees by worldwide economic activity. Demand for our third party transportation services is influenced by Brazilian economic growth as well as by Brazilian exports and imports of goods. 23 Inflation The following table sets forth the Brazilian inflation rate as measured by the IGP-M Index, published by the Fundacao Getulio Vargas.
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------- ------------- 1997 1998 1999 2000 2001 2000 2001 ---- ---- ---- --------- ---- ----- ----- (PERCENT) Brazilian inflation rate........................... 7.7 1.8 20.1 9.9 10.4 8.2 7.8
Before July 1, 1997, Brazil was considered to have a highly inflationary economy. For periods before July 1, 1997, we remeasured (translated) our financial statements into U.S. dollars from financial statements presented in reais, in accordance with the provisions of Statement of Financial Accounting Standards 52 -- Foreign Currency Translation, or SFAS 52. Under the financial statement remeasurement procedures we adopted, we translated non-monetary items (inventories, property, plant and equipment and accumulated depreciation and depletion, as well as shareholders' equity accounts) at historical exchange rates. We translated monetary assets and liabilities denominated in Brazilian currency at period-end exchange rates. We included the translation gain or loss resulting from this restatement process in the then-current statements of operations. At July 1, 1997, we concluded that the Brazilian economy had ceased to be highly inflationary for purposes of SFAS 52 and changed our functional currency from the reporting currency, U.S. dollars, to the local currency, Brazilian reais. Therefore, on July 1, 1997, we translated the U.S. dollar amounts of non-monetary assets and liabilities into reais at the then-current exchange rate. These translated amounts became the new accounting bases for such assets and liabilities. At each period ended after July 1, 1997, we have remeasured all assets and liabilities into U.S. dollars at the then-current exchange rate and all accounts in the statements of operations and cash flows at the average rates prevailing during the applicable period. We included the translation gain or loss resulting from this translation process in the cumulative translation adjustments component of shareholders' equity. Currency Fluctuations Most of our sales will continue to be U.S. dollar-denominated while most of our costs, other than debt expenses, will continue to be denominated in Brazilian currency. As a result, when the real is relatively strong against the U.S. dollar, this tends to have a negative effect on our reported financial results from operations, and vice versa. On the other hand, because most of our debt, and debt at the joint venture and affiliate level, is U.S. dollar-denominated, a relatively weak real causes us to record monetary and foreign-exchange losses. Effects of Certain Equity Method Affiliates and Investments Carried at Cost The financial condition and results of operations of our joint ventures, affiliated companies and investments have had a significant effect on our results of operations and financial condition in the past. Our steel and pulp and paper divestitures should limit this effect in future periods, although the activities of our aluminum and pellet joint ventures will remain important. See note 10 to our consolidated financial statements for information on these effects. Rising Unit Extraction Costs Several of our mines, such as Caue, Conceicao and Capanema, have operated for long periods and may experience rising extraction costs per unit as more expensive processes become necessary to extract remaining ore in these mines. Increases in extraction costs at each of theses mines did not materially affect our results of operations during the historical periods discussed under "-- Results of Operations" as such increases were offset by productivity gains and by the favorable foreign exchange effects on these costs. 24 Electricity Costs Electricity costs are a significant component of the cost of producing aluminum. Our aluminum plant, Albras, entered into a 20-year contract with Eletronorte, a state-owned power utility, pursuant to which Albras purchases electricity at rates which are lower than the prevailing market rates in the region. For the first nine months of 2001 and for the years ended December 31, 2000, 1999 and 1998, the prevailing market rate was US$22.99, US$24.48, US$23.36 and US$36.06 per MWh, respectively. The average price paid by Albras for the same periods was US$11.51, US$11.93, US$10.56 and US$11.39 per MWh, respectively. The Eletronorte contract is scheduled to expire in May 2004. Effects of the Energy Shortage in Brazil On June 1, 2001, the Brazilian government, as part of its energy rationing program, required energy consumption to decrease by at least 20% relative to average consumption for May, June and July 2000. Aluminum and ferro-alloy activities were categorized as electricity-intensive activities and energy consumption relating to these activities was required to decrease by 25% relative to average consumption for May, June and July 2000. Our total expected energy consumption for 2001 was 14.5 TWh. However, due to this rationing program, our actual energy consumption for 2001 was 12.5 TWh. In 2000, our total energy consumption was 13.8 TWh. As a result, we reduced our ferro-alloy production in the six-month period ending November 30, 2001 by 46,000 tons, from the previously planned 220,000 tons to 174,000 tons. We also reduced 2001 aluminum production at Albras by 46,000 tons to 333,000 tons from the previously planned 379,000 tons, and at Valesul by 13,000 tons to 80,000 tons from the previously planned 93,000 tons. By the end of 2001, climate conditions in Brazil improved, reducing the immediate risk of energy shortages. Therefore, in January 2002, the Brazilian government eliminated the restrictions on the use of energy in the north region of Brazil, where most of our aluminum production is located. On March 1, 2002, the Brazilian government eliminated the restrictions on the use of energy in the rest of the country. For a discussion about the possible consequences and risks associated with energy shortages, see "Risk Factors -- Risks Relating to Brazil -- The Brazilian government's energy rationing program could adversely affect us" and "Business -- Our Lines of Business -- Holdings -- Aluminum Business -- Aluminum." Divestitures In line with our focus on mining, logistics and energy, we have moved to pare down our holdings of non-strategic assets. We are pursuing the disposition of our pulp and paper assets and are also disposing of assets in the steel and transportation sectors that are not strategically connected to our core businesses. In the pulp and paper industry, in March 2001, we concluded the sale of our interest in Bahia Sul Celulose S.A., known as Bahia Sul, for approximately US$320 million. In September 2001, we concluded the sale of our stake in Celulose Nipo Brasileira, S.A., known as Cenibra, to our former partner for US$670.5 million. In the steel industry, we disposed of our 2.3% stake in Acominas in December 2000 for US$10 million worth of preferred shares of Gerdau S.A., a publicly listed steel company, which we intend to sell in the future. In addition, in March 2001, we disposed of our 10.3% stake in Companhia Siderurgica Nacional or CSN. We transferred our interest in CSN, valued at US$249 million to Fundacao Vale do Rio Doce de Seguridade Social, known as VALIA, our employee pension fund, in order to satisfy a funding obligation that we owed VALIA. For more information on this contribution to VALIA see "Business -- Employees." We continue to explore the divestiture of Celmar S.A. and of our forestry subsidiary, Florestas Rio Doce S.A. See "Business -- Our Lines of Business -- Pulp and Paper Division." Finally, we have begun the process of divesting our dry-bulk cargo shipping assets. In September 2001, we reached an agreement to sell six of Docenave's carrier vessels, with a total capacity of 592,240 DWT, to Empresa Naviera Elcano, S.A., a Spanish company, for US$53 million. This transaction closed in February 2002. We intend to sell Docenave's remaining dry-bulk assets in the future, but have reached no agreement regarding this sale to date. 25 Past divestitures include Bahia Sul (pulp and paper), Cenibra (pulp and paper), Acominas (steel), and CSN (steel). Divestitures currently in progress include our dry-bulk cargo business and our forestry activities. The following table shows the effects of both past divestitures and those currently in progress on our gross revenues, net income and total assets:
FOR THE YEAR ENDED FOR THE NINE MONTHS DECEMBER 31, ENDED SEPTEMBER 30, ------------------ ------------------- 2000 1999 1998 2001 ---- ---- ---- ------------------- Decrease in gross revenues............................... 6.3% 4.9% 5.6% 5.1% ---- ---- ---- ----- Decrease (increase) in net income........................ 7.4 (6.8) 1.3 (10.9) ---- ---- ---- ----- Decrease in total assets................................. 7.4 7.8 -- 1.6 ---- ---- ---- -----
Unwinding of Our Cross-Holding Relationships with CSN We acquired a stake in CSN, during its privatization process in 1993. CSN, in turn, acquired a 6.8% stake in us during the first step of our privatization process in 1997, through its indirect participation in Valepar, our principal shareholder. In line with our strategy to consolidate and focus on mining, logistics and energy, in the first quarter of 2001, we implemented a program to unwind our cross-holding relationships with CSN. In March 2001, CSN concluded the sale of its shares in Valepar to Litel Participacoes S.A., Bradesplan Participacoes S.A. and Bradespar S.A. Bradesplan and Bradespar subsequently transferred their shares in Valepar to Babie Participacoes, S.A. Babie is a holding company owned by Bradesplan and Bradespar. In March 2001, we transferred our 10.3% stake in CSN, valued at US$249 million, to VALIA, our employee pension fund. For more information on this contribution to VALIA, see "Business -- Employees." As part of the unwinding transaction, CSN granted us the following rights of first refusal relating to CSN's Casa de Pedra mine, each of which lasts for a period of 30 years: - the right to purchase any iron ore produced by the mine beyond CSN's internal requirements, - the right to purchase or to rent the mine should CSN decide to sell or lease it, and - the right to become a joint venture partner should CSN decide to form a pelletizing joint venture with a third party with iron ore produced by the mine. In return, we have granted CSN a right of first refusal to participate with us in the construction of any new steel producing facilities that we undertake in the next five years. This transaction, as a whole, is subject to review by the Brazilian antitrust authorities. We do not expect the unwinding of our cross-holding relationships with CSN to have any significant impact on our operations and financial results. Brazilian Taxes We are subject to a number of Brazilian taxes in addition to corporate income tax. Brazilian tax legislation changes, which are frequent, can have an impact on our results of operations. Some Brazilian taxes are described below. Value-Added Tax. Our revenues consist of total revenues from sales, net of discounts, returns and allowances, together with amounts we collect in respect of value-added tax. Net operating revenues represent revenues less value-added tax, which we collect on behalf of, and must remit to, state taxing authorities. Export sales are currently exempt from value-added tax. 26 Social Contribution on Profits. Social contribution on profits is a federal income tax. The rate has fluctuated in the past three years from 8% to 12% and is currently at 9%. Before 1997, this tax was deductible for income tax purposes; beginning in 1997, the tax is no longer deductible. After December 2002, the applicable rate is scheduled to be 8%. Social Integration Program and Social Contribution on Gross Sales. The Social Integration Program, or PIS, aims to finance special social programs through the collection of a 0.65% revenues tax. Social contribution on gross sales, or COFINS, finances special social programs through the collection of a 3% revenues tax. Export sales are currently exempt from both of these taxes. Provisional Tax on Bank Accounts. The provisional tax, known as CPMF, is imposed on every transaction involving the debit of money from a bank account. The CPMF rate has fluctuated from 0.2% to 0.38% since its creation in 1997. For the period between March 18, 2001 and June 17, 2002, the rate is 0.38%. Financial Compensation for the Exploration of Mineral Resources. We owe a government royalty on net revenues derived from the production and sale of mineral resources. The annual rates on our products are: - iron ore, 2%, - bauxite, manganese and potash, 3%, and - gold, 1%. Federal Tax on Industrialized Products. Manufacturers pay this federal tax on behalf of their customers at the time of sale, either to another manufacturer to further the manufacturing process or to the retailer of the ultimate customer. Export operations are currently excluded. The tax on our aluminum production is at the rate of 4%. RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000 Revenues Net operating revenues remained stable at US$2,997 million in the nine months ended September 30, 2001 compared to US$2,996 million in the same period of 2000, with an increase in our iron ore and pellets revenues offset by decreases in revenues in other lines of business. Revenues from iron ore and pellets increased 18.5% to US$1,937 million in the nine months ended September 30, 2001 from US$1,635 million in the same period of 2000, reflecting a 13.6% increase in volume sold to 110.8 million tons in 2001 from 97.5 million tons in 2000, a 4.4% increase in average selling prices and a 0.5% increase due to changes in product mix. In 2001, there was an increase in demand from the growing market in China, and therefore our exports to this country increased to 11.5 million tons in the nine months ended September 30, 2001 compared to 6.6 million tons in the same period of 2000. Our acquisition of Ferteco in April 2001 added US$157 million to our revenues in the nine months ended September 30, 2001, representing 8.5 million tons. Revenues from gold sales decreased 11.5% to US$100 million in the nine months ended September 30, 2001 from US$113 million in the same period of 2000, representing a 8.8% decrease in volume sold and a 2.7% decrease in average selling prices. The reduction in volume sold was due to the closure of our Almas and Caete mines at the end of 2000 and operational problems at two other mines during the first quarter of 2001, which have now been resolved. Revenues from other mining products decreased 11.0% to US$291 million in the nine months ended September 30, 2001 from US$327 million in the same period of 2000. This decrease is mainly due to a reduction in sales of our ferro-alloys subsidiary, Sibra, to US$100 million in the nine months ended September 30, 2001 from US$112 million in the same period of 2000, reflecting a decrease in average prices. Potash and kaolin sales also decreased as a result of lower demand. 27 Revenues from transportation services decreased 19.6% to US$464 million in the nine months ended September 30, 2001 from US$577 million in the same period of 2000. The reduction partly reflects services billed to Ferteco and Samitri in 2000, which as a result of our acquisition of these companies, are now eliminated in our consolidated financial statements. Such services included in revenues for the nine months ended September 30, 2000 (prior to our acquisition of Samitri in May 2000) totaled US$86 million and in the nine months ended September 30, 2001 (prior to our acquisition of Ferteco in April 2001) totaled US$22 million. Volumes in our other transportation activities were stable during the two periods compared, while prices of domestic transport declined some 12.4% as a result of the devaluation of the real in 2001. We intend to sell 15 ships in the period between 2001 and 2002. These ships generated revenues of US$160 million in the nine months ended September 30, 2001. Revenues from aluminum products (bauxite, alumina and aluminum) decreased 20.0% to US$224 million in the nine months ended September 30, 2001 from US$280 million in the same period of 2000. The total decrease of US$56 million comprises US$35 million related to a reduction of 15.0% in aluminum sales and US$21 million related to lower resales of alumina as a result of higher direct sales to other shareholders in our alumina affiliate, Alunorte. Revenues from other products and services decreased 48.1% to US$83 million in the nine months ended September 30, 2001 from US$160 million in the same period of 2000, primarily representing decreases in sales volumes of pulp and paper products following the divestment of our investment in Cenibra and the consequent termination of our purchases from this former affiliate. Operating Costs and Expenses Overall costs and expenses decreased 0.5% to US$2,290 million in the nine months ended September 30, 2001 from US$2,301 million in the same period of 2000. This variation includes US$109 million, or 4.8%, in 2001 relating to Ferteco. In the nine months ended September 30, 2001 our costs and expenses, as expressed in U.S. dollars, were favorably affected by the significant devaluation of the real against the U.S. dollar during the period (from R$1.9554 to US$1.00 at December 31, 2000 to R$2.6713 to US$1.00 at September 30, 2001, or 36.6%), because the majority of these costs and expenses are denominated in reais. In terms of comparison between the first nine months of 2001 and 2000, the average rate of exchange was R$2.2854 to US$1.00 in the 2001 period and R$1.7975 to US$1.00 in the 2000 period, or an increase of 27.1%. Cost of ores and metal sold increased 4.3% to US$1,155 million in the nine months ended September 30, 2001 from US$1,107 million in the same period of 2000, including US$85 million relating to costs of Ferteco. The favorable impact of exchange rate movements between the two periods compared is estimated at US$90 million. Cost of transportation services decreased 24.4% to US$270 million in the nine months ended September 30, 2001 from US$357 million in the same period of 2000, principally as a result of the 19.6% reduction of revenues from transportation services, as the majority of transportation costs are variable costs. Cost of transportation services related to Samitri are now recovered as part of the sales price for Samitri's products. Cost of aluminum products decreased 17.4% to US$214 million in the nine months ended September 30, 2001 from US$259 million in the same period of 2000 as a result of lower levels of activity. The favorable effect of exchange rate movements on the cost of aluminum products is small, since they are primarily determined by the international market. Cost of other products and services decreased 46.5% to US$76 million in the nine months ended September 30, 2001 from US$142 million in the same period of 2000, reflecting principally the decreases in volumes of pulp and paper purchases. Selling, general and administrative expenses increased 34.3% to US$188 million in the nine months ended September 30, 2001 from US$140 million in the same period of 2000. Ferteco added US$24 million or 17.1% to these expenses in 2001. Excluding this effect, expenses increased by 17.2% due to increased business activity and services from third-parties, partially offset by the effects of exchange rate movements. 28 Research and development, employee profit sharing and other costs and expenses increased 30.7% to US$387 million in the nine months ended September 30, 2001 from US$296 million in the same period of 2000. This increase is mainly attributable to asset impairment provisions made in 2001, including losses on the sale of ships expected to take place in 2002 (US$25 million) and the amortization of remaining goodwill relative to our affiliates Centro-Atlantica and GIIC (US$42 million), the calculation of which was based on our revised profit expectations and other economic factors. Non-Operating Income (Expenses) Net non-operating expenses were US$119 million in the nine months ended September 30, 2001 compared to US$35 million in the same period of 2000. The aggregate unfavorable change of US$84 million includes US$92 million of additional net financial expenses in 2001 resulting from increased average net debt balances during the period because of our acquisitions, capital expenditures and payment of interest (dividends) to our shareholders. In addition the change includes the negative effect of exchange rate movements (US$690 million) on our U.S. dollar denominated liabilities, mainly short and long-term debt, and gains on sales of investments (US$730 million) upon divestment of our interests in Bahia Sul, CSN and Cenibra in 2001. In September 2000, the gain on sale of investments was reclassified to non-operating income for comparative purposes. Income Taxes In the nine months ended September 30, 2001 we have estimated that we will record a tax benefit for the calendar year and this has been proportionally reflected in the interim financial statements. The final determination of the tax benefit depends on the amount of tax-deductible dividends that we pay in the form of interest on shareholders' equity, and the tax savings obtained under our Carajas tax exemption (a tax incentive relative to our iron ore and manganese operations in Carajas), among other factors. Affiliates and Joint Ventures Our equity in the results of affiliates and joint ventures and provision for losses and write-downs on equity investments in aggregate totaled a loss of US$53 million in the nine months ended September 30, 2001 compared to a gain of US$240 million in the same period of 2000. In 2001, our affiliates in the aluminum sector recorded losses due to the effects of the devaluation of the real on their foreign currency denominated debt. Albras reported a loss for the nine months ended September 30, 2001 of US$72 million, of which we recognized our portion of US$37 million through the provision for losses on equity investments and Alunorte reported a loss of US$79 million, of which we recognized our portion of US$37 million through equity accounting. In the same period of 2000, our portion of gains reported by Albras and Alunorte were US$55 million and US$8 million, respectively. In addition to exchange rate effects, the operating results of our major aluminum sector affiliates and joint ventures in the nine months ended September 30, 2001 compared to the same period of 2000, were influenced by the following factors: Albras -- Aluminum sales volume decreased 5.1% to 262,000 tons in 2001 from 276,000 tons in 2000 and average sales prices decreased 3.2% to US$1,468.08 per ton in 2001 from US$1,516.41 per ton in 2000. Alunorte -- Alumina sales volume increased 0.3% to 1,180,000 tons in 2001 from 1,177,000 tons in 2000 and the average sales prices decreased by 1.9% US$192.04 per ton in 2001 as compared to US$195.84 per ton in 2000. MRN -- Bauxite sales volume decreased 7.6% to 7,777,000 tons in 2001 from 8,416,000 tons in 2000 and average sales prices decreased 1.3% to US$20.95 per ton in 2001 from US$21.23 per ton in 2000. Also in 2001, we sold our interest in Bahia Sul and Cenibra, which had contributed US$34 million and US$50 million, respectively, to our consolidated net income in the nine months ended September 30, 29 2000. In 2001, the equity in results of these affiliates until the date of their respective sale totaled the aggregate amount of only US$11 million. However, the sale of Bahia Sul and Cenibra resulted in one-time gains of US$170 million and US$507 million, respectively, which are included in non-operating income (expenses). Our steel sector affiliates were affected by a weaker market for steel products which resulted in decreased average sales prices and volumes in 2001. Our U.S. affiliate, CSI, was also affected by higher costs resulting from the energy crisis in California and earnings of our Brazilian affiliate CST were reduced by the impact of the devaluation of the real. In the nine months ended September 30, 2001 we recorded a gain of US$19 million in respect of these affiliates against a gain of US$44 million in the same period of 2000. Our 45.65%-owned railroad affiliate, Centro-Atlantica, performed very poorly in the nine months ended September 30, 2001 and we recorded an equity loss of US$28 million against a loss of US$14 million in the same period of 2000. We and the other shareholders of Centro-Atlantica are currently examining various plans to restructure this business. In the first nine months of 2001, the results of our other equity investments were generally lower than those in the same period of 2000 due to the effects of the devaluation of the real and difficult trading conditions. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999 Revenues Net operating revenues increased 27.9% to US$3,935 million in 2000 from US$3,076 million in 1999, reflecting improvements in most areas of our business, as discussed below. Revenues from iron ore and pellets increased 28.5% to US$2,177 million in 2000 from US$1,694 million in 1999, representing an increase in volume sold of 29.3% to 124.5 million tons in 2000 from 96.3 million tons in 1999, partially offset by changes in product mix. Our acquisitions of Samitri and Mineracao Socoimex S.A., known as Socoimex, in May 2000 added US$101 million to our revenues in the period, representing increased volume of 7.4 million tons. Demand was strong in all of our major markets, notably Europe, Asia and Brazil. A portion of increased revenues is due to the termination of tolling arrangements with our pelletizing joint ventures. Currently, we sell ore to these joint ventures and buy pellets back from them. As a result, both revenues and costs of ores and metals sold have increased. Revenues from gold sales increased 0.6% to US$156 million in 2000 from US$155 million in 1999, reflecting a 1.2% increase in volume sold, offset by a 0.6% decrease in average gold prices. Revenues from other mining products, such as kaolin, manganese and potash, increased 135.4% to US$412 million in 2000 from US$175 million in 1999. This increase includes US$207 million due to the consolidation in 2000 of our ferro-alloy and kaolin subsidiaries upon acquiring control from our former partners in these enterprises, but volumes and average prices also improved in our manganese business. Revenues from transportation services increased 18.4% to US$760 million in 2000 from US$642 million in 1999, mainly due to a 67.3% increase in the revenues of our shipping subsidiary to US$271 million in 2000 from US$162 million in 1999, reflecting a 37.2% increase in average prices and a 23.2% increase in tonnage carried. Revenues from aluminum products (bauxite, alumina and aluminum) remained virtually unchanged at US$362 million in 2000 and US$363 million in 1999. Aluminum sales volumes decreased 21% in 2000 as compared to 1999, primarily due to the termination of our tolling arrangement with Valesul, which is an unconsolidated subsidiary, whereby that company now sells its production directly into the market rather than through our wholly-owned subsidiary Aluvale, offset by increases in average prices and increased alumina sales. 30 Revenues from other products and services increased 57.8% to US$202 million in 2000 from US$128 million in 1999, primarily resulting from increases in the international prices for pulp and paper products. We are currently in the process of divesting our pulp and paper business. Operating Costs and Expenses Overall costs and expenses increased 36.9% to US$2,951 million in 2000 from US$2,156 million in 1999. This increase includes US$234 million or 10.9% in 2000, relating to newly acquired subsidiaries which in total generated US$308 million of additional consolidated revenues (US$101 million relating to the acquisition of Samitri and Socoimex and US$207 million relating to the consolidation of ferro-alloy and kaolin subsidiaries). Cost of ores and metal sold increased 42.9% to US$1,423 million in 2000 from US$996 million in 1999, or 7.3% more than the increase in revenues. This mainly reflects increased costs of acquiring pellets due to the termination of tolling arrangements with affiliates and increased fuel costs. Cost of transportation services sales increased 30.7% to US$481 million in 2000 from US$368 million in 1999 or 12.3% more than the increase in revenues. The most important factors in this increase were the continuing upward trend in fuel costs (primarily determined by the international market) and the increase in volumes, partially offset in terms of revenues by lower prices in transportation services other than shipping. Cost of aluminum products sold increased 3.4% to US$334 million in 2000 from US$323 million in 1999, reflecting increases in the purchase price of these products, substantially offset by decreases in volumes purchased. Cost of other products sold increased 60.5% to US$191 million in 2000 from US$119 million in 1999, primarily due to increases in the prices for pulp and paper products. Selling, general and administrative expenses increased 63.0% to US$225 million in 2000 from US$138 million in 1999. Newly acquired subsidiaries added US$36 million to these costs, or 26.1%, in 2000. General and administrative costs further increased by US$28 million in 2000 compared to 1999 as a result of transferring various accounting, control, legal and information technology functions from the operating divisions to the corporate center and outsourcing data processing activities. The remaining increase of US$23 million is attributable to the effect of increased business activity on selling and general expenses. Research and development, employee profit sharing and other costs and expenses increased 40.1% to US$297 million in 2000 from US$212 million in 1999 mainly due to increased geological research activity targeting copper deposits, and to provisions for labor-related and tax contingencies, which were US$24 million higher in 2000 than in 1999. Non-Operating Income (Expenses) Net non-operating expenses increased to US$253 million in 2000 from US$250 million in 1999. Although the rate of devaluation of the real against the U.S. dollar in 2000 was lower than in 1999, thereby reducing our net foreign exchange and monetary loss (mainly on our foreign currency debt) by US$71 million, this positive impact was offset by an increase in financial expenses of US$82 million, most of which was related to increased borrowing (US$53 million) and to taxes on financial transactions (US$25 million). Income Taxes In 2000, we obtained approval for certain tax incentives relative to our iron ore and manganese operations in Carajas, which resulted in a tax saving of US$31 million. As a result, our income tax benefit was US$32 million in 2000 compared to an expense of US$33 million in 1999. We also continue to pay tax-deductible dividends in the form of interest on shareholders' equity, which reduced our taxes payable by US$222 million in 2000 compared to US$181 million in 1999. 31 Affiliates and Joint Ventures Our equity in the results of affiliates and joint ventures and provisions for losses and write-downs on equity investments in aggregate totaled a gain of US$322 million in 2000 as compared to a loss of US$227 million in 1999. In 1999, most of our affiliates and joint ventures in Brazil recorded losses due to the effects of the devaluation of the real on their foreign currency debt. Our affiliates in the aluminum sector were especially affected. Albras reported a loss of US$203 million, of which we recognized US$104 million through equity accounting. Alunorte reported a loss of US$137 million, of which we recognized US$89 million through equity accounting. In 2000, with a more stable exchange rate and price improvements, all our affiliates and joint ventures recorded positive results except for Centro-Atlantica and CFN, our railroad investments. The operating results of our major affiliates and joint ventures in 2000 as compared with 1999 were influenced by the following major factors: Albras -- Albras contributed US$66 million to our net income in 2000. Aluminum sales volume increased 2.8% to 366,000 tons in 2000 from 356,000 tons in 1999 and average prices increased 16.0% to US$1,508.42 per ton in 2000 from US$1,300.35 per ton in 1999. Alunorte -- Alunorte contributed US$11 million to our net income in 2000. Alumina sales volume rose 14.8% to 1,628,000 tons in 2000 from 1,418,000 tons in 1999 and average prices increased 16.9% to US$196.63 per ton in 2000 from US$168.17 per ton in 1999. MRN -- MRN contributed US$36 million to our net income in 2000. Bauxite sales volume increased 3.3% to 11,242,000 tons in 2000 from 10,884,000 tons in 1999 and average prices increased 3.2% to US$21.18 per ton in 2000 from US$20.53 per ton in 1999. Bahia Sul -- Bahia Sul contributed US$42 million to our net income in 2000, compared to US$13 million in 1999. Pulp sales volume decreased 8.7% to 367,000 tons in 2000 from 402,000 tons in 1999 and average pulp prices increased 31.5% to US$618 per ton in 2000 from US$470 per ton in 1999. Paper sales volume decreased 2.3% to 211,000 tons in 2000 from 216,000 tons in 1999 and average paper prices increased 28.8% to US$824 per ton in 2000 from US$640 per ton in 1999. In the first half of 2001, we sold our interest in Bahia Sul for approximately US$320 million, US$2.4 million of which corresponded to unpaid dividends relating to 2000. Cenibra -- Cenibra contributed US$66 million to our net income in 2000. Pulp sales volume decreased 2.5% to 789,000 tons in 2000 from 809,000 tons in 1999 and average prices increased 38.0% to US$587.54 per ton in 2000 from US$425.79 per ton in 1999. On July 6, 2001, our former partner in Cenibra agreed to buy our stake in Cenibra for US$670.5 million. The closing of this transaction took place in September 2001. Steel sector affiliates -- Increases in volumes and prices, plus productivity gains, produced a contribution of US$59 million to our net income in 2000. Of this total, US$13 million relates to investments that we disposed of in 2000 or 2001. We are pursuing the sale of most of our remaining steel interests. In 1999, the devaluation of the real substantially affected the results of these affiliates, producing a contribution of only US$7 million to our consolidated earnings in that year. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998 Revenues Net operating revenues decreased 13.4% to US$3,076 million in 1999 from US$3,553 million in 1998, reflecting decreases in substantially all of our major products and services. Revenues from iron ore and pellets decreased 12.2% to US$1,694 million in 1999 from US$1,930 million in 1998, representing a decrease in volume sold of 3.3% to 96.3 million tons in 1999 from 99.6 million tons in 1998 and a decrease in the average selling prices of 11.7%, partially offset by a 32 change in the mix of the products sold. Our iron ore and pellet prices are 96% linked to the U.S. dollar. The decrease in average selling prices was due to a less favorable scenario for steel production at the time of the 1999 price negotiations and consequent unfavorable results for iron ore producers. In terms of our two major markets, sales volume increased in Asia (including Japan) by 7.1%, whereas in Europe sales volume decreased by 17.2% due to the decrease in steel production. Average selling prices in both markets fell 11% in 1999 compared to 1998. Revenues from gold sales decreased 7.7% to US$155 million in 1999 from US$168 million in 1998, due to a decrease in quantity sold of 2.8% and a 5.1% decline in average selling prices in 1999 compared to 1998. International market prices quoted in U.S. dollars declined on average 5.4% in the period. Revenues from other mining products (manganese, potash and ferro-alloys), decreased 12.5% to US$175 million in 1999 from US$200 million in 1998. Reductions in sales volumes and average selling prices on both manganese and potash, caused by reduction in demand and market inventory levels, as well as competition with imports in the case of potash strongly influenced these revenue decreases. Improved ferro-alloy volumes and prices partially offset these declines. Revenues from transportation services decreased 24.3% to US$642 million in 1999 from US$848 million in 1998. The volume of general cargo handled on our transportation system (railroads, ports and ships) decreased on average 7.6% in 1999 compared to 1998, due mainly to a drop in industrial production in Brazil. Average selling prices decreased 18.1% in 1999 compared to 1998. The devaluation of the real significantly affected these average selling price decreases since 32% of prices in the transportation services area are not linked to the U.S. dollar. We estimate that the weakening of the real resulted in an overall reduction in average selling prices, when expressed in U.S. dollars, of 12%, and the remaining 6.1% substantially relates to reductions in international freight prices. Revenues from aluminum products decreased 10.8% to US$363 million in 1999 from US$407 million in 1998. Average selling prices remained stable in 1999 as compared to 1998 and the decrease in revenues of US$44 million resulted from the cession of a portion of our take from Alunorte and Albras which would otherwise have been sold to third parties. Revenues from other products and services increased 21.9% to US$128 million in 1999 from US$105 million in 1998 primarily because of increased sales of pulp. Operating Costs and Expenses Overall costs and expenses decreased 20.1% to US$2,156 million in 1999 from US$2,699 million in 1998. The most significant factor contributing to this decrease was the devaluation of the real beginning in mid-January 1999, because, other than for imported materials and services, we primarily incur our costs and expenses in reais. Local currency operating costs and expenses (when expressed in U.S. dollars) decrease when the rate of devaluation of the real against the U.S. dollar exceeds the rate of inflation, as occurred in 1999. The weighted average of devaluation in 1999 as compared with 1998 was 36.0% and the weighted average of inflation was 10.9% compared with the same period. Cost of ores and metal sold decreased 26.1% to US$996 million in 1999 from US$1,348 million in 1998, since we incur 71.1% of our costs in reais. The level of costs in reais remained stable in 1999 as compared to 1998 following the major cost reduction and productivity programs implemented subsequent to our privatization. Cost of transportation services sales decreased 16.4% to US$368 million in 1999 from US$440 million in 1998. This decrease was less than the decrease in overall cost and expenses due mainly to increased fuel costs reflecting international trends in 1999. Cost of aluminum products sold decreased 16.5% to US$323 million in 1999 from US$387 million in 1998, primarily due to a decrease of 15.7% in quantities sold. Translation effects arising from costs denominated in reais caused the higher decrease in cost. 33 Selling, general and administrative expenses decreased 19.3% to US$138 million in 1999 from US$171 million in 1998 in line with the decrease in overall costs and expenses. Other operating costs and expenses decreased 10.1% to US$161 million in 1999 from US$179 million in 1998, which was lower than the decrease in overall costs and expenses due primarily to additional charges in 1999 arising from ongoing reviews of estimates relative to provisions for contingencies. Non-Operating Income (Expenses) Net non-operating expenses in 1999 totaled US$250 million as compared to net non-operating income in 1998 of US$38 million. Non-operating expenses in 1999 included exchange losses of US$774 million on debt denominated in U.S. dollars, compared with US$188 million in 1998. The major portion of the exchange losses in 1999 does not represent a short-term cash outflow since it relates to medium and long-term debt. Exchange gains on cash equivalents denominated in U.S. dollars totaled US$285 million in 1999, compared with US$21 million in 1998. From September 1998 through December 1999, we concentrated our short-term financial holdings in U.S. dollar-denominated instruments which resulted in a reduction of interest income as compared with the previous policy of investing in high interest bearing Brazilian instruments. This policy, however, resulted in increased exchange gains upon the devaluation of the real in 1999. Income Taxes An income tax expense of US$33 million was recorded in 1999 compared to no expense in 1998, mainly due to the recognition of an income tax benefit of US$96 million in 1998 related to the write-downs of investments. In 1999, we continued the practice of paying tax-deductible dividends to our shareholders in the form of interest on shareholders' equity, thereby reducing our effective tax rate. For more information on our income taxes, see note 3 to our consolidated financial statements. Affiliates and Joint Ventures Our equity in results of affiliates and joint ventures and provisions for losses and write-downs on equity investments in aggregate totaled a loss of US$227 million in 1999 as compared to a loss and write-downs of US$193 million in 1998. The losses recorded in 1999 relate mainly to the effects of exchange losses in Albras, Alunorte and Bahia Sul, all of whose affiliates and joint ventures have significant U.S. dollar denominated debt, as well as operating losses in the joint venture Vale Usiminas Participacoes S.A., or VUPSA. In 1999, Bahia Sul recorded a US$93 million tax valuation allowance reversal. The following table provides a comparison of the pre-tax results of the major affiliates as adjusted for the effects of exchange losses.
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------------- 1999 1998 ------------------------------------------- ------------------------------------ (IN MILLIONS OF US$) PRE-TAX INCOME PRE-TAX INCOME BEFORE PRE-TAX EXCHANGE (LOSS) BEFORE PRE-TAX EXCHANGE EXCHANGE LOSSES LOSS LOSSES EXCHANGE LOSSES LOSS LOSSES --------------- ------- --------------- --------------- ------- -------- Albras............... US$82 US$296 US$378 US$19 US$83 US$102 Alunorte............. 20 193 213 18 18 36 Bahia Sul............ 56 71 127 (58) 92 34
The improved results of Albras reflect the increase of 6% in quantity of aluminum sold reaching 356,013 tons, of which 346,630 tons went to the foreign market. 34 Alunorte achieved a result in 1999 similar to that reported in 1998. Although alumina production increased by 5.8% to 1.5 million tons in 1999, a decrease in average selling prices largely offset this improvement. The improved results of Bahia Sul reflect a 20.0% increase in sales volume to 402,000 tons of pulp and 216,000 tons of paper together with a strong increase in international prices for its products. Due to a sharp and prolonged decline in the quoted market prices of our investments in CST and Usiminas, which fell below their adjusted book value, we recorded a write-down of US$294 million against these investments as at December 31, 1998. Production and sales of our steel affiliates in 1999 were higher than 1998 levels. However, the devaluation of the real substantially affected our affiliates in Brazil. Therefore, this sector contributed only US$7 million to our consolidated earnings in 1999 as compared to US$82 million in 1998. In December 1999, we purchased the remaining 50% of VUPSA. We have consolidated VUPSA at December 31, 1999. LIQUIDITY AND CAPITAL RESOURCES Liquidity Our principal sources of liquidity have consisted of cash generated from operations and short-term and long-term secured and unsecured borrowings. We believe these sources will continue to be adequate to meet our currently anticipated uses of funds, which include working capital, investment capital, capital expenditures, debt repayment and dividend payments. From time to time, we review acquisition and investment opportunities and will, if a suitable opportunity arises, make an investment. We can make any future investments either directly or through subsidiaries, joint ventures or affiliated companies, and we may fund these investments through internally generated funds, the issuance of debt or equity or a combination of these methods. As a result of our acquisitions in 2000, we generated a net decrease in cash and cash equivalents of US$242 million compared to net increases of US$264 million in 1999 and US$81 million in 1998. At September 30, 2001, we had cash and cash equivalents of US$1,708 million. Sources of Funds Operating activities provided net cash flows of US$1,090 million in the nine months ended September 30, 2001 compared to US$967 million in the nine months ended September 30, 2000, and net cash flows of US$1,424 million in 2000, compared to US$1,336 million in 1999 and US$1,372 million in 1998. Financing activities (before distributions to shareholders), which include short-term and long-term secured and unsecured borrowings and debt repayments, provided net cash flows of US$161 million in the nine months ended September 30, 2001 compared to net cash flows of US$66 million in the nine months ended September 30, 2000, and provided net cash flows of US$176 million in 2000 compared to using net cash flows of US$41 million in 1999 and providing net cash flows of US$32 million in 1998. In 2000, our principal source of borrowed funds was a US$300 million asset securitization. At September 30, 2001, our aggregate outstanding debt was US$3,092 million, consisting of short-term debt of US$1,024 million, including US$121 million in loans from joint ventures and affiliated companies in connection with our cash management system, and long-term debt (excluding current portion) of US$2,068 million, including US$4 million in loans from related parties. Our short-term debt consists primarily of U.S. dollar-denominated trade financing, documented mainly in the form of export prepayments and export sales advances with Brazilian and foreign financial institutions. 35 Uses of Funds Investing activities before proceeds from total of investments, primarily including acquisitions, other capital expenditures and investments in and loans to joint ventures and affiliated companies, consumed net cash flows of US$955 million in the nine months ended September 30, 2001 compared to US$1,179 million in the nine months ended September 30, 2000, and net cash flows of US$1,533 million in 2000, compared to US$469 million in 1999. Other significant uses of cash included: - repayment of debt, which consumed US$353 million, US$353 million, US$444 million, US$347 million and US$326 million for the nine months ended September 30, 2001 and 2000 and for the years ended December 31, 2000, 1999 and 1998, respectively. - payment of dividends and interest on shareholders' equity, which consumed US$639 million, US$246 million, US$246 million, US$452 million and US$607 million for the nine months ended September 30, 2001 and 2000 and for the years ended December 31, 2000, 1999 and 1998, respectively. DEBT Our long-term debt consists principally of U.S. dollar-denominated notes and borrowings. At September 30, 2001, approximately US$495 million of our debt was secured by liens on some of our assets. Except for the perpetual notes, which have no scheduled maturity date, all of our currently outstanding long-term debt is likely to mature by 2011 in accordance with the schedule below:
THROUGH SEPTEMBER 30, (IN MILLIONS OF US$)(1) 2002...................................................... US$ 55 2003...................................................... 689 2004...................................................... 713 2005...................................................... 192 2006...................................................... 129 2007 and thereafter....................................... 277(2) No due date (perpetual notes)............................. 56 -------- Total.................................................. US$2,111 ========
- --------------- (1) Excludes US$4 million in loans from related parties. (2) We issued US$300 million in debt during the first quarter of 2002, which matures in 2007. We intend to use the net proceeds of this issuance for our general corporate purposes. We often use joint venture and affiliated company ownership structures with domestic and foreign partners to finance our large-scale projects. On occasion, we provide guarantees to support the debt of these joint ventures and affiliated companies. At September 30, 2001, we had extended guarantees for borrowings of joint ventures and affiliated companies in an aggregate amount of US$801 million, of which US$614 million was denominated in U.S. dollars and the remaining US$187 million was denominated in Brazilian currency. These guarantees do not appear in the table above. At September 30, 2001, US$308 million of our total long-term debt was guaranteed by non-CVRD Group entities pursuant to a transaction which arose out of our privatization. We use derivative instruments to manage our exposure to interest rate fluctuations. For a detailed description on these derivative instruments, see "-- Market Risk." Giving effect to these instruments, at September 30, 2001, our weighted average effective interest rate on long-term debt was 7.43%. 36 Some of our long-term debt instruments contain restrictive financial covenants. We believe that we will be able to operate within the terms of these financial covenants for the foreseeable future. None of these covenants restrains our ability to pay dividends on equity securities at the parent company level. CAPITAL EXPENDITURES The table below sets forth our capital expenditures by business area for the periods indicated. Our capital expenditures have historically been more intensive in the second half of the year.
FOR THE NINE MONTHS FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, --------------------------------- ------------------- BUSINESS AREA 1998 1999 2000 2000 2001 - ------------- --------- --------- --------- -------- -------- (IN MILLIONS OF US$) Ferrous..................................... US$346 US$183 US$354 US$157 US$310 Non-ferrous................................. 32 56 50 29 36 Logistics................................... 1 4 14 12 17 Energy...................................... 20 18 19 11 72 Corporate center............................ 13 4 10 5 9 ------ ------ ------ ------ ------ Total.................................. US$412 US$265 US$447 US$214 US$444 ====== ====== ====== ====== ======
Structural changes in the production of iron ore and steel have been generating a growing global demand for pellets and reducing the volatility of the pellet market. See "Business -- Our Strengths -- Well-Positioned to Meet Demand in a Changing Steel Industry." In the belief that this trend will continue over the next few years, we have been investing heavily in our pellet operations. For the nine months ended September 30, 2001, we invested US$66 million in the Sao Luis pelletizing plant construction project. This plant is designed to have an annual production capacity of 6 million tons. We estimate its total investment cost to be approximately US$181 million, the equivalent of US$39 per annual ton of pellet production capacity. We expect to complete this project in the first quarter of 2002. In addition, we and our partners in the Tubarao pelletizing complex have approved a capacity expansion from the current 25 million tons to 28.2 million tons of pellets per year. For the nine months ended September 30, 2001, we invested US$1 million in the Tubarao pelletizing complex expansion project. We estimate the total cost of this expansion to be approximately US$81 million, or US$25.3 per ton. The completion of this project is scheduled for 2003. For the nine months ended September 30, 2001, capital expenditures for the maintenance of ferrous products were US$129 million. At September 30, 2001, capital expenditures relating to ferrous product projects were US$139 million. This was due to the investment in the construction of the Sao Luis pelletizing plant (US$66 million), the infrastructure for the Sao Luis pelletizing plant (US$40 million), the acquisition of locomotives and wagons (US$21 million), and the construction of a new stockyard and pier at the Ponta da Madeira marine terminal (US$5 million). We expect to allocate most of our 2002 capital expenditures budget to the Southern System, mainly to modernize and increase the capacity of our mines and the Vitoria-Minas railroad. We intend to modernize the control and maintenance systems of the Vitoria-Minas railroad. We also intend to replace a number of processing systems in our Southern System mines. We will finance these expenditures principally with cash flow from operations. For the nine months ended September 30, 2001, capital expenditures for the maintenance of non-ferrous products were US$21 million, and capital expenditures for non-ferrous projects were US$3 million due to an increase in the production capacity of potash. For the nine months ended September 30, 2001, capital expenditures for the maintenance of logistics were US$5 million, and capital expenditures for logistics projects were US$14 million. Our main projects were the enlargement of the Praia Mole marine terminal (US$2 million) and the acquisition of locomotives and wagons (US$8 million). 37 Energy generation has become a priority for us, driven both by the Brazilian government's privatization program of the industry and by the risks of rising electricity prices and electricity rationing due to energy shortages, such as the one Brazil experienced in the second half of 2001. We currently perceive favorable investment opportunities in the Brazilian electricity sector and are taking advantage of them to invest in hydroelectric power generation projects. As we are a large consumer of electricity, we expect that investing in the energy business will help protect us against electricity price volatility. New investments will be absorbed by our ongoing projects at Aimores, Candonga, Funil, Capim Branco I and II, Foz do Chapeco and Santa Isabel. For a more detailed description of our hydroelectric generation projects, see "Business -- Our Lines of Business -- Energy." For the nine months ended September 2001, capital expenditures for energy were US$72 million due to investments in the construction of hydroelectric power plants. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC. Our mineral exploration activities are currently focused on identifying copper and gold deposits for future exploitation. We incurred geological exploration expenses of US$31 million in the nine months ended September 30, 2001 compared to US$34 million in the nine months ended September 30, 2000, and US$48 million, US$27 million and US$48 million in 2000, 1999 and 1998, respectively. MARKET RISK The principal market risks we face are interest rate risk, exchange rate risk and commodity price risk. We manage some of these risks through the use of derivative instruments. Our policy has been to settle all contracts in cash, without physical delivery of product. Our risk management activities follow policies and guidelines that our board of directors reviewed and approved. These policies and guidelines generally prohibit speculative trading and short selling and require diversification of transactions and counter-parties. We monitor and evaluate our overall position daily in order to evaluate financial results and impact on our cash flow. We also periodically review the credit limits and creditworthiness of our hedging counter-parties. We report the results of our hedging activities to senior management on a monthly basis. Interest Rate and Exchange Rate Risk The table below sets forth our floating and fixed rate long-term debt, categorized by local and foreign currency, and as a percentage of our total long-term debt portfolio at the dates indicated, including loans from both related and unrelated parties, as reflected in our consolidated financial statements.
AT DECEMBER 31, AT SEPTEMBER 30, --------------------------------- ----------------- 1999 2000 2001 --------------- --------------- ----------------- (IN MILLIONS OF US$, EXCEPT PERCENTAGES) Floating rate debt Real-denominated..................... US$ 196 14.8% US$ 167 8.3% US$ 34 1.6% Foreign currency denominated......... 537 40.7 1,070 52.9 1,136 53.8 Fixed rate debt Real-denominated..................... -- -- -- -- 116 5.5 Foreign currency denominated......... 588 44.5 783 38.8 825 39.1 -------- ---- -------- ---- -------- ---- Total.................................. US$1,321 100% US$2,020 100% US$2,111 100% ======== ==== ======== ==== ======== ====
38 The table below provides information about our debt obligations at September 30, 2001, which are sensitive to changes in interest rates and exchange rates. The table presents the principal cash flows and related weighted-average interest rates of these obligations by expected maturity date. Weighted-average variable interest rates are based on the applicable reference rate (LIBOR or TJLP) at September 30, 2001. The debt obligations' actual cash flows are denominated in U.S. dollars or Brazilian reais, as indicated.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, FAIR VALUE FAIR VALUE ---------------------------------------------------- CASH FLOW AT ACCOUNTING AT 2007 TO SEPTEMBER 30, SEPTEMBER 30, 2002 2003 2004 2005 2006 2012 TOTAL 2001 2001 ------ ------ ------ ------ ------ ------- -------- ------------- ------------- (1) (2) (IN THOUSANDS OF US$) U.S. dollar-denominated Fixed rate Bonds.............. 9.375% US$ 0 US$201 US$ 0 US$ 0 US$ 0 US$ 0 US$ 201 US$ 201 US$ 201 Bonds.............. 10.000% 0 0 301 0 0 0 301 301 301 Loans.............. up to 7.000% 0 0 1 2 1 1 5 5 4 Loans.............. over 7.000% 15 26 44 64 40 132 321 321 323 ------ ------ ------ ------ ------ ------ -------- -------- -------- US$ 15 US$227 US$346 US$ 66 US$ 41 US$133 US$ 828 US$ 828 US$ 829 ------ ------ ------ ------ ------ ------ -------- -------- -------- Floating rate Loans.............. up to 7.000% 70 378 280 111 60 191 1,090 1,090 1,042 Loans.............. over 7.000% 0 16 10 11 10 17 64 64 55 ------ ------ ------ ------ ------ ------ -------- -------- -------- 70 394 290 122 70 208 1,154 1,154 1,097 ------ ------ ------ ------ ------ ------ -------- -------- -------- US$ 85 US$621 US$636 US$188 US$111 US$341 US$1,982 US$1,982 US$1,926 ====== ====== ====== ====== ====== ====== ======== ======== ======== Real-denominated Fixed rate Loans.............. up to 7.000% US$ 15 US$ 13 US$ 12 US$ 16 US$ 15 US$ 3 US$ 74 US$ 74 US$ 75 Loans.............. over 7.000% 5 18 15 7 2 0 47 47 41 ------ ------ ------ ------ ------ ------ -------- -------- -------- US$ 20 US$ 31 US$ 27 US$ 23 US$ 17 US$ 3 US$ 121 US$ 121 US$ 116 ------ ------ ------ ------ ------ ------ -------- -------- -------- Floating rate Loans.............. over 7.000% 22 1 11 0 0 0 34 34 34 ------ ------ ------ ------ ------ ------ -------- -------- -------- 22 1 11 -- -- -- 34 34 34 ------ ------ ------ ------ ------ ------ -------- -------- -------- US$ 42 US$ 32 US$ 38 US$ 23 US$ 17 US$ 3 US$ 155 US$ 155 US$ 150 ------ ------ ------ ------ ------ ------ -------- -------- -------- Total................ US$127 US$653 US$674 US$211 US$128 US$344 US$2,137 US$2,137 US$2,076 ====== ====== ====== ====== ====== ====== ======== ======== ========
- --------------- (1) Includes future payments of interest. (2) Based on the values recorded in our consolidated financial statements, which include prorated interest up to September 30, 2001. Interest Rate Risk We are exposed to interest rate risk in our floating-rate debt. Our long-term floating-rate debt consists principally of U.S. dollar denominated notes and borrowings which we have incurred primarily in connection with capital expenditures, and investments in and loans to joint ventures and affiliated companies. Our short-term floating-rate debt consists principally of U.S. dollar denominated trade financing. In general, our foreign currency floating rate debt is principally subject to changes in the London Interbank Offered Rate, or LIBOR. Our floating rate debt denominated in reais is principally subject to changes in the TJLP (Long Term Interest Rate), as fixed by the Central Bank. Our interest rate derivatives portfolio generally consists of option trades which aim to cap our exposure to interest rate fluctuations. A cap is the maximum rate we will be required to pay on the notional amount of the debt. Conversely, a floor is the minimum rate we will be required to pay on the 39 notional amount of the debt. Certain caps are subject to knock-out provisions which, if triggered, eliminate the protection provided by the cap. The table below sets forth certain information with respect to our interest rate derivatives portfolio at September 30, 2001 and 2000:
AT SEPTEMBER 30, 2001 --------------------------------------------- UNREALIZED GAIN TYPE NOTIONAL VALUE RATE RANGE (LOSS) - ---- -------------- ---------- --------------- (IN MILLIONS OF US$, EXCEPT RATE RANGES) Cap.................. US$1,375 5-8% US$ 1.8 Floor................ 1,000 5-6.5 (31.3) Swap................. 125 5.5-7.5 (11.8) --------- US$ (41.3) ========= AT SEPTEMBER 30, 2000 --------------------------------------------- UNREALIZED GAIN TYPE NOTIONAL VALUE RATE RANGE (LOSS) FINAL MATURITY - ---- -------------- ---------- --------------- -------------- (IN MILLIONS OF US$, EXCEPT RATE RANGES) Cap.................. US$1,200 5-8% US$ 7.3 11/2006 Floor................ 850 5-6.5 (3.4) 11/2006 Swap................. -- -- -- 10/2007 ------- US$ 3.9 =======
The table below sets forth certain information with respect to our interest rate derivatives portfolio at December 31, 2000 and 1999.
AT DECEMBER 31, 2000 --------------------------------------------- UNREALIZED GAIN TYPE NOTIONAL VALUE RATE RANGE (LOSS) - ---- -------------- ---------- --------------- (IN MILLIONS OF US$, EXCEPT RATE RANGES) Cap.................. US$1,200 5-8% US$ 3 Floor................ 850 5-6.5 (7) Swap................. 125 5.5-7.5 (4) ----- US$(8) ===== AT DECEMBER 31, 1999 --------------------------------------------- UNREALIZED GAIN TYPE NOTIONAL VALUE RATE RANGE (LOSS) FINAL MATURITY - ---- -------------- ---------- --------------- -------------- (IN MILLIONS OF US$, EXCEPT RATE RANGES) Cap.................. US$1,200 5-8% US$10 12/2004 Floor................ 850 5-6.5 (4) 12/2004 Swap................. -- -- -- 10/2007 ----- US$ 6 =====
The unrealized losses and gains represent the amounts payable or receivable if the transactions had been settled on the dates indicated. Exchange Rate Risk Our long-term debt is primarily denominated in foreign currencies, principally the U.S. dollar. Because our revenues are primarily dollar-denominated, we do not believe that the high incidence of dollar-denominated debt in our long-term debt portfolio exposes us to an undue amount of exchange rate risk. However, a portion of our indebtedness is also denominated in euros and in Japanese yen, and we use derivative instruments to protect ourselves against specific risks associated with exchange rate movements in these foreign currencies. The table below sets forth certain information with respect to our exchange rate derivatives portfolio at September 30, 2001 and 2000:
AT SEPTEMBER 30, 2001 ---------------------------------------------------- UNREALIZED GAIN TYPE NOTIONAL VALUE PRICE RANGE (LOSS) - ---- -------------- ----------------- --------------- (IN MILLIONS OF US$, EXCEPT RATE RANGES) Yen Purchased........ US$31.44 Y70-110 per US$ US$ (0.7) Euros Purchased...... 12.35 E1.10-1.30 per (3.3) Euros Sold........... 4.07 E0.90-1.2 per US $ 0.8 BRL Sold............. 0 -------- US$ (3.2) ======== AT SEPTEMBER 30, 2000 --------------------------------------------------- UNREALIZED GAIN TYPE NOTIONAL VALUE PRICE RANGE (LOSS) FINAL MATURITY - ---- -------------- ---------------- --------------- -------------- (IN MILLIONS OF US$, EXCEPT RATE RANGES) Yen Purchased........ US$ 17.4 Y70-110 per US$ US$ 0.2 4/2005 Euros Purchased...... 13.3 E1.10-1.30 (2.7) 4/2005 Euros Sold........... -- -- -- 10/2001 BRL Sold............. 120.00 1.0 11/2000 -------- US$ (1.5) ========
40 The table below sets forth certain information with respect to our exchange rate derivatives portfolio at December 31, 2000 and 1999. These derivatives are structured forwards that we have purchased, which will require us to purchase foreign currencies as specified below:
AT DECEMBER 31, 2000 AT DECEMBER 31, 1999 ---------------------------------------------- --------------------------------------------- NOTIONAL UNREALIZED GAIN NOTIONAL UNREALIZED GAIN FINAL TYPE VALUE PRICE RANGE (LOSS) VALUE PRICE RANGE (LOSS) MATURITY - ---- -------- ----------------- --------------- -------- ---------------- --------------- -------- (IN MILLIONS OF US$, EXCEPT PRICE RANGES) Yen.................. US$15.0 Y90-100 per US$ US$(2.0) US$8 Y90-100 per US$ US$0.6 4/2005 Euro................. 12.0 US$0.9-1.2 per E (2.0) 13.3 US$0.9-1.2 per E US$(1.1) 4/2005 ---------- ----------- US$(4.0) US$(0.5) ========== ===========
The unrealized losses and gains represent the amounts payable or receivable if the transactions had been settled on the dates indicated. Commodity Price Risk We are also exposed to various market risks relating to the volatility of world market prices for: - iron ore, which represented 53.5% of our 2000 consolidated revenues, - aluminum, which represented 8.9% of our 2000 consolidated revenues, and - gold, which represented 3.8% of our 2000 consolidated revenues. We do not enter into derivatives transactions to hedge our iron ore exposure. For information on how our iron ore export sales are priced, see "Management's Discussion and Analysis of Financial Condition and Results of Operation -- Overview -- Prices." To manage the risk associated with fluctuations in aluminum prices, our affiliates Albras and Alunorte engage in hedging transactions involving put and call options, as well as forward contracts. These derivative instruments allow Albras and Alunorte to establish minimum average profits for their future aluminum production in excess of their expected production costs and therefore ensure stable cash generation. However, they also have the effect of reducing potential gains from price increases in the spot market for aluminum. We have a 51% voting capital interest and a 51% total capital interest in Albras. The table below sets forth certain information with respect to Albras's derivatives portfolio at September 30, 2001 and 2000:
AT SEPTEMBER 30, 2001 AT SEPTEMBER 30, 2000 ------------------------------------------------ ------------------------------------------------ UNREALIZED GAIN UNREALIZED GAIN TYPE NOTIONAL VALUE PRICE RANGE (LOSS) NOTIONAL VALUE PRICE RANGE (LOSS) - ---- -------------- ------------- --------------- -------------- ------------- --------------- (IN TONS OF (US$ PER TON) (IN MILLIONS (IN TONS OF (US$ PER TON) (IN MILLIONS ALUMINUM) OF US$) ALUMINUM) OF US$) Puts purchased........... 67,500 1,400-1,600 US$10.1 45,000 1,400-1,500 US$ 2.5 Forwards sold............ 54,750 1,400-1,600 9.6 39,750 1,500-1,700 (0.7) Calls sold............... 54,750 1,600-1,800 (0.3) 101,250 1,500-1,700 (7.2) Hybrid instruments(1).... 108,187 (1.4) 97,455 (5.4) ------- -------- US$18.0 US$(10.8) ======= ======== TYPE FINAL MATURITY - ---- -------------- Puts purchased........... 12/2003 Forwards sold............ 12/2006 Calls sold............... 6/2004 Hybrid instruments(1).... 6/2004
- --------------- (1) The payoff of these instruments depends, at least partly, on the manner in which the price of the underlying asset behaves during the life of the transaction. 41 The table below sets forth certain information with respect to Albras's derivatives portfolio at December 31, 2000 and 1999:
AT DECEMBER 31, 2000 AT DECEMBER 31, 1999 ------------------------------------------------ ------------------------------------------------ UNREALIZED GAIN UNREALIZED GAIN TYPE NOTIONAL VALUE PRICE RANGE (LOSS) NOTIONAL VALUE PRICE RANGE (LOSS) - ---- -------------- ------------- --------------- -------------- ------------- --------------- (IN TONS OF (US$ PER TON) (IN MILLIONS (IN TONS OF (US$ PER TON) (IN MILLIONS ALUMINUM) OF US$) ALUMINUM) OF US$) Puts purchased....... 42,000 1,450-1,650 US$ 2.0 39,000 1,450-1650 US$ (5.3) Forwards sold........ 85,189 1,500-1,700 (1.4) 168,000 1,500-1700 (20) Calls sold........... 105,000 1,500-1,700 (5.5) 90,000 1,500-1700 (13.8) ------- -------- US$(4.9) US$(39.1) ======= ======== TYPE FINAL MATURITY - ---- -------------- Puts purchased....... 12/2001 Forwards sold........ 12/2006 Calls sold........... 12/2003
We have a 50.3% voting capital interest and a 49.3% total capital interest in Alunorte. The table below sets forth certain information with respect to Alunorte's derivatives portfolio at September 30, 2001 and 2000:
AT SEPTEMBER 30, 2001 AT SEPTEMBER 30, 2000 ------------------------------------------------ ------------------------------------------------ UNREALIZED GAIN UNREALIZED GAIN TYPE NOTIONAL VALUE PRICE RANGE (LOSS) NOTIONAL VALUE PRICE RANGE (LOSS) - ---- -------------- ------------- --------------- -------------- ------------- --------------- (IN TONS OF (US$ PER TON) (IN MILLIONS (IN TONS OF (US$ PER TON) (IN MILLIONS ALUMINUM) OF US$) ALUMINUM) OF US$) Puts purchased........... 26,250 1,400-1,600 US$ 4.6 42,000 1,400-1,600 US$ 4.1 Forwards sold............ 30,500 1,400-1,600 3.2 5,250 1,600-1,800 0.3 Calls sold............... 38,000 1,600-1,800 (0.1) 43,500 1,600-1,800 (2.4) Hybrid instruments(1).... 272,000 0.5 162,000 (2.9) -------- -------- US$ 8.2 US$ (0.9) ======== ======== TYPE FINAL MATURITY - ---- -------------- Puts purchased........... 12/2002 Forwards sold............ 3/2003 Calls sold............... 12/2003 Hybrid instruments(1).... 12/2003
- --------------- (1) The payoff of these instruments depends, at least partly, on the manner in which the price of the underlying asset behaves during the life of the transaction. The table below sets forth certain information with respect to Alunorte's derivatives portfolio at December 31, 2000 and 1999:
AT DECEMBER 31, 2000 AT DECEMBER 31, 1999 --------------------------------------------------- ------------------------------------------------ UNREALIZED GAIN UNREALIZED GAIN TYPE NOTIONAL VALUE PRICE RANGE (LOSS) NOTIONAL VALUE PRICE RANGE (LOSS) - ---- -------------- ---------------- --------------- -------------- ------------- --------------- (IN TONS OF (IN MILLIONS (IN TONS OF (IN MILLIONS ALUMINUM) (US$ PER TON) OF US$) ALUMINUM) (US$ PER TON) OF US$) Puts purchased....... 60,000 1,450-1,650 US$ 3.8 US$ -- Forwards sold........ 24,000 1,500-1,700 (0.3) 15,000 1,500-1,700 0.8 Calls sold........... 163,500 1,500-1,700 (5.1) 60,000 1,500-1,700 2.9 1,450-1,550 (puts purchased) Collars conditional.. 36,000 1,550-1,750 (calls sold) 0.2 ------- -------- US$(1.4) US$ 3.7 ======= ======== TYPE FINAL MATURITY - ---- -------------- Puts purchased....... 12/2002 Forwards sold........ 12/2002 Calls sold........... 12/2002 Collars conditional.. 12/2003
To manage the risk associated with fluctuations in gold prices, we enter into derivative instruments which allow us to establish a minimum profit level for future gold production. However, they may also have the effect of eliminating potential gains on certain price increases in the spot market for gold. 42 The table below sets forth certain information with respect to our gold derivatives portfolio at September 30, 2001 and 2000:
AT SEPTEMBER 30, 2001 AT SEPTEMBER 30, 2000 ------------------------------------------------ ------------------------------------------------ UNREALIZED GAIN UNREALIZED GAIN TYPE QUANTITY PRICE RANGE (LOSS) QUANTITY PRICE RANGE (LOSS) - ---- -------------- ------------- --------------- -------------- ------------- --------------- (IN MILLIONS (IN MILLIONS (OZ.) (US$ PER OZ.) OF US$) (OZ.) (US$ PER OZ.) OF US$) Puts purchased......... 479,500 270-340 US$10.79 552,000 302-372 US$13.42 Calls sold............. 845,500 308-366 (4.79) 1,224,800 308-366 (7.11) Hybrid instruments(1)....... 25,000 0.10 -------- -------- US$ 6.10 US$ 6.31 ======== ======== TYPE FINAL MATURITY - ---- -------------- Puts purchased......... 12/2005 Calls sold............. 12/2005 Hybrid instruments(1)....... 12/2005
- --------------- (1) The payoff of these instruments depends, at least partly, on the manner in which the price of the underlying asset behaves during the life of the transaction. The table below sets forth certain information with respect to our gold derivatives portfolio at December 31, 2000.
DECEMBER 31, 2000 ------------------------------------------------------------- UNREALIZED GAIN TYPE QUANTITY PRICE RANGE (LOSS) FINAL MATURITY - ---- -------- ----------- --------------- -------------- (OZ.) (US$ PER OZ.) (IN MILLIONS OF US$) Puts purchased.................................. 479,500 300-345 US$13 12/2004 Calls sold...................................... 999,800 330-390 (5) 12/2004 300-315 (puts purchased) Collars conditional............................. 30,000 330-350 (calls sold) 1 11/2002 ----- US$ 9 =====
The unrealized gain in the amount of US$9 million represents the amount receivable if all transactions had been settled on December 31, 2000. The table below sets forth certain information with respect to our gold derivatives portfolio at December 31, 1999.
DECEMBER 31, 1999 ------------------------------------------------- TYPE QUANTITY UNREALIZED GAIN FINAL MATURITY - ---- --------- -------------------- -------------- (OZ.) (IN MILLIONS OF US$) Forwards sold...................................... 20,000 US$ -- 12/2000 Puts purchased..................................... 374,500 7 12/2004 Calls sold......................................... 1,446,000 (17) 12/2004 ------ US$(10) ======
43 BUSINESS OVERVIEW We are one of the world's largest producers and exporters of iron ore. We are the largest diversified mining company in the Americas by market capitalization and one of the largest companies in Brazil. We hold exploration claims that cover 7.0 million hectares (17.3 million acres). We operate two large railway systems that are integrated with our mining operations and that, taken together, transported approximately 58.5% of the rail tonnage shipped in Brazil in the first nine months of 2001. Through joint ventures, we have major investments in the production of aluminum. Our main lines of business are mining, logistics and energy and are generally grouped according to the business segments below: - ferrous minerals: comprised of iron ore, pellets as well as manganese and ferro alloys businesses, - non-ferrous minerals: comprised of gold, kaolin, potash and copper businesses, - logistics: comprised of railroads, ports and terminals and shipping businesses, - energy: comprised of power generation businesses, and - holdings: comprised of aluminum, steel, fertilizers and e-commerce businesses. Mining. Our primary mining activities involve iron ore. We operate two world-class integrated systems in Brazil for producing and distributing iron ore, each consisting of mines, railroads and port and terminal facilities. The Southern System, based in the states of Minas Gerais and Espirito Santo, contains aggregate estimated proven and probable iron ore reserves of approximately 2.3 billion tons. The Northern System, based in the states of Para and Maranhao, contains aggregate estimated proven and probable iron ore reserves of approximately 1.2 billion tons. We also operate nine pellet producing facilities, six of which are joint ventures with international partners. We have a 50% stake in Samarco Mineracao S.A., in Ponta do Ubu, which owns and operates two pelletizing plants. Exploration Assets. As part of our mineral prospecting and development activities in Brazil, we have acquired extensive experience in exploration techniques and processes specifically designed for use in tropical areas of the world. Our current mineral exploration efforts are mainly in Brazil and focus on copper, gold, nickel, manganese, and kaolin. Expenditures for our mineral exploration program were US$31 million in the first nine months of 2001 and US$34 million in the first nine months of 2000. We currently hold claims to explore approximately 7.0 million hectares (17.3 million acres). Logistics. In our logistics business, we provide our clients with various forms of transportation and related support services, such as warehouse, port and terminal services. We are a leading competitor in the Brazilian transportation industry. Each of our iron ore complexes incorporates an integrated railroad network linked to automated port and terminal facilities, and is designed to provide iron ore freight and passenger rail transportation, bulk terminal storage and ship loading services to us and third parties. For the nine months ended September 30, 2001, our railroads transported approximately 58.5% of the total freight tonnage transported by Brazilian railroads, or approximately 125.9 million tons of cargo, of which 100.4 million tons were our iron ore and pellets. Of the total amount transported, 48% was for third parties and 52% was for ourselves. Our two wholly-owned railroads, the Vitoria-Minas railroad and the Carajas railroad, serve primarily to transport our iron ore products from interior mines to coastal port and terminal facilities. In addition, the Vitoria-Minas railroad carries significant amounts of third party cargo as well as passengers. Energy. In 2001, we began to consider energy as a core business, although at present energy production does not represent a significant portion of our activities. We currently hold stakes in nine hydroelectric power generation projects (Igarapava, Porto Estrela, Funil, Candonga, Aimores, Capim Branco I, Capim Branco II, Foz do Chapeco and Santa Isabel) which have a total projected capacity of 3,364 MW. The Igarapava and the Porto Estrela power plants started operations in September 1999 and 44 September 2001, respectively. Our remaining power generation projects are scheduled to start operations within the next six years, except for Santa Isabel, which does not have a scheduled date to start operations yet. Depending on market conditions, the power generated by these plants will be sold in the market and/or used for our own operations. Aluminum Operations. Through joint ventures, our wholly owned subsidiary, Aluvale, conducts major operations in the production of aluminum. They include bauxite mining, alumina refining and aluminum metal smelting and marketing. Aluvale conducts its bauxite mining activities through its 40.0% interest in MRN, which holds substantial bauxite reserves with a low strip ratio and high recovery rate. MRN, one of the largest bauxite producers in the world, produced 11.2 million tons of bauxite in 2000 and 7.9 million tons in the first nine months of 2001. Aluvale currently holds a 50.3% voting interest in our alumina refining joint venture, Alunorte, which has a nominal production capacity of 1.5 million tons of alumina per year and produced 1.2 million tons in the first nine months of 2001. Aluvale participates in two aluminum smelting joint ventures, Albras, in which it has a 51.0% interest, and Valesul, in which it has a 54.5% interest. These two joint ventures have a combined production capacity of 500,000 tons of aluminum per year, and produced a total of 322,000 tons of aluminum in the first nine months of 2001. Our integrated aluminum operations rank among the largest in Latin America in terms of production volume. OUR STRENGTHS World-Class Iron Ore Operations We are a leading producer and supplier of iron ore to the world market. Our iron ore operations are the foundation for our skill in prospecting and exploring mineral deposits, developing and operating large-scale mines and industrial facilities, managing complex logistics systems and marketing minerals and metals. We benefit from the following strengths in our iron ore operations: - Large resource base. We hold large iron ore resources in our principal mining sites, the Northern System (Carajas) and the Southern System. Based on 2000 production levels, we have approximately 20 years of proven and probable iron ore reserves, and more than 300 years of additional mineral resources. - High quality iron ore deposits. Our iron ore deposits have high metal content compared to those of many of our competitors. Our Northern System reserves average 65.4% iron content and our Southern System reserves average 55.0% iron content. Our ores also have low impurity levels and good metallurgical characteristics, which yield high levels of productivity in our customers' furnaces. - Ability to produce a broad range of iron ore products. Our mines offer varying types of ore characteristics, which allow us to produce a broad range of iron ore products. Our ability to reconcile large-scale production with the capacity to produce specialized, high quality ore products, which have high iron content, low impurity levels and complement the needs of our customers' furnaces, has allowed us to become a major supplier to significant Asian customers, despite their greater proximity to some of our competitors. - Production cost advantages. We have competitive production and delivery cost advantages in our iron ore business. We have the ability to transport iron ore to our customers efficiently and reliably at low costs through our own mine-to-port systems. We operate an integrated railroad and marine terminal network in both the Southern System and the Northern System. These networks transport our iron ore from interior mining locations to the port terminals and to our domestic clients. In addition, the high iron content in the Northern System eliminates the need to operate a concentration plant at Carajas. - Reliable delivery and customer service. We believe our dependable mine-to-port system and emphasis on customer service have earned us a reputation for reliability. Through our sales support offices in Rio de Janeiro, New York, Brussels, Tokyo and Shanghai, we stay in close contact with our customers, monitor their requirements and our contract performance, and ensure that our customers receive deliveries on schedule. 45 Well-Positioned to Meet Demand in a Changing Steel Industry Ongoing structural changes in the production of iron and steel have stimulated increased demand for pellets as a proportion of the global iron ore and pellet market. These changes are driven by tightening environmental restrictions that have led to the closing of sintering machines, the construction of new blast furnaces without sintering machines and the more extensive use of pulverized coal injection, each of which increases the need for high quality ore in the form of pellets. We believe these industry changes will also reduce the volatility of the demand for pellets, which has decreased by as much as 2% and increased by as much as 17% on a year-over-year basis since 1996. We have developed substantial pellet production capacity because we believe that the increase in pellet demand is a trend which will continue. Our six pelletizing joint ventures have a combined annual production capacity of 35.8 million tons (of which 17.9 million tons constitute the production capacity attributable to our equity ownership in the pelletizing joint ventures). Our wholly-owned pelletizing operations, including our Ferteco plant, have an additional combined annual production capacity of 9.2 million tons. For information on our ownership percentages in these pelletizing joint ventures, see "-- Our Lines of Business -- Ferrous Minerals -- Pellets." Pipeline of Copper Development Projects We own 100% of the Sossego mine project, which is located in Carajas and has an estimated production capacity of 140,000 tons of copper per year. In addition, we have joint venture interests in four Brazilian copper development projects. These five projects contain approximately 1.7 billion tons of mineral deposits with a weighted average grade of 1.02%. An independent study indicates that these are among the most competitive development-stage copper projects in the world in terms of investment cost per ton of ore, in part because of the existence of a gold byproduct and open pit mines. Each project is located in Carajas and will therefore benefit from efficiencies provided by our existing mine-to-port system. We believe these projects provide a strong foundation for our strategy of seeking a significant position in the growing world copper market. Low-Cost Integrated Aluminum Activities We operate integrated aluminum operations primarily through joint ventures, involving bauxite mining, alumina refining and the production of primary aluminum. Our bauxite joint venture owns 166.8 million tons of proven and probable bauxite reserves and 626.4 million tons of other mineral deposits. Our alumina refinery is modern and is directly adjacent to one of our aluminum smelting facilities. An independent study indicates that Albras is among the top 5% lowest cash cost producers of primary aluminum in the industry. As a result, we have lower cash costs in the production of primary aluminum than many of our competitors. Strong Position in Manganese Ore and Ferro-Alloys We are the world's second leading producer of manganese ore and third leading producer of manganese ferro-alloys. We believe that our main manganese mine, Igarape do Azul, is the world's lowest cash cost producer, and that we have lower cash costs in our manganese mining operations than many of our competitors. We continue to consolidate our position as an integrated manganese ore and ferro-alloy producer. Having recently acquired our former partner's interests in CPFL and SIBRA, both leading producers of ferro-alloys, we now have 450,000 tons of attributable annual production capacity. We are self-sufficient in manganese ore to supply this production capacity. At December 31, 2000, we had 39.4 million tons of proven and probable manganese reserves, or more than 20 years of supply at 2000 production rates. Integrated Logistics Business We have extensive experience managing complex logistics operations. Built originally to serve our iron ore business, our logistics system includes our 905 km Vitoria-Minas railroad and Tubarao and Praia Mole 46 ports in the Southern System, and our 892 km Carajas railroad and Ponta da Madeira marine terminal in the Northern System. In addition, in the last five years we have acquired stakes in four privatized railroads, including Centro-Atlantica, which interconnects with the Vitoria-Minas railroad using the same track gauge, and therefore increases its available transportation volume. We made these investments to further expand our cargo business. We believe our extensive transportation expertise should improve their profitability and efficiency. Financial Resources Our balance sheet and strong cash flows provide us with the financial wherewithal to pursue growth and development opportunities. We generated operating cash flows of US$1,090 million in the first nine months of 2001 on operating revenues of US$3,030 million. The ratio of our long-term debt to shareholders' equity at September 30, 2001 was 0.58:1, and we therefore believe that we have additional debt capacity. Substantially all of our iron ore sales are made under long-term contracts, a factor that minimizes our exposure to year-to-year volume fluctuations. We hedge a major part of aluminum and gold production against price volatility in order to avoid volatility in our cash flow. Energy We believe that we can successfully compete in the Brazilian energy market, mainly because of our successful track record in implementing and managing large projects and dealing with environmental protection issues. In addition, the balance between supply and demand and the Brazilian government's privatization program of the industry lead us to believe that there is significant growth potential in this market. OUR STRATEGY Before 1997, we were a traditional state-owned conglomerate with the aim of promoting national economic development, sometimes through investments in economic sectors that had no clear synergies with our main business. Since our privatization in 1997, we have become a more efficient, diversified mining, logistics and energy company and are in the process of divesting non-core assets that no longer have strategic importance for us. Through organic, disciplined growth and selective acquisitions, we will continually seek to develop our mining, logistics and energy capabilities and increase scale while working to reduce costs. We aim to achieve earnings growth and increase cash generation, while maximizing our return on capital employed and the total return to our shareholders. We are focusing on our core businesses of mining, logistics and energy to achieve these goals, by: - maintaining our leadership position in the world iron ore market, - expanding our pelletizing facilities to accommodate current market demands, - growing our logistics business, - developing our copper resources, - increasing our aluminum activities, - developing power generation projects, and - restructuring our portfolio of joint ventures and minority investments. Maintaining Our Leadership Position in the World Iron Ore Market In 2000, we produced 15% of the world's iron ore, more than any other producer. In 2001, we acquired Ferteco, which accounted for 3% of world iron ore production in 2000, and we acquired one half of the control of Caemi, which accounted for 4% of world iron ore production in 2000. We are committed to maintaining our position in the world iron ore market by keeping close contact with our customers, focusing our product line to capture industry trends and controlling costs. We believe that our strong relationships with major customers, tailored product line and logistical advantages will enable us to achieve this goal. 47 Expanding Our Pelletizing Facilities to Accommodate Current Market Demands We believe that, in the long term, the growth rate of global demand for pellets will continue to be higher than the growth rate of the overall iron ore market, and therefore we plan to continue investing in the development of this dynamic segment of the iron ore market. We are investing US$181 million to construct a new pelletizing plant at Sao Luis and are expanding production capacity at our Tubarao and Samarco pellet operations. When these investments are completed, we and our joint ventures will have an additional 11.2 million tons of annual production capacity, and a total of 56.2 million tons of annual production capacity. Growing Our Logistics Business The privatization and deregulation of transportation facilities has revitalized the Brazilian logistics market. We believe there is potential for growth in the near term from the conversion of existing truck haulage to rail, and in the longer term from increased bulk cargo resulting from economic growth in Brazil. We believe that the quality of our railway assets and our many years of experience as a railroad and port operator position us to take advantage of this market and establish ourselves as a leading Brazilian logistics company serving both domestic and export markets. We plan to focus on the physical and commercial integration of our transportation assets, and also to take advantage of new e-business technology. Our subsidiary Valepontocom has launched two Internet sites, Solostrata and Multistrata, to help the sale of logistics services. Developing Our Copper Resources Global demand for copper grew rapidly in the 1990s. From 1993 to 2001, global consumption of copper increased from 10,967,000 tons to 15,281,000 tons per year. Although growth was adversely affected by the global economic slowdown in 2001, we expect strengthening of the growth trend over the next decade, driven by the spending in the automotive, computer, telecommunications and electrical appliance sectors of the world economy. We believe that our copper projects, which are all situated in the Carajas region, can be among the most competitive in the world in terms of investment cost per ton of ore. When our copper mines enter production, they will benefit from our transportation facilities serving the Northern System. Additionally, in March 1997, we and BNDES, a selling shareholder, entered into a Mineral Risk Contract providing for the joint development of certain unexplored mineral resources in approximately two million identified hectares of land in the Carajas region, as well as proportional participation in any financial benefits earned from the development of those resources. For more detailed information on the Mineral Risk Contract, see "-- Our Lines of Business -- Non-Ferrous Minerals -- Exploration -- Mineral Risk Contract." Increasing Our Aluminum Activities We believe that global demand for aluminum will continue to grow during the next decade, driven mainly by the transportation and packaging industries. We therefore plan to develop and increase production capacity in our integrated aluminum operations. Our bauxite joint venture, MRN, is increasing annual production capacity from 11.0 to 16.3 million tons by 2003. Our alumina joint venture, Alunorte, is increasing annual production capacity from 1.5 to 2.3 million tons per year by 2002. Our aluminum joint venture, Albras, increased its production capacity by 40,000 tons in 2001. In addition, we own large unexplored deposits of high quality bauxite in the states of Para and Maranhao that will allow us to pursue further growth opportunities in the aluminum sector. Developing Power Generation Projects In 2001 and 2000, we consumed 12.5 TWh and 13.8 TWh of electricity, respectively. Energy management and supply has become a priority for us, driven both by the Brazilian government's privatization program of the industry, and by the risk of rising electricity prices and electricity rationing due to energy shortages, such as the one Brazil experienced in the second half of 2001. We currently 48 perceive favorable investment opportunities in the Brazilian electricity sector and are taking advantage of them to invest in hydroelectric power generation projects. These projects will sell their production to third parties in the power market, and, as a result, our energy department will be engaged in wholesale marketing activities. Our energy business is comprised of the sale but not the delivery of electricity. We may use some of the electricity from these projects for our internal needs. As we are a large consumer of electricity, we expect that investing in the energy business will help protect us against electricity price volatility. In the first nine months of 2001, we spent US$72 million on investments in power projects. We currently hold stakes in two hydroelectric power plants (Igarapava and Porto Estrela), which have already started operations. Both are located in the state of Minas Gerais. We are also investing in the construction of five hydroelectric power plants and developing the economical and environmental feasibility studies for two other hydroelectric projects for which we and our joint venture partners have obtained a concession. When completed, these projects will provide us with the equivalent of approximately half of our 2000 electricity consumption (approximately 14 TWh, which represented 4.5% of Brazil's electricity consumption). We are also analyzing other hydroelectric power plant projects that will require additional investments. Restructuring Our Portfolio of Joint Ventures and Minority Investments In line with our focus on mining, logistics and energy, we have moved to reduce our holdings of non-strategic assets. We are pursuing the disposition of our pulp and paper assets and are also disposing of assets in the steel and transportation sectors that are not strategically connected to our core business. In March 2001, we concluded the sale of our interest in the pulp and paper producer Bahia Sul for approximately US$320 million. In September 2001, we concluded the sale of our stake in Cenibra to our former partner for US$670.5 million. In the steel industry, we disposed of our 2.3% stake in Acominas in December 2000 and, in March 2001, we disposed of our 10.3% stake in CSN. Finally, we have begun the process of divesting our dry-bulk cargo shipping assets. OUR LINES OF BUSINESS Our principal lines of business consist of mining, logistics and energy. For internal management purposes, we group our aluminum operations together with our other significant equity participations in steel and pulp and paper. We are in the process of divesting our pulp and paper activities and have divested some of our steel assets. For information about this divestiture process, see "-- Holdings." FERROUS MINERALS Our ferrous minerals business segment is comprised of iron ore mining and pellet production, as well as transportation facilities in the Northern and Southern Systems (including railroads, ports and terminals) as they relate to mining operations. Manganese mining and ferro-alloys are also part of our ferrous minerals business. 49 The table below sets forth our ferrous minerals revenues by geographic market and by category for the periods indicated as reflected in our consolidated financial statements.
FOR THE NINE MONTHS FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, --------------------------------- ------------------- 1998 1999 2000 2000 2001 --------- --------- --------- -------- -------- (IN MILLIONS OF US$) REVENUES CLASSIFIED BY GEOGRAPHIC DESTINATION Export sales: Latin America..................... US$177 US$149 US$224 US$161 US$194 United States..................... 185 147 252 169 154 Europe............................ 751 621 969 660 1,015 Middle East....................... 135 146 209 135 149 Japan............................. 299 351 544 409 191 Asia, other than Japan............ 456 575 651 446 867 Other............................. 1 -- -- -- -- -------- -------- -------- -------- -------- 2,004 1,989 2,849 1,980 2,570 -------- -------- -------- -------- -------- Domestic sales...................... 776 639 1,000 748 805 -------- -------- -------- -------- -------- Total.......................... US$2,780 US$2,628 US$3,849 US$2,728 US$3,375 ======== ======== ======== ======== ======== REVENUES CLASSIFIED BY CATEGORY Iron ore............................ US$1,970 US$1,859 US$2,710 US$1,904 US$2,468 Pellets............................. 683 632 769 557 637 Manganese and ferro-alloys.......... 127 137 370 267 270 -------- -------- -------- -------- -------- Total.......................... US$2,780 US$2,628 US$3,849 US$2,728 US$3,375 ======== ======== ======== ======== ========
50 Iron Ore We conduct our iron ore business primarily at the parent company level. System Structure The table below sets forth information regarding our proven and probable iron ore reserves as of December 31, 2000. The estimates of mineral reserves have been audited and verified by Mineral Resources Development, Inc., or MRDI, experts in geology, mining and ore reserve determination.
PROVEN AND PROBABLE RESERVES -------------------------- MINE ORE TONNAGE GRADE(1) - ---- --------------- -------- (IN MILLIONS OF (% FE) TONS) SOUTHERN SYSTEM Itabira District Caue................................................... 25.0 51.3% Conceicao.............................................. 338.8 56.7 Dois Corregos(2)....................................... 423.9 59.4 ------- Total Itabira District................................. 787.7 58.0 ------- Timbopeba(3)................................................ 78.2 53.2 Gongo Soco Complex(4)....................................... 494.4 54.9 Capanema/Ouro Fino.......................................... 29.7 59.5 Fazendao.................................................... 238.2 50.7 Samitri Alegria Complex(5)..................................... 631.6 54.0 Agua Limpa Complex(6).................................. 68.8 45.5 Corrego do Meio Complex(7)............................. 8.4 60.3 ------- Total Samitri.......................................... 708.8 53.2 ------- Subtotal.................................................. 2,337.0 55.0 ------- NORTHERN SYSTEM Carajas(8).................................................. 1,167.4 65.4 ------- Total CVRD Group....................................... 3,504.4 58.5% =======
- --------------- (1) The subtotal and total figures include weighted-average ore grades. (2) Dois Corregos consists of several mines. (3) Reserves are based on 1997 model. A new model is in progress to support a feasibility study for expansion of the project. (4) The Gongo Soco Complex consists of the Gongo Soco, Brucutu, Bau and Gralhos deposits. (5) The Alegria Complex consists of the Alegria, Fabrica Nova and Morro da Mina deposits. (6) The Agua Limpa Complex consists of the Agua Limpa and Cururu deposits. (7) The Corrego do Meio Complex consists of the Corrego do Meio and Segredo deposits. (8) Includes four active mines. In May 2000, we acquired 100% of Mineracao Socoimex S.A., known as Socoimex, a mining company located in Minas Gerais, for approximately US$55 million. Socoimex's main activity is the production and sale of iron ore extracted from Gongo Soco mine, with proven and probable reserves of 51 approximately 106 million tons and a capacity to produce 7 million tons per year. We began operating the Gongo Soco mine in August 2000. In August 2000, Socoimex was merged into our parent company. In May 2000, we acquired a controlling interest in Samitri for approximately US$520 million. In September 2000, through a public tender, we acquired additional shares to bring our ownership to 99.3% of the voting capital and 99.2% of the total capital of Samitri. In February 2001, we increased our ownership interest in Samitri to 100% by exchanging 140,023 of our preferred class A shares for the shares in Samitri that we did not already own. In October 2001, we merged Samitri into the CVRD Group. The total cost of the Samitri acquisition was US$710.5 million, which we principally financed with operating cash flow. Samitri operates the Alegria, Agua Limpa and Corrego do Meio iron ore mining complexes in the state of Minas Gerais, and is one of Brazil's largest producers of iron ore. Its production capacity is 17.5 million tons per year, and it has proven and probable reserves of 709 million tons of high grade hematite and other mineral deposits of 11.6 billion tons of itabirites. The Samitri acquisition allowed us to acquire a 50% interest in the pelletizing operations of Samarco Mineracao S.A. In April 2001, we acquired 100% of Ferteco Mineracao S.A. from Thyssen Krupp Stahl AG, for approximately US$523 million. Ferteco is one of the largest producers of iron ore in Brazil, with a production capacity of 15 million tons per year. It has other mineral deposits of 263 million tons of hematite and itabirite ores, with a quality similar to our Southern System reserves. It operates two open pit iron ore mines, Fabrica and Feijao, and a pellet plant in the Iron Quadrangle region in the state of Minas Gerais which has a production capacity of 4 million tons per year. In August 2001, we agreed to supply Shanghai Baosteel Group Corporation, a steel company located in the People's Republic of China, with approximately 6 million tons of iron ore annually for a 20-year term. In addition, we and Baosteel agreed to form a joint venture, Baovale Mineracao S.A. In October 2001, we ceded our mining rights in the Agua Limpa mining complex located in the Southern System to Baovale, which resulted in a decrease of 68.8 million tons in our proven and probable reserves. In return, Baosteel paid us US$18.9 million for its 50% interest in Baovale's total capital. In exchange for a monthly fee, Baovale leases us its rights in the mining deposit which we continue to operate. We expect that this transaction will increase our presence in the Asian market. In September 2001 we acquired a 99.99% stake in Belem Administracoes e Participacoes Ltda., from Bethlehem Steel Corporation and Bethlehem Steel International Corporation, for approximately US$25 million. Belem is a holding company which owns 9.9% of Empreendimentos Brasileiros de Mineracao S.A., a privately held company controlled by Caemi Mineracao e Metalurgia S.A., a Brazilian producer of iron ore and pellets, as well as kaolin and refractory bauxite. In December 2001, we acquired 50% of Caemi's voting shares for approximately US$278 million. We completed the acquisition after receiving the approval of the European Commission, which required as a condition that Caemi sell its 50% interest in Quebec Cartier Mining Company, known as QCM, a Canadian iron ore and pellets producer. Caemi has been following all the procedures required by the European Commission and is in the process of disposing of its stake in QCM but has not entered into a definitive agreement to do so. We currently own 50% of the voting capital and 17% of the total capital of Caemi. Mitsui & Co., Ltd. holds the remaining 50% of Caemi's voting capital. We are obligated to indemnify the seller from whom we purchased our interest in Caemi against certain liabilities in connection with the transaction. In a pending arbitration, other former shareholders of Caemi who also sold their shares in the transaction have alleged that the seller should have closed the transaction earlier, and that certain actions by the seller resulted in a lower sale price for their shares. This arbitration proceeding is in its early stages and we are unable to predict its outcome, although we do not expect that any liability under the indemnity would be material. 52 The table below sets forth information regarding our mines. The projected exhaustion dates are based on 2000 production levels.
COMMENCEMENT PROJECTED OUR OWNERSHIP OF OPERATIONS EXHAUSTION DATE INTEREST PRODUCTION ------------- --------------- ------------- ----------------------------------- FOR THE NINE FOR THE YEAR ENDED MONTHS ENDED DECEMBER 31, SEPTEMBER 30, ------------------- ------------- MINE 1998 1999 2000 2000 2001 - ---- ---- ---- ----- ----- ----- (PERCENT) (IN MILLIONS OF TONS) SOUTHERN SYSTEM Itabira District Caue...................... 1942 2014 100% 19.9 17.8 20.1 14.9 15.2 Conceicao................. 1957 2014 100 19.3 18.8 19.8 14.8 14.6 Dois Corregos............. -- -- -- -- -- -- -- -- Total Itabira District.... -- -- -- 39.2 36.6 39.9 29.7 29.8 ---- ---- ----- ---- ---- Timbopeba................... 1984 2006 100 7.5 7.4 7.6 5.7 4.1 Gongo Soco Complex(1)....... 2000 2010 100 0.2 0.7 6.6 4.5 5.2 Capanema/Ouro Fino.......... 1982 2003 51 4.6 3.7 5.3 4.1 3.1 Fazendao.................... 1997 -- 100 1.1 0.9 1.2 0.9 0.9 Samitri Alegria Complex(2)........ 2000 2040 100 -- -- 9.4 7.1 7.7 Agua Limpa Complex(3)..... 2000 2009 100 -- -- 3.7 2.9 1.6 Corrego do Meio Complex(4).............. 2000 2006 100 -- -- 1.5 1.2 1.0 ---- ---- ----- ---- ---- Total Samitri............... -- -- -- -- -- 14.6 11.2 10.3 ---- ---- ----- ---- ---- Urucum(5)................... 1993 -- 100 0.7 0.6 0.7 0.5 0.4 ---- ---- ----- ---- ---- Total Southern System..... -- -- -- 53.3 49.9 75.9 56.6 53.8 ---- ---- ----- ---- ---- NORTHERN SYSTEM Carajas(6).................. 1986 2021 100 45.8 44.0 47.6 33.7 38.8 ---- ---- ----- ---- ---- Total CVRD Group............ 99.1 93.9 123.5 90.3 92.6 ==== ==== ===== ==== ====
- --------------- (1) The Gongo Soco Complex consists of the Gongo Soco, Brucutu, Bau and Gralhos deposits. (2) The Alegria Complex consists of the Alegria, Fabrica Nova and Morro da Mina deposits. (3) The Agua Limpa Complex consists of the Agua Limpa and Cururu deposits. (4) The Corrego do Meio Complex consists of the Corrego do Meio and Segredo deposits. (5) There are no proven and probable reserves at Urucum. (6) Includes four active mines. 53 Integrated Systems [Integrated Systems Chart] Our iron ore mining and related operations are concentrated in two regions in Brazil, the Southern System and the Northern System. The Southern System is located in the states of Minas Gerais and Espirito Santo, and the Northern System is located in the states of Para and Maranhao. Each system includes iron ore reserves and other mineral deposits, mines, ore processing facilities and integrated railroad and terminal transportation facilities. Our railroads connect the systems and bring products from the mines to our marine terminals, located at Tubarao and Praia Mole in the Southern System, and Sao Luis in the Northern System. The operation of two separate systems, each with transportation capability under our control, enhances reliability and consistency of service to our customers. Southern System [Southern System Map] The Southern System is an integrated system consisting of iron ore mines, the Vitoria-Minas railroad, and the ports of Tubarao and Praia Mole (located in Vitoria, in the state of Espirito Santo). The iron ore mines of the Southern System are located in a region called the Iron Quadrangle in the state of Minas 54 Gerais, in the southeast of Brazil. Nine mining complexes compose this system: Caue and Conceicao in the Itabira District, Timbopeba, Gongo Soco Complex, Alegria Complex, Agua Limpa Complex, Corrego do Meio Complex, Capanema and Fazendao. The Southern System is accessible by road or by spur tracks of the Vitoria-Minas railroad, which transports iron ore concentrate, lump, and natural pellet ore to the Tubarao marine terminal (located approximately 600 kilometers away) and domestic steelmakers, as well as third party general cargo. Iron ore in the Southern System is mined by open pit methods. These ore reserves have high ratios of itabirite ore relative to hematite ore. Itabirite is a quartz-hematite rock with an average iron content ranging from 35% to 60%, requiring concentration to achieve shipping grade, which is above a 64% average iron content. Mines in the Southern System generally process their run-of-mine by means of standard crushing, classification and concentration steps, producing sinter feed, lump ore and pellet feed. Our Vitoria-Minas railroad transports Southern System iron ore to the Tubarao marine terminal located at Vitoria in the state of Espirito Santo. The Southern System has train-loading facilities with a daily carrying capacity of 300,000 tons of iron ore. A train composed of two diesel-electrical locomotives and up to 240 gondola ore-cars makes a roundtrip to the marine terminal every 43 hours. The Tubarao/ Praia Mole marine terminal complex has a storage capacity of 4.5 million tons of iron ore and pellets. The storage capacity in connection with the complex's two piers, which are 25 meters deep and 600 meters wide, ensures access for ships of up to 365,000 DWT. Our loading system consists of a bucket-wheel reclaimer, conveyor belts and a ship-loader for each pier, which represents a total loading capacity of 32,000 tons per hour to the terminal. Northern System [Northern System Map] The Northern System is an integrated mine, railroad and port system, including open pit mines and an ore processing complex. The Northern System is located in the Carajas region, in the states of Para and Maranhao in the north of Brazil (in the Amazon River basin), on public lands for which we hold mining concessions. The Northern System's reserves are among the largest iron ore deposits in the world, with a life of more than 21 years at 2000 output levels. These reserves are divided into two main ranges (north and south), situated approximately 35 kilometers apart. Iron ore mining activities in the Northern System are currently being conducted in the north range, which is divided into four main mining bodies (N4E, N4WC, N4WN and N5). 55 The N4E deposit is the largest operational pit in the Northern Region. Industrial scale mining operations began at this mine in 1985. We selected the N4E mine as the first iron body to be developed in the Northern System because development of the N4E would facilitate access to the N4W and N5 deposits, which could share the N4E beneficiation complex and train loading terminal. We began mining operations at N4W in 1994, opening two pits (N4WC and N4WN). We completed the construction of two in-pit crushing systems located at N4E and N4WN mines in late December 1998. The N4E and N4W mines use conventional open pit benching, with drilling and blasting to open a free face followed by shovel loading. During 1998, we also started operations in the N5 mines (N5W and N5E). Because of the high iron content (65.4% on average) in the Northern System, we do not have to operate a concentration plant at Carajas. The beneficiation process for creating marketable sinter feed, pellet feed, special fines for direct reduction processes and lump ore consists simply of sizing operations, including screening, hydrocycloning, crushing and filtration. We can therefore produce marketable iron ore in the Northern System at a lower cost than in the Southern System. Output from the beneficiation process consists of sinter feed, pellet feed, special fines for direct reduction processes and lump ore, which is sampled regularly before storage at the Carajas stockyard by automatic sampling systems that conform to ISO 9002 standards. After the beneficiation process, our Carajas railroad transports Northern System iron ore to the Ponta da Madeira marine terminal located at Sao Luis in the state of Maranhao, on the Atlantic Ocean. The Northern System has train-loading facilities with an aggregate nominal loading capacity of 14,000 tons per hour. A train composed of three diesel-electrical locomotives and up to 206 gondola ore-cars, each car having a net capacity of 105 tons, makes each 54.5-hour round-trip to the marine terminal. At the Ponta da Madeira marine terminal, a 100 kilometer long natural channel (at least 23 meters deep and 500 meters wide) ensures access for ships of up to 420,000 DWT. With a storage capacity of 3.5 million tons, a loading system consisting of bucket-wheel reclaimers, conveyor belts and single boom ship-loaders at two piers, the marine terminal can handle vessels from 20,000 to 420,000 DWT with no repositioning. Our complex in Carajas is accessible by road, air and rail. It obtains electrical power at market rates from regional utilities. To support our Carajas operations and to reduce turnover of mining personnel, we provide housing and other facilities for our workers in a nearby township. Pellets We conduct our pellet business as follows: [CVRD FLOW CHART] 56 The table below sets forth information regarding attributable pellet production capacity by us and our joint ventures for the periods indicated.
FOR THE NINE FOR THE YEAR ENDED MONTHS ENDED DECEMBER 31, SEPTEMBER 30, ----------------------- ---------------- PELLET PRODUCER 1998 1999 2000 2000 2001 - --------------- ----- ----- ----- ------ ------ (IN MILLIONS OF TONS, EXCEPT PERCENTAGES) CVRD.................................................... 4.7 4.8 5.0 3.9 3.7 Itabrasco............................................... 3.4 3.4 3.3 2.6 2.4 Hispanobras............................................. 3.9 3.6 3.8 2.8 2.7 Nibrasco................................................ 7.5 6.1 8.5 6.4 5.8 Kobrasco................................................ 0.4 3.8 4.4 3.2 3.2 Samarco................................................. -- -- 12.7 9.3 8.2 GIIC.................................................... -- -- 3.6 2.7 2.1 ---- ---- ---- ---- ---- Total.............................................. 19.9 21.7 41.3 31.3 28.1 ==== ==== ==== ==== ==== Percentage DR pellets................................... 29.1% 25.9% 23.5% 25% 25%
Except for GIIC, which is located in Bahrain, and Samarco, which is in Ponta do Ubu, all of our pelletizing operations are in the Southern System at our Tubarao complex. We acquired Samarco in May 2000, and GIIC in October 2000. In April 2001, we acquired an additional 4 million tons of annual production capacity of pellets through our acquisition of Ferteco Mineracao S.A., known as Ferteco. We have completed the first phase of the construction of our new Sao Luis pelletizing plant, and we expect to complete the plant by March 2002. At September 30, 2001, we had invested approximately US$120 million in the Sao Luis plant and expect to spend an additional US$61 million through March 2002. The plant will be located in our Northern System. Our pellet activities increase our market for fine and ultrafine iron ore products. We sell pellet feed to our pellet joint ventures at market-based prices. Historically, we have supplied all of the iron ore requirements of our joint ventures located in the Southern System. The table below sets forth information regarding iron ore shipments to our pellet joint ventures for the periods indicated.
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30, -------------------------------- -------------- JOINT VENTURE 1998(1) 1999(1) 2000(1) 2000 2001 - ------------- -------- -------- -------- ----- ----- (IN MILLIONS OF TONS) Kobrasco.......................................... 0.4 4.1 4.7 3.5 3.4 Itabrasco......................................... 3.6 3.6 3.6 2.7 2.6 Hispanobras....................................... 4.3 4.0 4.1 3.0 2.9 Nibrasco.......................................... 8.2 6.6 9.3 7.0 6.4 Samarco........................................... -- -- 1.9 1.4 1.6 GIIC.............................................. -- -- 2.0 1.5 1.4 ---- ---- ---- ---- ---- Total........................................ 16.5 18.3 25.6 19.1 18.3 ==== ==== ==== ==== ====
- --------------- (1) Shipments in 1999 and 1998 represent iron ore sold and iron ore delivered to the joint ventures on a tolling basis. Shipments in 2000 represent iron ore sold to the joint ventures. 57 Customers, Sales and Marketing (Iron Ore and Pellets) We use all of our iron ore and pellets (including our share of joint-venture pellet production) to supply the steelmaking industry. Prevailing and expected levels of demand for steel products affect demand for our iron ore and pellets. Demand for steel products is influenced by many factors, such as expected rates of economic growth. Historically, we have exported more than two-thirds of our iron ore shipments. We export iron ore products primarily to Asia and Europe, with customers in Japan, China, South Korea and Germany accounting for approximately 54.8% of our total export shipments in the first nine months of 2001 and 52.6% in 2000. In the first nine months of 2001, our 10 largest customers collectively purchased 30.5 million tons of iron ore and pellets from us, representing 46.3% of our iron ore and pellet shipments and approximately 27.3% of our total revenues. No individual customer accounted for more than 7.0% of our sales of iron ore products for any of the three years ended December 31, 2000. We strongly emphasize customer service in order to improve our competitiveness. We work with our customers to understand their principal objectives and then tailor our iron ore to meet specific customer needs. To provide a tailored product, we take advantage of our large number of iron ore mines in order to produce multiple iron ore products possessing different grades of iron, silica and alumina, and varying physical properties, including grain size. We believe that we offer our customers more variety than our competitors in Australia and Canada. This variety helps us offset any disadvantages in relation to competitors who may be more conveniently located geographically. In addition to offering technical assistance to our customers, we operate sales support offices in Tokyo, Brussels, New York and Shanghai. These offices allow us to stay in close contact with our customers, monitor their requirements and our contract performance, and ensure that our customers receive deliveries on schedule. Our central sales office in Rio de Janeiro coordinates the activities of these offices. Distribution (Iron Ore and Pellets) Our ownership and operation of transportation systems designed for the efficient transportation of iron ore products complements our iron ore mining business. We operate an integrated railroad and terminal network in each of our Northern and Southern Systems. This network transports our iron ore products from interior mining locations to the marine terminal and domestic customers. The Vitoria-Minas railroad provides the rail link for the Southern System and has a daily carrying capacity of 300,000 tons of iron ore. The Carajas railroad provides the rail link for the Northern System and has a daily carrying capacity of 130,000 tons of iron ore. Our port and terminal facilities in the Southern and Northern Systems receive iron ore and pellets from our railroads for dispatch onto ocean-going vessels. We shipped a total of 85.6 million tons of iron ore and pellets for the first nine months of 2001 and 117.2 million tons of iron ore and pellets in 2000. The Tubarao/Praia Mole marine terminal complex, located near the port of Vitoria in the state of Espirito Santo, serves the Southern System. The Vitoria-Minas railroad transports ore from iron ore mines in the Southern System directly to the Tubarao terminal and its ship-loading facilities. The Ponta da Madeira marine terminal complex, located near the port of Sao Luis in the state of Maranhao, serves the Northern System. The Carajas railroad transports iron ore from the Northern System mines directly to the Ponta da Madeira terminal and its ship-loading facilities. We are currently seeking to divest our interests in our dry-bulk shipping business due to its overall lack of profitability and to the significant investment we would have to undertake to replace our existing dry-bulk shipping fleet in the future. See "-- Logistics -- Shipping." Competition (Iron Ore and Pellets) The international iron ore market is highly competitive. Several large producers dominate this market. The principal factors affecting competition are price, quality, range of products offered, reliability and 58 transportation costs. In 2000, the Asian market (primarily Japan, South Korea and China) and the European market were the primary markets for our iron ore. Our biggest competitors in the Asian market are located in Australia and include affiliates of Broken Hill Proprietary Company Limited, or BHP, and The Rio Tinto Corporation Plc. Although the transportation costs of delivering iron ore from Australia to Asian customers are generally lower than ours as a result of Australia's geographical proximity, we believe we are able to remain competitive in the Asian market for two principal reasons. First, steel producers generally seek to obtain the types (or blends) of iron ore which can produce the intended final product in the most economic and efficient manner. Our iron ore has low impurity levels which generally lead to lower processing costs. For example, the alumina content of our iron ore is very low compared to Australian ore. Second, steel mills often develop sales relationships based on a reliable supply of a specific mix of iron ore. We have an aggressive marketing policy of meeting our clients' needs to the extent possible, including placing specialized personnel in direct contact with our clients to determine the blend that best suits each particular client. We sell our products FOB from our ports, which means that the invoice price includes delivery at our expense to our ports and no further. In general, our ownership of the process of producing and transporting iron ore to our ports helps ensure that our products get to our ports on schedule and at competitive costs. Consequently, we believe that the sale of our shipping dry-bulk assets will not affect our competitiveness as we have not subsidized shipping costs for those customers who have used our fleet. We believe that third party carriers are available to serve our customers. We are competitive in the European market for the reasons we described above, as well as the quality of our Carajas iron ore and the proximity of the Ponta da Madeira port facilities to European customers. Our principal competitors in Europe are: - - Iron Ore Co. (Canada), - Quebec Cartier Mining Co. (Canada), - Luossavaara Kiirunavaara AB (Sweden), - Societe Nationale Industrielle et Miniere (Mauritania), - Kumba Resources (South Africa), and - affiliates of BHP (Australia) and Rio Tinto (UK). The Brazilian iron ore market is highly competitive with a wide range of smaller producers. Although pricing is a relevant factor, quality and reliability are important competitive factors as well. We believe that our integrated transportation systems, high-quality ore and technical services make us a strong competitor in domestic sales. Prevailing export market prices, with adjustments negotiated to compensate for lower transport costs to domestic customers, influence iron ore sales in the domestic market. 59 Manganese and Ferro-Alloys We conduct our manganese and ferro-alloy business as follows: [CVRD BUSINESS CHART] We are the largest Brazilian manganese ore producer, with total production in the first nine months of 2001 of approximately 1.3 million tons. We had US$270 and US$267 million in gross revenues in the first nine months of 2001 and 2000, respectively, from manganese ore and ferro-alloy sales. We produce manganese ore products from the Azul mine in the Carajas region in the state of Para and from the Urucum mine in the Pantanal region in the state of Mato Grosso do Sul. We operate on-site beneficiation plants at both the Azul and Urucum mines. Both mines are accessible by road and obtain electrical power at market rates from regional electric utilities. Our manganese mines produce three types of manganese products: - - metallurgical ore used primarily for the production of ferro-alloys, - natural manganese dioxide suitable for the manufacture of electrolytic batteries, and - chemical ore used in several industries for the production of fertilizer, pesticides and animal food and used as a pigment in the ceramics industry. The production of ferro-alloys consumes significant amounts of electricity. On June 1, 2001, the Brazilian government, as part of its energy rationing program, required a decrease of energy consumption by 25% for ferro-alloy related activities. In response to these governmental measures, we immediately began a plan to reduce our ferro-alloy output in the six-month period ending November 30, 2001, by 46,000 tons, from the previously planned 220,000 tons to 174,000 tons. This reduction represents a revenue loss of US$26 million. We believe that the remaining production will be sufficient to supply our clients in Brazil and the rest of Latin America, our main ferro-alloys markets. Despite this mandatory temporary reduction, we continue to pursue our long-term plan to expand our ferro-alloy operations. For information on the risks associated with the Brazilian government's rationing program, see "Risk Factors -- Risks Relating to Brazil -- The Brazilian government's energy rationing program could adversely affect us." 60 The table below sets forth information regarding our manganese reserves at December 31, 2000. The estimates of mineral reserves have been audited and verified by MRDI.
PROVEN AND PROBABLE RESERVES ------------------------------------------------- MINE TYPE ORE TONNAGE GRADE(3) - ---- -------------- --------------------- -------- (IN MILLIONS OF TONS) (% MN) Azul............................................. Open pit(1) 22.1 44.6 S/P(1) 0.8 47.3 ---- ---- 22.9 44.7 ==== ==== Urucum........................................... Underground(2) 13.1 47.9 ---- ---- Total....................................... 36.0 45.9 ==== ====
- --------------- (1) Reported as product wet tons (14.5% moisture content). (2) Reported as product dry tons. (3) Reported as recoverable product grade. The table below sets forth information regarding our manganese mines and recent manganese ore production for the periods indicated. The projected exhaustion dates are based on 2000 production levels.
COMMENCEMENT PROJECTED OUR OWNERSHIP MINE OF OPERATIONS EXHAUSTION DATE INTEREST PRODUCTION - ---- ------------- --------------- ------------- ------------------------------------------ FOR THE YEAR ENDED FOR THE NINE MONTHS DECEMBER 31, ENDED SEPTEMBER 30, ------------------ ------------------- 1998 1999 2000 2000 2001 ---- ---- ---- ------ ------ (IN MILLIONS OF TONS) Azul................. 1986 2014 100% 1.3 0.9 1.4 1.2 1.1 Urucum............... 1976 2035 100% 0.3 0.2 0.3 0.2 0.2 --- --- --- --- --- Total............ 1.6 1.1 1.7 1.4 1.3 === === === === ===
The table below sets forth information regarding our ferro-alloy production.
PRODUCTION PRODUCTION IN PLANT CAPACITY 2000 - ----- ---------------- ---------------- (IN THOUSANDS OF (IN THOUSANDS OF TONS PER YEAR) TONS) RDME........................................................ 140.0 119.7 CPFL/SIBRA.................................................. 311.6 273.9 NES......................................................... 45.0 37.5
- --------------- Prior to December 1999, we owned 50% of Vale Usiminas Participacoes, S.A., or VUPSA. In December 1999, we agreed to acquire, for a nominal sum, the 50% stake in VUPSA that we did not already own from our former partner, Usinas Siderurgicas de Minas Gerais S.A., known as Usiminas. In exchange for our agreement to acquire the Usiminas interest in VUPSA, Usiminas was released from some of its obligations with respect to the debt of Companhia Paulista de Ferro Ligas, or CPFL, and Sibra Eletrosiderurgica Brasileira S.A., or SIBRA, two leading Brazilian producers of ferro-alloys, which were owned by Ferro Ligas do Norte S.A., a subsidiary of VUPSA. This acquisition enables us to integrate our manganese mining operations with ferro-alloy producing plants. On December 31, 2000, after a corporate reorganization, we became the direct owner of SIBRA, which in turn owns CPFL. NON-FERROUS MINERALS Our non-ferrous minerals business segment includes the production of gold and other non-ferrous minerals, such as kaolin and potash. We also include our copper exploration efforts in the non-ferrous category. 61 The table below sets forth information regarding our non-ferrous revenues and sales by geographic market for the periods indicated.
FOR THE NINE MONTHS FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, --------------------------------- ------------------- 1998 1999 2000 2000 2001 --------- --------- --------- -------- -------- (IN MILLIONS OF US$) REVENUES CLASSIFIED BY GEOGRAPHIC DESTINATION Export sales: Latin America............................. US$ -- US$ -- US$ -- US$ -- US$ 4 United States............................. 145 139 156 113 100 Europe.................................... -- -- 35 28 27 Japan..................................... -- -- 4 2 -- Asia, other than Japan.................... -- 4 3 -- 2 ------ ------ ------ ------ ------ 145 143 198 143 133 Domestic sales.............................. 124 96 90 70 58 ------ ------ ------ ------ ------ Total.................................. US$269 US$239 US$288 US$213 US$191 ====== ====== ====== ====== ====== REVENUES CLASSIFIED BY CATEGORY Gold........................................ US$168 US$155 US$156 US$113 US$100 Potash...................................... 101 84 85 66 58 Other minerals.............................. -- -- 47 34 33 ------ ------ ------ ------ ------ Total.................................. US$269 US$239 US$288 US$213 US$191 ====== ====== ====== ====== ======
Gold We conduct our gold business primarily at the parent company level and each of our gold mines is wholly owned. We started gold operations in 1984 and currently operate three gold mines. We are one of the largest gold producers in Latin America, with a total gold production of 376,200 troy ounces of refined gold for the first nine months of 2001. We were responsible for approximately 32% of all gold produced on an industrial scale in Brazil during 2000. Gold sales generated US$100 million of gross operating revenues in the first nine months of 2001. 62 The table below sets forth information regarding estimated gold proven and probable reserves at December 31, 2000. The estimates of mineral reserves have been audited and verified by MRDI.
PROVEN AND PROBABLE RESERVES --------------------------------------------------- ORE ORE CONTAINED METAL MINE(1) TYPE TONNAGE GRADE(3) GOLD RECOVERY(3) RECOVERABLE GOLD - ------- ----------- ------------ ---------- --------- ----------- --------------------------- (IN MILLIONS (IN MILLIONS OF OF TONS) (GRAM/TON) (IN TONS) (PERCENT) (IN TONS) TROY OUNCES)(4) Igarape Bahia(2)......... CIP Ore 3.12 3.70 11.54 91% 10.51 0.338 CIP Stock 0.23 2.96 0.68 91 0.62 0.020 HL Ore 4.23 1.31 5.54 81 4.49 0.144 HL Stock 3.07 1.09 3.35 81 2.71 0.087 ----- ---- ----- ----- ----- Subtotal............... 10.65 1.98 21.11 87 18.32 0.589 ----- ---- ----- ----- ----- Fazenda Brasileiro....... Sulfide CIP 3.79 5.36 20.31 93 18.89 0.607 ----- ---- ----- ----- ----- Itabira.................. CIL in situ 0.27 3.22 0.86 96 0.83 0.027 S/P HL 0.26 0.60 0.15 60 0.09 0.003 ----- ---- ----- ----- ----- Subtotal............... 0.53 1.90 1.01 91 0.92 0.030 ----- ---- ----- ----- ----- Total.................... 14.97 2.83 42.43 90 38.13 1.226 ===== ==== ===== ===== =====
- --------------- (1) The Almas and Caete deposits listed with reserves at December 1999 were depleted in 2000. (2) Igarape Bahia includes the Acampamento Sul, Furo Trinta and Acampamento Norte deposits. (3) The subtotal and total figures include weighted-average ore grades and metallurgical recovery rates. (4) One troy ounce equals 31.103 grams. The table below sets forth information regarding our gold mines and recent gold production. The projected exhaustion dates are based on 2000 production levels.
PRODUCTION --------------------------------------------------- FOR THE NINE MONTHS ENDED COMMENCE- PROJECTED FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30, MENT OF EXHAUSTION --------------------------------- --------------- MINE OPERATIONS DATE 1998 1999 2000 2000 2001 - ---- ---------- ---------- --------- --------- --------- ------ ------ (IN THOUSANDS OF TROY OUNCES)(2) Igarape Bahia........... 1991 2002 359.4 357.5 333.9 243.5 241.4 Fazenda Brasileiro...... 1984 2009 170.4 141.2 154.6 122.0 119.5 Almas(1)................ 1985 2000 16.4 16.0 13.2 10.4 0.6 Caete(1)................ 1996 2000 13.3 17.4 11.0 8.2 0.4 Itabira................. 1984 2002 22.9 20.0 22.4 16.1 14.3 ------ ------ ------ ------ ------ Total....................................... 582.4 552.1 535.1 400.2 376.2 ====== ====== ====== ====== ====== Average total cash cost of production (US$ per troy ounce)(2)........ US$175 US$143 US$165 US$167 US$150
- --------------- (1) Exhausted at December 31, 2000. (2) One troy ounce equals 31.103 grams. Our gold mines are located in the states of Minas Gerais, Bahia, and Para. All gold mines are open-pit, except for Fazenda Brasileiro, which is underground. Each mine includes an on-site processing facility to produce dore bars from raw ore. We ship dore bars to a third party refinery for remelting and chemical treatment, which yields gold bars with a 99.99% purity degree. Our gold is insured from the time we place it in its mine vaults until it reaches the customer. 63 At December 31, 2000, our proven and probable gold reserves represented three years of production at 2000 output levels. We had expenditures of US$7.8 million for gold exploration and resource development for the first nine months of 2001 and expenditures of US$8.5 million for gold exploration and resource development in 2000, including US$1.6 million related to prospecting for new deposits and US$5.9 million directed to the extension of existing reserves. Of these expenses, US$0.8 million and US$1.0 million were reimbursed under the Mineral Risk Contract for the first nine months of 2001, and for 2000, respectively. For a further discussion about the Mineral Risk Contract, see "-- Exploration -- Mineral Risk Contract." Kaolin We conduct our kaolin business through our stake in Para Pigmentos S.A., which began operations in August 1996. Our total and voting interests in Para Pigmentos are 80.1% and 84.9%, respectively. Our partners in Para Pigmentos are Mitsubishi Corporation and International Finance Corporation. Kaolin is a fine white aluminum silicate clay used in the paper, ceramic and pharmaceutical industries as a coating agent and filler. In the first nine months of 2001, Para Pigmentos reported revenues of US$33 million and a net loss of US$37 million. In 2000, Para Pigmentos reported revenues of US$34 million and a net loss of US$9.0 million. At September 30, 2001, Para Pigmentos had approximately US$61 million of long-term debt outstanding, of which we guarantee US$50 million. Para Pigmentos is conducting a four phased investment program to increase production capacity in response to an expected increase in the demand for kaolin. The table below sets forth the schedule for the investment program which Para Pigmentos expects to carry out through 2007.
EXPECTED INVESTMENT PHASE PRODUCTION TOTAL INVESTMENT DATE OF COMPLETION - ---------------- ---------- -------------------- ------------------ KT/YEAR (IN MILLIONS OF US$) I............................................... 320 US$140.0 2000 II.............................................. 600 29.0 2001 III............................................. 800 24.4 2003 IV.............................................. 1,000 26.3 2007
Phases I and II were completed as scheduled. Potash Potash is an important raw material used in the production of fertilizers. We lease a potash mine in the state of Sergipe from Petroleo Brasileiro S.A., the Brazilian oil company. It is the only mine of this type in Brazil and has a current capacity of 600,000 tons per year. We had gross revenues of US$58 million from potash sales in the first nine months of 2001 and US$84.9 million from potash sales in 2000. 64 Current Copper Prospects We conduct our copper development and exploration projects as follows: [CVRD COPPER FLOW CHART] The table below sets forth information regarding the status and potential productivity of our copper (Cu) prospects, all but one of which features a gold (Au) byproduct.
TOTAL EXPECTED CAPITAL PROJECTED PROJECT STATUS OTHER MINERAL DEPOSITS EXPENDITURES START-UP DATE - ------- ------------------ ---------------------- -------------- ------------- (IN MILLIONS OF TONS) (IN MILLIONS OF US$) Sossego....................... Feasibility 313 at 1.02% Cu and US$ 394 2004 concluded 0.3 g/t Au Salobo........................ Pre-feasibility in 784 at 0.96% Cu 1,005 2007 progress and 0.6 g/t Au Project 118................... Pre-feasibility in 100 at 0.80% Cu 140 2004 progress Alemao........................ Pre-feasibility in 170 at 1.60% Cu 550 2006 progress and 0.90 g/t Au Cristalino.................... Pre-feasibility in 300 at 0.90% Cu 500 2006 progress and 0.2 g/t Au
In addition, we and BNDES are prospecting the Carajas region for new copper exploration projects. For more information on this joint venture, see "-- Exploration -- Mineral Risk Contract." In October 2001, we acquired the 50% stake in the Sossego joint venture which we did not already own from our former partner, Phelps Dodge, for US$42.5 million. In November 2001, we agreed to form a 50/50 joint venture to explore new opportunities to produce and process copper with Corporacion Nacional del Cobre de Chile, or Codelco, the world's largest copper producer. Exploration As part of our mineral prospecting and development activities in Brazil, we have acquired extensive experience in exploration techniques and processes specifically designed for use in tropical areas of the world. Our current mineral exploration efforts are in Brazil and focus primarily on copper. Expenditures for our mineral exploration program in the first nine months of 2001 and 2000 were US$31 million and US$34 million, respectively. Since 1998, we have focused our exploration efforts on areas where geological knowledge was more advanced, focusing primarily on gold and copper, and let lapse those claims we did not consider economically attractive. As a result, our undeveloped acreage claims decreased from approximately 31.2 million hectares at December 31, 1997, to approximately 7.0 million hectares at December 31, 2001. 65 Mineral Risk Contract. We and BNDES entered into a Mineral Risk Contract in March 1997, relating to prospecting authorizations for mining regions where drilling and exploration are still in their early stages. The Mineral Risk Contract provides for the joint development of certain unexplored mineral resources in approximately two million identified hectares of land in the Carajas region, which is part of the Northern System, as well as proportional participation in any financial benefits earned from the development of such resources. Iron ore and manganese deposits already identified and subject to development were specifically excluded from the Mineral Risk Contract. Pursuant to the Mineral Risk Contract, we and BNDES each agreed to provide US$205 million, which represents half of the US$410 million in expenditures estimated as necessary to complete geological exploration and mineral resource development projects in the region over a period of five years. Under certain circumstances, this period may be extended for an additional two years. We will oversee these projects and BNDES will advance us half of our costs on a quarterly basis. Under the Mineral Risk Contract, at December 31, 2001, we and BNDES each had remaining commitments to contribute an additional US$77.5 million toward exploration and development activities. In the event that either one of us wishes to conduct further exploration and development after having spent such US$205 million, the contract provides that each party may either choose to match the other party's contributions, or may choose to have its financial interest proportionally diluted. If a party's participation in the project is diluted to an amount lower than 40% of the amount invested in connection with exploration and development projects, then the Mineral Risk Contract provides that the diluted party will lose (1) all the rights and benefits provided for in the Mineral Risk Contract and (2) any amount previously contributed to the project. Under the Mineral Risk Contract, BNDES has agreed to compensate us for our contribution of existing development and ownership rights in the Carajas region through a finder's fee production royalty on mineral resources that are discovered and placed into production. This finder's fee is equal to 3.5% of the revenues derived from the sale of gold, silver and platinum group metals and 1.5% of the revenues derived from the sale of other minerals, including copper, except for gold and other minerals discovered at Serra Leste, for which the finder's fee is equal to 6.5% of revenues. 66 LOGISTICS We conduct our logistics business, which comprises the transportation of third party products and passengers, together with related support services, as follows: [FLOW CHART] The table below sets forth information regarding our third party logistics revenues and sales by geographic market for the periods indicated.
FOR THE NINE MONTHS FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, --------------------------------- ------------------- 1998 1999 2000 2000 2001 --------- --------- --------- -------- -------- (IN MILLIONS OF US$) Export market Latin America............................. US$ 5 US$ 13 US$ 30 US$ 16 US$ 52 United States............................. 36 34 64 53 15 Europe.................................... 40 31 75 56 43 Middle East............................... 2 3 6 3 3 Japan..................................... 31 9 15 8 9 Asia, other than Japan.................... 15 9 5 7 3 Others...................................... 6 1 -- -- -- ------ ------ ------ ------ ------ 135 100 195 143 125 Domestic sales.............................. 396 318 403 295 269 ------ ------ ------ ------ ------ US$531 US$418 US$598 US$438 US$394 ====== ====== ====== ====== ======
Railroads Vitoria-Minas Railroad. The Vitoria-Minas railroad, in the Southern System, originates near the city of Belo Horizonte and our Itabira mines in the state of Minas Gerais. We operate this railroad under a 30-year renewable concession granted by the Brazilian government in July 1997. This railroad extends 905 kilometers to our Tubarao marine terminal located near the port of Vitoria in the state of Espirito Santo. The Vitoria-Minas railroad consists of two lines of track extending for a distance of 601 kilometers to permit continuous railroad travel in opposite directions, and single-track branches of 304 kilometers. 67 Industrial manufacturers are located near this area and major agricultural regions are adjacent and accessible to the Vitoria-Minas railroad. The Vitoria-Minas rolling stock fleet consists of approximately 204 locomotives, 7,603 ore-cars, 5,879 cars for general cargo and 61 passenger cars. The Vitoria-Minas railroad carried a total of 83.4 million tons of iron ore and other cargo in the first nine months of 2001 (of which 55.7 million tons consisted of cargo transported for third parties). The Vitoria-Minas railroad also carried approximately 1.1 million passengers in the first nine months of 2001. The principal cargo of the Vitoria-Minas railroad consists of: - iron ore, carried for us, - steel, coal and pig iron, carried for steel manufacturers located along the railroad, and - limestone, carried for steel mills located in the states of Minas Gerais and Espirito Santo. We charge market rates for third party freight, including pellets, aluminum and pulp and paper originating from joint ventures and other enterprises in which we do not own 100% of the equity interest. Market rates vary based upon the distance traveled, the kind of product and the weight of the freight in question. The table below sets forth information regarding the cargo that the Vitoria-Minas railroad transported for the periods indicated.
FOR THE NINE MONTHS FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, -------------------------------- -------------------- CARGO 1998 1999 2000 2000 2001 - ----- -------- -------- -------- -------- -------- (IN THOUSANDS OF TONS) Third Party Iron ore and pellets..................... 57,033 53,292 56,986 43,269 37,377 Steel.................................... 5,042 4,745 5,542 3,976 4,038 Coal..................................... 4,236 4,223 4,905 3,654 3,679 Pig iron................................. 2,016 2,042 2,585 2,056 2,009 Limestone and dolomite................... 1,932 2,149 2,609 1,935 2,035 Grain.................................... 1,752 1,655 2,410 1,882 1,896 Coking coal.............................. 779 525 854 588 788 Oil...................................... 362 285 334 204 432 Other.................................... 3,523 4,143 4,284 3,114 3,456 ------- ------- ------- ------ ------ Third party subtotal.................. 76,675 73,059 80,509 60,678 55,710 ------- ------- ------- ------ ------ CVRD Group Iron ore................................. 26,473 26,322 29,338 21,944 26,250 Wood pulp................................ 708 726 756 582 567 Other.................................... 925 722 1,281 994 844 ------- ------- ------- ------ ------ CVRD Group subtotal................... 28,106 27,770 31,375 23,520 27,661 ------- ------- ------- ------ ------ Total................................. 104,781 100,829 111,884 84,198 83,371 ======= ======= ======= ====== ======
Carajas Railroad. We operate the Carajas railroad under a 30-year renewable concession granted by the Brazilian government in June 1997. This railroad, located in the Northern System, starts at our Carajas iron ore mines in the state of Para, and extends 892 kilometers to our Ponta da Madeira marine terminal facilities located near the port of Sao Luis in the state of Maranhao. The Carajas railroad consists of one line of track, with spur tracks and turn-outs to permit the passage of trains in opposite directions. The Carajas fleet consists of approximately 88 locomotives, 4,006 ore-cars, 745 cars for general cargo and 37 passenger cars. The Carajas railroad carried a total of 42.5 million tons of iron ore and other cargo in the first nine months of 2001 (of which 4.7 million tons, or 11.0%, consisted of cargo transported for third 68 parties). The Carajas railroad also carried approximately 326,000 passengers in the first nine months of 2001 and 475,000 passengers in 2000. The table below sets forth information regarding the cargo the Carajas railroad transported for the periods indicated.
FOR THE NINE MONTHS FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, -------------------------------- -------------------- CARGO 1998 1999 2000 2000 2001 - ----- -------- -------- -------- -------- -------- (IN THOUSANDS OF TONS) Iron ore CVRD Group.................................. 43,881 41,683 45,353 32,626 36,705 Third party................................. 2,242 2,246 2,544 1,734 2,368 Manganese ore CVRD Group.................................. 898 807 1,339 975 1,097 Pig iron...................................... 1,243 1,321 1,526 1,027 1,303 Vehicles...................................... 306 120 142 103 75 Fuels......................................... 399 383 394 276 341 Soy beans..................................... 357 426 491 491 507 Other......................................... 120 114 127 79 119 ------ ------ ------ ------ ------ Total.................................... 49,446 47,100 51,916 37,311 42,515 ====== ====== ====== ====== ======
Other Investments. We hold a 20% interest in the voting capital of Centro-Atlantica, which operates the central east regional railway network of the Brazilian national railway system under a 30-year renewable concession granted by the government in August 1996. The central east network contains approximately 7,000 kilometers of track extending into the states of Sergipe, Bahia, Espirito Santo, Minas Gerais, Goias, Rio de Janeiro and Distrito Federal. It connects with our Vitoria-Minas railroad near the cities of Belo Horizonte and Vitoria. Centro-Atlantica currently operates on the same track gauge as our Vitoria-Minas railroad. Centro-Atlantica reported net revenues of US$81 million and a net loss of US$60 million in the first nine months of 2001 and net revenues of US$120 million and a net loss of US$40.7 million in 2000. We also hold a 30% stake in the Malha Nordeste railroad through Companhia Ferroviaria do Nordeste, known as CFN. The Malha Nordeste railroad operates under a 30-year concession granted by the Brazilian government in December 1997. Malha Nordeste is an existing rail line with 4,342 kilometers of track extending into the states of Maranhao, Piaui, Ceara, Rio Grande do Norte, Paraiba, Pernambuco, Alagoas and Sergipe. The Malha Nordeste line comes close to our Carajas line in the Northern System but is built on a narrower gauge. The Malha Nordeste line requires significant modernization, and the owners are currently discussing the amount of investment required to effect the modernization. CFN reported net revenues of US$5 million and a net loss of US$10 million in the first nine months of 2001 and net revenues of US$9.8 million and a net loss of US$17.7 million in 2000. We are part of a consortium which won the auction for a 30-year concession for the Malha Paulista railroad in November 1998. We currently hold 18.7% of the total capital in this consortium, which was incorporated as Ferrovias Bandeirantes S.A., or Ferroban. We entered into this concession for a price of US$205.7 million. Ferroban is a 4,236 kilometer railroad linking the states of Sao Paulo, Minas Gerais and Parana. Ferroban reported net revenues of US$50 million and a net loss of US$34 million in the first nine months of 2001 and net revenues of US$65.7 million and a net loss of US$38.3 million in 2000. In April 2001, we acquired 100% of Ferteco Mineracao S.A. Ferteco owns 9.6% of the total capital and 17.2% of the voting capital of MRS Logistica S.A. MRS is a 1,612 kilometer railroad which links the states of Rio de Janeiro, Sao Paulo and Minas Gerais, and has a capacity to transport 80 million tons per year. MRS operates under a 30-year renewable concession granted by the Brazilian government in November 1996. 69 The Brazilian government has the option to extend our railroad concessions when they expire. The table below sets forth the expiration date for each of our concessions:
CONCESSION RAILROAD EXPIRATION DATE - -------- --------------- Centro-Atlantica............................................ August 2026 MRS......................................................... December 2026 Vitoria-Minas............................................... June 2027 Carajas..................................................... June 2027 CFN......................................................... December 2027 Ferroban.................................................... December 2028
Ports and Terminals We operate ports and terminals principally as a means to complete the distribution of our iron ore and pellets to ocean-going vessels serving the export market. For a detailed description of this distribution process, see "-- Ferrous Minerals -- Distribution." We also use our ports and terminals to handle third party cargo. In the first nine months of 2001, based on weight, 22% of the cargo handled by our ports and terminals represented cargo handled for third parties. In 2000, based on weight, 32% of the cargo handled by our ports and terminals represented cargo handled for third parties. Tubarao/Praia Mole Marine Terminal. The Tubarao/Praia Mole marine terminal complex, which covers an area of approximately 18 square kilometers, is located near the port of Vitoria in the state of Espirito Santo and has two piers. Pier I can accommodate two vessels at a time, one of up to 80,000 DWT on the southern side and one of up to 120,000 DWT on the northern side. Pier II can accommodate one vessel of up to 300,000 DWT at a time. In Pier I there are two shiploaders which can load up to a combined total of 14,000 tons per hour. In Pier II there are two shiploaders that work alternately and can each load up to 16,000 tons per hour. We operate a grain terminal, accessible by highway in the Tubarao area, with an annual capacity of 1.5 million tons and a maximum loading speed of 1,500 tons per hour. We also operate a bulk liquid terminal with a capacity of 2.0 million cubic meters. There are two berths in the Tubarao terminal: one is for transportation of grains, with a capacity of 3 million tons a year, and the other is for transportation of general cargo and fertilizers. The table below sets forth information on cargo shipped through our Tubarao/Praia Mole marine terminal by tonnage for the periods indicated.
FOR THE NINE MONTHS FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, -------------------------------- -------------------- CARGO 1998 1999 2000 2000 2001 - ----- -------- -------- -------- -------- -------- (IN THOUSANDS OF TONS) Iron ore and pellets CVRD Group.................................. 37,768 42,017 39,397 34,813 42,479 Third party................................. 34,065 23,433 31,629 17,087 6,661 Coal.......................................... 7,160 7,497 8,252 5,857 6,310 Grain......................................... 1,327 1,302 1,889 1,379 1,577 Cooking coal.................................. 973 603 999 627 835 Pig iron...................................... 1,774 1,867 2,081 1,662 1,433 Fertilizers................................... 292 405 334 180 358 Other......................................... 1,339 3,023 4,770 4,485 3,858 ------ ------ ------ ------ ------ Total.................................... 84,698 80,147 89,351 66,090 63,511 ====== ====== ====== ====== ======
Ponta da Madeira Marine Terminal. The Ponta da Madeira marine terminal complex is located near the port of Sao Luis in the state of Maranhao. The Ponta da Madeira port facilities can accommodate two 70 vessels. Pier I can accommodate vessels displacing up to 420,000 DWT. Pier II can accommodate vessels of up to 155,000 DWT. The two berths have a maximum loading rate of 16,000 tons per hour at Pier I and 8,000 tons per hour at Pier II. The table below sets forth information on cargo shipped through our Ponta da Madeira marine terminal by tonnage for the periods indicated.
FOR THE NINE MONTHS FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, -------------------------------- -------------------- CARGO 1998 1999 2000 2000 2001 - ----- -------- -------- -------- -------- -------- (IN THOUSANDS OF TONS) CVRD Group Iron ore.................................... 42,921 41,531 46,178 34,068 36,420 Manganese ore............................... 920 787 1,293 985 1,153 Third Party Pig iron.................................... 1,197 1,223 1,533 1,036 1,283 Soy beans................................... 372 451 561 534 607 ------ ------ ------ ------ ------ Total.................................... 45,410 43,992 49,565 36,623 39,463 ====== ====== ====== ====== ======
Other Investments. In September 1994, we licensed the Inacio Barbosa marine terminal, located in the state of Sergipe, near our potash mine. Under the terms of the ten-year agreement we entered into with Sergiportos, a state-owned port company, we receive 40% of the net operating profit of the terminal and must manage the terminal. In May 1998, we entered into a 25-year lease for the Capuaba marine terminal in Vitoria, in the state of Espirito Santo. We shipped 789,000 tons of cargo during the first nine months of 2001 from Capuaba, and 1,833,000 tons of cargo during 2000. In September 1998, we acquired a 50% indirect interest in the lease of the Sepetiba container terminal, operated by Sepetiba Tecon S.A. Companhia Siderurgica Nacional, or CSN, holds the remaining 50% of Sepetiba Tecon. The lease has a term of 25 years and we can renew it for an additional period of 25 years. The price for the concession was approximately US$79 million, of which we have already paid US$33 million. The remainder is due in 276 monthly installments starting after the completion of certain investments by Companhia Docas do Rio de Janeiro required under the concession contract. We expect payments to start in January 2003. Divestitures. In August 2001, we sold our 50% interest in the Rio Doce Pasha marine terminal, located in the port of Los Angeles in Los Angeles, California, to our partner in the joint venture, the Pasha Group, for approximately US$10 million. This marine terminal principally handles imports of steel slabs for California Steel Industries, Inc., or CSI, our steelmaking joint venture located approximately 60 miles inland from the terminal. Shipping Navegacao Vale do Rio Doce S.A., known as Docenave, and its affiliated companies conduct our principal shipping activities. Founded in 1962 to support iron ore distribution, Docenave has since expanded its transportation capabilities to serve foreign and domestic third party customers. We are currently seeking to divest our interests in our dry-bulk shipping business. In September 2001, we reached an agreement to sell six of Docenave's carrier vessels, with a total capacity of 592,240 DWT, to Empresa Naviera Elcano, S.A., a Spanish company, for US$53 million. This transaction closed in February 2002. We intend to sell Docenave's remaining dry-bulk assets in the future, but have reached no agreement regarding this sale to date. Although Docenave's revenues increased by 67% in 2000 compared to 1999, this increase was largely offset by increased operating costs. Docenave reported an operating gain of US$18 million for the first nine months of 2001, and operating loss of US$18 million in 2000, compared to an operating loss of US$35 million in 1999. In addition to Docenave's overall lack of profitability, our 71 decision to sell our dry-bulk shipping fleet is also a result of the significant investment we would have to undertake to replace our existing fleet in the future. In addition to its dry-bulk activities, Docenave regularly operates charter vessels on short and medium-term charters, including an average of approximately 14 vessels in 2001. The table below sets forth information on the cargo our shipping operations transported for the periods indicated.
FOR THE NINE MONTHS FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, -------------------------------- -------------------- CARGO 1998 1999 2000 2000 2001 - ----- -------- -------- -------- -------- -------- (IN THOUSANDS OF TONS) Iron ore CVRD Group.................................. 3,317 1,328 3,058 6,296 5,575 Third party................................. 13,780 12,514 15,608 7,203 6,865 Coal.......................................... 7,986 6,541 7,452 5,117 3,729 Other......................................... 7,175 8,142 9,031 7,019 5,798 ------ ------ ------ ------ ------ Total.................................... 32,258 28,525 35,149 25,635 21,967 ====== ====== ====== ====== ======
Major customers of Docenave include steelmakers (iron ore exports), Alunorte (domestic bauxite purchases) and Brazilian steelmakers (coal imports). Competition in the logistics industry The lower costs of rail transport compared to road transport costs in the routes served by the Carajas railroad restrict the competition. Competition with the Vitoria-Minas railroad is limited with respect to its principal minerals and bulk products cargo due to the comparative cost advantage of rail transport over road transport for the same routes. The local trucking industry provides competition for the Vitoria-Minas railroad with respect to non-bulk cargo. The Centro-Atlantica railroad competes primarily with an established trucking industry to carry freight in the region it serves. The Ponta da Madeira marine terminal does not face any significant competition due to its geographic distance from other comparable marine terminals and to its direct link with the Carajas railroad. The Tubarao/Praia Mole marine terminal faces limited competition for most types of cargo due to its direct link with the Vitoria-Minas railroad. However, with respect to some types of cargo and origins, it encounters competition from the port of Rio de Janeiro and the port of Santos. Our shipping services compete with a wide variety of international bulk shipping companies. Competition for tonnage can be quite intense. It depends principally on price, as well as the size, age, condition and acceptability of a vessel and its operator to the customer. Varying economic factors can cause wide swings in freight rates and sudden shifts in traffic patterns. Vessel redeployment and new vessel construction can also lead to an overcapacity of vessels offering the same service or operating in the same market. 72 ENERGY In 2001 and 2000, we consumed 12.5 TWh and 13.8 TWh of electricity, respectively. Energy management and supply has become a priority for us, driven both by the Brazilian government's privatization program of the industry, and by the risk of rising electricity prices and electricity rationing due to energy shortages, such as the one Brazil experienced in the second half of 2001. We currently perceive favorable investment opportunities in the Brazilian electricity sector and are taking advantage of them to invest in the hydroelectric power generation projects discussed below. These projects will sell their production to third parties in the power market, and, as a result, our energy department will be engaged in wholesale marketing activities. Our energy business is comprised of the sale but not the delivery of electricity. We may use some of the electricity from these projects for our internal needs. As we are a large consumer of electricity, we expect that investing in the energy business will help protect us against electricity price volatility. We are entering the energy business through the following investments: [CVRD ENERGY FLOW CHART] Among our partners in these investments, Companhia Energetica de Minas Gerais, known as Cemig and Companhia Estadual de Energia Eletrica, known as CEEE, are state-government controlled companies. Cemig Capim Branco Energia S.A. is an affiliate of Cemig. Alcan Aluminio do Brasil Ltda., known as Alcan, is an affiliate of Alcan Inc. Comercial e Agricola Paineiras Ltda., known as Paineiras, is an affiliate of Suzano Participacoes S.A. Petroleo Brasileiro S.A., known as Petrobras, is controlled by the Brazilian government. Billiton Metais S.A. is a wholly-owned subsidiary of BHP Billiton. Serra de Mesa Energia S.A., known as Serra da Mesa, is an affiliate of the VBC Group, which includes Votorantim Participacoes S.A., Banco Bradesco S.A. and Camargo Correa S.A. Companhia Mineira de Metais, known as CMM, and Votorantim Cimentos S.A. are affiliates of Votorantim Participacoes S.A. Alcoa Aluminio S.A., known as Alcoa, is an affilate of Alcoa Inc. Mineracao Morro Velho Ltda., known as MMV, is an affiliate of Anglo American Brasil Ltda., which in turn is affiliated with Anglo American PLC. Companhia de Tecidos do Norte de Minas, known as Coteminas, is affiliated with Coteminas International Ltd. 73 The table below sets for the information regarding our power generation projects.
OUR TOTAL OUR TOTAL PROJECTED OUR OWNERSHIP PROJECTED INVESTMENT AS OF INVESTMENT AS OF PROJECT COMMENCEMENT OF OPERATIONS INTEREST CAPACITY SEPTEMBER 30, 2001 DECEMBER 31, 2002 - ------- -------------------------- ------------- --------- ------------------ ------------------- (PERCENT) (IN MW) (IN MILLIONS OF US$) Igarapava(1)............. January 1999 38.1% 210 US$87.94 US$88.07 Porto Estrela(2)......... September 2001 33.3 112 19.05 19.71 Aimores(3)............... December 2003(6) 51.0 330 14.07 75.40 Candonga(3).............. November 2003(6) 50.0 140 6.60 25.65 Funil(1)................. December 2002(6) 51.0 180 15.96 41.62 Capim Branco I(4)........ September 2004(6) 48.4 240 0.092 15.06 Capim Branco II(4)....... February 2005(6) 48.4 210 0.131 7.55 Foz do Chapeco(5)........ July 2006(6) 40.0 855 -- 18.18 Santa Isabel............. July 2006(6) 43.9 1,087 -- --
- --------------- (1) Located in Rio Grande, on the border between Sao Paulo and Minas Gerais. (2) Located in Santo Antonio river, in the state of Minas Gerais. (3) Located in Rio Doce basin, in the state of Minas Gerais. (4) Located in Araguari river, in the state of Minas Gerais. (5) Located in Uruguai river, on the border of the states of Santa Catarina and Rio Grande do Sul. (6) Projected date of commencement of operations of the first unit of the project. Our total investment in the hydroelectric projects at Igarapava, Porto Estrela, Funil, Candonga, Aimores, Capim Branco I, Capim Branco II and Foz do Chapeco is estimated at US$504 million. We cannot assure you that the aggregate cost will not escalate or that the projects will be completed on schedule. Due to the energy shortage in the second half of 2001, and in response to the Brazilian government's energy rationing program, we temporarily reduced our aluminum and ferro-alloy production. For a description of these measures, see "Risk Factors -- Risks Relating to Brazil -- The Brazilian government's energy rationing program could adversely affect us," "-- Ferrous Minerals -- Manganese and Ferro-Alloys," "-- Holdings -- Aluminum Business -- Aluminum -- Albras" and "-- Holdings -- Aluminum Business -- Aluminum -- Valesul." HOLDINGS Our holdings are comprised primarily of our aluminum operations, our pulp and paper business and our interests in the steel industry. We are currently selling our pulp and paper business, as well as some of our interests in the steel industry. 74 The table below sets forth information regarding our holdings revenues and sales by geographic market for the periods indicated.
FOR THE YEAR ENDED DECEMBER 31, ----------------------------------------------------------------- 1998 1999 2000 ----------------- ----------------- ------------------------- PULP & PULP & PULP & PAPER ALUMINUM PAPER ALUMINUM PAPER ALUMINUM STEEL ------ -------- ------ -------- ------ -------- ----- Export market Latin America....... US$-- US$105 US$ -- US$ 5 US$ -- US$ 23 US$-- Europe.............. 43 269 39 146 48 237 -- Middle East......... -- -- -- -- -- 16 -- Japan............... -- -- -- 94 -- 34 -- United States....... 37 44 62 23 73 39 -- Asia, other than Japan............. -- -- -- 50 -- 2 -- Others............... -- 1 -- -- -- -- -- ----- ------ ------ ------ ------ ------ ---- 80 419 101 318 121 351 -- Domestic sales....... 8 65 10 62 21 12 1 ----- ------ ------ ------ ------ ------ ---- US$88 US$484 US$111 US$380 US$142 US$363 US$1 ===== ====== ====== ====== ====== ====== ==== FOR THE NINE MONTHS ENDED SEPTEMBER 30, ----------------------------------------------------- 2000 2001 ------------------------- ------------------------- PULP & PULP & PAPER ALUMINUM STEEL PAPER ALUMINUM STEEL ------ -------- ----- ------ -------- ----- Export market Latin America....... US$ -- US$ 17 US$-- US$-- US$ 8 US$-- Europe.............. -- 172 -- 7 161 -- Middle East......... -- 16 -- -- -- -- Japan............... -- 34 -- -- -- -- United States....... 114 34 -- 42 33 -- Asia, other than Japan............. -- 1 -- -- 23 -- Others............... -- -- -- -- -- -- ------ ------ ---- ----- ------ ---- 114 274 -- 49 225 -- Domestic sales....... 9 11 1 7 1 -- ------ ------ ---- ----- ------ ---- US$123 US$285 US$1 US$56 US$226 US$-- ====== ====== ==== ===== ====== ====
Aluminum Business We conduct our aluminum business as follows: [CVRD ALUMINUM FLOW CHART] Our wholly-owned subsidiary, Aluvale, manages our aluminum operations through participation in joint ventures that engage in: - mining bauxite, - refining bauxite into alumina, and - using alumina to produce primary aluminum and aluminum alloys. 75 Aluvale's principal operating activity consists of marketing the aluminum produced by Albras -- Aluminio Brasileiro S.A., or Albras, and Valesul Aluminio S.A., or Valesul. Gross revenues from aluminum products totaled US$224 million in the first nine months of 2001, and US$362 million in 2000. Bauxite MRN, the largest bauxite producer in Latin America and one of the largest in the world, produces bauxite for sale to its joint venture partners. Excess production may be sold to third parties. MRN operates two open-pit bauxite mines which produce high quality bauxite. In addition, MRN controls substantial additional high quality bauxite resources which it believes can be produced economically in the future. MRN had net revenues of US$148 million and net income of US$53 million in the first nine months of 2001, and net revenues of US$217 million and net income of US$91 million in 2000. MRN's mines are located in the northern region of the state of Para. The table below sets forth information regarding MRN's bauxite reserves at December 31, 2000. The estimates of mineral reserves have been audited and verified by MRDI.
PROVEN AND PROBABLE RESERVES(1) ------------------------ MINE TYPE ORE TONNAGE GRADE - ---- -------- ------------ --------- (IN MILLIONS (% AL203) OF TONS) Mineracao Rio do Norte(2)................................... Open pit 166.8 50.5
- --------------- (1) Reported as recoverable product. (2) Includes two active mines. Operations at MRN's mines commenced in 1979 and are projected to exhaust in 2016 at 2000 production levels. For the first nine months of 2001 and 2000, and for the years 2000, 1999, and 1998, production equaled 7.9 million, 8.2 million, 11.2 million, 11.0 million, and 10.1 million tons, respectively. MRN operates ore beneficiation facilities at its mines, which are connected by rail to a loading terminal and port facilities on the Trombetas River. The Trombetas River is a tributary of the Amazon River, and MRN's port facilities can handle vessels of up to 50,000 DWT. MRN owns and operates the rail and the port facilities serving its mines. The MRN bauxite mines are accessible by road from the port area and obtain electricity from their own thermoelectric power station. MRN is undertaking an expansion of its capacity from 11.0 million tons to 16.3 million tons in 2003. The cost of this expansion is estimated at US$206 million. Alumina Alunorte began operations in July 1995 and produces alumina by refining bauxite which MRN supplies. The Alunorte plant has a production capacity of 1.5 million tons of alumina per year. In the first nine months of 2001 and in 2000, it produced 1.2 million and 1.6 million tons, respectively. Alunorte sells the major portion of its production to Albras, Valesul and Aluvale for the production of aluminum. The Alunorte plant is located near Belem in the state of Para next to Albras's aluminum production facilities. This allows Alunorte and its principal customer to share infrastructure and other resources. Alunorte had net revenues of US$227 million and a net loss of US$79 million in the first nine months of 2001 and net revenues of US$322 million and net income of US$23 million in 2000. With the exception of MRN, each Alunorte joint venture partner must purchase on a take-or-pay basis all alumina produced by Alunorte in proportion to its respective interest. MRN also has the right, but not the obligation, to purchase its share of Alunorte's production. The joint venturers each pay the same price, which is determined by a formula based on prevailing world market prices of alumina and aluminum. In the aggregate, we are committed to take-or-pay 465,816 metric tons per year of alumina 76 produced by Alunorte, which at a market price of US$194.17 per metric ton at September 30, 2001, represents an annual commitment of US$90 million. In 2000, Alunorte's partners agreed to contribute an additional US$126 million in equity capital to expand Alunorte's capacity from 1.5 million tons of alumina per year to 2.3 million tons by 2002, a project which is expected to cost approximately US$280 million. Our share of this contribution is US$42 million to be paid over six installments. Due to this contribution, our equity interest in Alunorte will be diluted to 44.4% of the total capital by 2002, although our voting interest will remain unchanged at 50.3%. Aluminum Albras and Valesul each produce aluminum using alumina which Alunorte supplies. Alunorte has supplied all of Albras's alumina requirements since October 1995. Albras produces aluminum ingots and Valesul produces aluminum ingots, slabs, bars, billets and alloys. Aluminum is produced from alumina by means of a continuous electro-chemical process which requires substantial amounts of electricity. Albras The Albras plant is one of the largest aluminum plants in Latin America, with a capacity of approximately 406,000 tons per year. Albras started its operations in 1985 at a plant located near Belem in the state of Para. Albras had net revenues of US$383 million and a net loss of US$72 million in the first nine months of 2001, and net revenues of US$551 million and net income of US$129 million in 2000. The Albras joint venture partners must purchase on a take-or-pay basis all aluminum produced by Albras in proportion to their ownership interests which represents an annual commitment from us of US$275 million. See note 15(d) to our consolidated financial statements. We generally market our share of Albras's output in international export markets. The table below sets forth information regarding Albras's recent aluminum production and our recent purchases from Albras.
FOR THE FOR THE YEAR ENDED NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, ------------------------- ------------------ ALUMINUM 1998 1999 2000 2000 2001 - -------- ----- ----- ----- ----- ----- (IN THOUSANDS OF TONS) Albras production.............................. 342.0 358.0 366.0 275 261 Our purchases from Albras...................... 174.0 183.0 187.0 140 133
At September 30, 2001, Albras had US$583 million of long term outstanding debt, of which US$210 million was denominated in Japanese yen (approximately 57% of which was hedged into U.S. dollars). To reduce the impact of price fluctuations and to assure adequate cash flow, Albras engages in hedging activities from time to time, usually through one-year forward sales. For more information on these hedging activities, see "Management's Discussion and Analysis of Financial Conditions and Results of Operations -- Market Risk -- Commodity Price Risk." In 2001, Albras obtained a financing package with BNDES aimed at financing the expansion of the Albras plant from a capacity of approximately 366,000 tons per year to a capacity of approximately 406,000 tons per year. In 2001, Albras invested US$25.5 million in this expansion project, which was completed in the fourth quarter of 2001. The total cost of this project was US$55 million. Consequently, Albras' production capacity increased by 40,000 tons. Electricity. The production of aluminum requires a continuous flow of substantial amounts of electricity. Albras purchases electrical power from Eletronorte, a state-owned electric power utility. Eletronorte generates electricity at the Tucurui hydroelectric power plant located on the Tocantins river. This plant is the sole source of electrical power in the region in the quantities required for Albras's operations. Albras consumes approximately one-quarter of the constant (year round) output of the Eletronorte plant. 77 We currently benefit from a contract between Albras and Eletronorte pursuant to which Albras is able to purchase electricity at favorable rates. This contract is scheduled to expire in 2004. We cannot assure you that we will be able to renew this contract on the same or similarly favorable terms. We, together with other aluminum producers in the region, are currently investigating alternative electricity sources. For a detailed description of our investments in alternative electricity sources, see "-- Our Lines of Business -- Energy." Due to the energy shortage and the Brazilian government's energy rationing program which required an energy consumption decrease of 25% for aluminum related activities, we reduced 2001 aluminum production at Albras by 46,000 tons to 333,000 tons from the previously planned 379,000 tons. Despite this mandatory temporary reduction, we continue to pursue our long-term plan to expand our aluminum operations. In January 2002, Albras began operating at full production capacity, which has increased to 406,000 tons following the completion of the Albras plant expansion project. For information on the risk associated with the Brazilian government's energy rationing program, see "Risk Factors -- Risks relating to Brazil -- The Brazilian government's energy rationing program could adversely affect us." Valesul Valesul started its operations in 1982 and operates a plant located in the state of Rio de Janeiro. Valesul produces primary aluminum and aluminum alloys in the form of ingots, slabs, bars and billets. Valesul's aluminum is sold primarily in the domestic Brazilian market on a spot basis. Valesul had net revenues of US$103 million and a net income of US$15 million in the first nine months of 2001, and net revenues of US$148 million and net income of US$21 million in 2000. The table below sets forth information regarding Valesul's primary aluminum production, third party scrap recycled by Valesul and our recent tolling acquisitions from Valesul.
FOR THE FOR THE YEAR ENDED NINE MONTHS ENDED DECEMBER 31, SEPTEMBER 30, ---------------------- ------------------ ALUMINUM 1998 1999 2000 2000 2001 - -------- ---- ---- ---- ----- ----- (IN THOUSANDS OF TONS) Valesul production............................... 93.6 91.7 93.8 68.5 61.2 Third party scrap recycled....................... 15.4 20.1 19.5 14.4 15.3 Our acquisitions from Valesul.................... 59.8 50.7 -- -- --
At the end of 1999, Aluvale and Billiton, Valesul's shareholders, decided to terminate the tolling agreement in force since 1987. Consequently, since January 1, 2000, Valesul independently purchases its raw material requirements and operates as a company in its own right. Electricity. Valesul currently obtains approximately 20% of its electrical energy requirements from four of our hydroelectric power plants located in the state of Minas Gerais and the remainder from a third party power company at market rates. The Brazilian federal power system uses a two-tiered (peak and off-peak) rate structure, with electricity during peak hours costing considerably more than off-peak electricity. Valesul has invested substantial amounts to reduce its electricity cost during peak hours. If its initiatives are successful, Valesul could realize substantial cost savings in producing aluminum. To address Valesul's need for reliable electrical power sources, we have built a ten megawatt hydroelectric power plant at Rio Preto in the state of Minas Gerais, which began operations in October 1997. Valesul is also a participant in another power plant, known as Machadinho, that will be operational in 2002 and will ensure a self-sufficient power supply in peak hours. Due to the energy shortage and the Brazilian government's energy rationing program which required an energy consumption decrease of 25% for aluminum related activities, we reduced 2001 aluminum production at Valesul by 13,000 tons to 80,000 tons from the previously planned 93,000 tons. Valesul decreased the production of ingots, a commodity traded on the London Metal Exchange. Valesul did not alter the production of higher value added products, such as alloys and billets, that are sold under contracts with customers. Despite this mandatory temporary reduction, we continue to pursue our long- 78 term plan to expand our aluminum operations. For information on the risks associated with the Brazilian government's energy rationing program, see "Risk Factors -- Risks Relating to Brazil -- The Brazilian government's energy rationing program could adversely affect us." Competition in the Aluminum Business Competition in the bauxite export market is based primarily on two key factors: quality of bauxite and reliability of purchasers. We believe that MRN remains competitive in this market because of: - the high quality of Brazilian bauxite, and - our aluminum production system which ensures internal use of our bauxite production. Quality, price and reliability of supply drive competition in the alumina market. We believe that Alunorte is competitive in the alumina market because of: - its proximity to MRN's bauxite mines, - its newly developed refinery facilities, - its efficient port facilities, and - the on-going support of its owners in committing to purchase a substantial portion of its annual production. Aluminum is a commodity and competition is based primarily on the economics of transportation and the costs of production. We believe that Albras is competitive in the aluminum market because of: - its relatively efficient and accessible port facilities, and - its generally prevailing lower costs of production. Pulp and Paper Division We conduct our pulp and paper business as follows: [CVRD PAPER FLOW CHART] In the first half of 2001, we sold our 32% ownership interest in Bahia Sul Celulose S.A., known as Bahia Sul, to our joint venture partner Companhia Suzano de Papel e Celulose, or Suzano, for approximately US$320 million. Under the terms of the acquisition agreement, Suzano agreed to guarantee Bahia Sul's debt of US$116 million. On September 14, 2001, we concluded the sale of our 51.5% stake in Celulose Nipo-Brasileira S.A., known as Cenibra, to the Japanese consortium which held the other 48.5% stake in Cenibra, for US$670.5 million. 79 Our remaining interests in the pulp and paper industry currently consist of our Celmar S.A. joint venture with Japanese partners, and our forestry subsidiary, Florestas Rio Doce S.A. We continue to explore the divestiture of these businesses in order to concentrate on our core mining, logistics and energy businesses. Steel Business We conduct our steel business as follows: [CVRD STEEL FLOW CHART] In line with our strategy to consolidate and focus on mining, logistics and energy, on December 31, 2000 we reached an agreement to unwind our cross holdings with CSN, which we completed in March 2001. Additionally, in December 2000 we exchanged our 2.28% interest in Aco Minas Gerais S.A., or Acominas, a privately held steel company for US$10 million worth of preferred shares of Gerdau S.A., a publicly listed steel holding company, which shares we intend to sell in the future. We might cease owning shares in Usiminas in the future, in which case, our steel investments will be in CST, Siderar, and one steelmaker in the United States, CSI. CSI is the principal purchaser of slabs from CST, with whom we have an exclusive supply contract for iron ore and pellets. In addition, our participation in CSI gives us access to and experience dealing with the U.S. market, where we currently have a very small market share. For these reasons, we intend to hold our investment in CSI. The following table sets forth information on our continuing interests in makers of steel products.
2000 NET INVESTMENT LOCATION 2000 PRODUCTION REVENUES PRINCIPAL PRODUCTS - ---------- ------------- --------------- --------------- -------------------------- (IN MILLIONS OF (IN MILLIONS OF TONS)(1) US$)(2) CSI........................ United States 1.8 721 Hot-rolled steel; cold- rolled steel; galvanized steel; steel tubes CST(3)..................... Brazil 4.9 1,008 Steel slabs Usiminas................... Brazil 4.5 1,224 Hot-rolled steel; cold- rolled steel; heavy steel plates; electro galvanized steel Siderar.................... Argentina 2.3 928 Hot-rolled steel; cold- rolled steel; galvanized steel; tin plates
(1) Production in million of tons of crude steel for all steelmakers except CSI, and in millions of tons of finished products for CSI. (2) Represents amounts translated from local financial statements and converted into U.S. dollars (where applicable) at prevailing year-end exchange rates. 80 (3) We are party to a shareholders' agreement which permits us to participate in a control group. The market value of our investments in CST, Usiminas, and Siderar, all of which have publicly traded equity, was US$135 million at September 30, 2001. The aggregate net book value of these investments was US$79 million at September 30, 2001. The aggregate net book value of our total investments in steel producing companies (including CSI, a privately held company) was US$194 million at September 30, 2001. We earned US$27 million in dividends from these investments in 2000, and US$26 million in the first nine months of 2001. Fertilizers We conduct our fertilizer business primarily through our stake in Fertilizantes Fosfatados S.A., or Fosfertil, a company that produces and sells nitrate and phosphate based fertilizers. Our total and voting interest in Fosfertil is 11.0%. Our main partner in Fosfertil is Fertifos-Administracao e Participacoes S.A. E-Business In 2000, we acquired an ownership interest in Quadrem International Holding Ltd., which operates a global procurement website for the mining and metallurgical industries. Quadrem was launched in the last quarter of 2001. The table below sets forth information regarding share ownership by each company owning more than 5% of the shares in Quadrem:
SHARES PERCENT OF NAME OWNED COMPANY - ---- ------- ---------- Alcan Finances (Bda) Ltd. .................................. 118,782 9% Anglo American Luxembourg S.A. ............................. 118,782 9 BHP Holdings (Resources) Inc. .............................. 118,782 9 Itabira Rio Doce Company Ltd. .............................. 118,782 9 Rio Tinto Overseas Holdings Limited......................... 118,782 9 Alcoa International Holdings Company........................ 79,188 6 Codelco International Limited............................... 79,188 6 Compagnie Generale de Participation Industrielle et Financiere................................................ 79,188 6 Phelps Dodge Corporation.................................... 79,188 6 WMC Resources International Pty Ltd. Corp. ................. 79,188 6
Each of the remaining eleven companies that participate in Quadrem holds 3% or less of the total shares. We have committed to provide US$9 million in funding for Quadrem. All of our partners have also committed to provide funds in proportional amounts relative to their share in Quadrem. In September 2000, we incorporated Valepontocom S.A., a vehicle for development of and participation in e-business. With an initial investment of US$50 million to be made up to the end of 2001, Valepontocom plans to participate in both vertical (industry-specific) and horizontal (goods and services common to all industries) websites, in order to provide negotiation and delivery services to customers using our transportation assets and those of third-parties. In February 2001, Valepontocom launched Solostrata (www.solostrata.com.br), a website that provides a virtual marketplace in which farmers may buy and sell their products. Solostrata seeks to facilitate input and product transactions as well as logistics services. Presently, Solostrata is 100% owned by Valepontocom, but, in the future, it may have additional shareholders. In 2001, we invested US$4.9 million in this new venture. In April 2001, Valepontocom launched Multistrata. Multistrata was designed to create an electronic marketplace for logistics services, particularly railroads, in the Mercosur region. Multistrata operates a website (www.multistrata.com.br) which provides a link between providers of logistics services and their 81 clients, and also provides consulting services relating to logistics. The Multistrata website also provides daily news on the logistics business. During its initial phase, Multistrata will be dealing with the following sectors: agriculture, mining, chemical, steel, cement, pulp and paper and containers logistics. In later stages, it intends to render services to the beverage, food, pharmaceutical and electronics sectors. In Brazil, the Internet industry is not subject to any specific regulation. At September 30, 2001, we had invested US$23 million in our e-business ventures. All e-business related projects are still in the implementation phase and have not generated any revenue to date. We have begun to restructure our e-business. Among other things, we plan to merge Valepontocom into our parent company. Due to the evolving and uncertain nature of e-commerce, we are unable to predict if and when these operations will be profitable. REGULATORY MATTERS MINING Under the Brazilian Constitution, all mineral resources in Brazil belong to the Brazilian government. The Brazilian Constitution requires that mining companies incorporate in accordance with Brazilian law. The Brazilian Constitution and Mining Code impose on mining companies various regulatory restrictions relating to, among other things: - the manner in which mineral deposits are exploited, - the health and safety of workers, - the protection and restoration of the environment, - the prevention of pollution, and - the promotion of local communities where mines are located. Mining companies in Brazil can only prospect and mine for mineral resources pursuant to prospecting authorizations or mining concessions granted by the National Mineral Production Department, Departamento Nacional de Producao Mineral, or DNPM, an agency of the Ministry of Mines and Energy of the Brazilian government. DNPM grants prospecting authorizations to a requesting party for an initial period of three years. These authorizations are renewable at DNPM's discretion for another period of one to three years, provided that the requesting party is able to show that the renewal is necessary for proper conclusion of prospecting activities. On-site prospecting activities must start within 60 days of official publication of the issuance of a prospecting authorization. Upon completion of prospecting activities and geological exploration at the site, the grantee must submit a final report to DNPM. If the geological exploration reveals the existence of a mineral deposit that is economically exploitable, the grantee will have one year (which DNPM may extend) from approval of the report by DNPM to apply for a mining concession or to transfer its right to apply for a mining concession to a third party. When a mining concession is granted, the holder of the concession must begin on-site mining activities within six months. DNPM grants mining concessions for an indeterminate period of time lasting until the exhaustion of the mineral deposit. Extracted minerals that are specified in the concession belong to the holder of the concession. With the prior approval of DNPM, the holder of a mining concession can transfer it to a third party that is qualified to own concessions. In some cases, mining concessions are challenged by third parties. The Brazilian government taxes mining companies on the basis of minerals extracted. It also imposes other financial obligations. For example, mining companies must compensate both private property owners for damage and loss of income caused by use and occupation of land and state or municipal governments where the mine is located. In the case of mining on private lands, mining companies must share production with landowners. A substantial majority of our mines and mining concessions are on lands owned by us or on public lands for which we hold mining concessions. 82 ENERGY Under the present regulatory structure, the power industry in Brazil is comprehensively regulated by the Brazilian government, acting through the Ministry of Mines and Energy and ANEEL, the Brazilian electricity regulatory governmental agency. The role of the Ministry of Mines and Energy is to develop policies and regulations aimed at organizing and regulating the electricity sector. ANEEL's main function is to ensure the efficient and economical supply of energy to consumers by monitoring prices and promoting market competition. Under Law No. 8,987, concessions grant exclusive rights to generate and transmit or to distribute electricity in a particular area for a period of time that, in the opinion of ANEEL, is sufficient for the concessionaire to recover its investment, up to a limit of 35 years in the case of concessions for power generation. Concessions may be renewed at ANEEL's discretion for an additional period of equal duration. Concessionaires are required to supply electricity for public services at the established prices, on a continuing basis, in sufficient quantity and within approved standards of quality. To mitigate the potential volatility of revenues for hydroelectric generators, ANEEL has implemented regulations that create the Energy Reallocation Mechanism, known as ERM, a mechanism for sharing hydrological risk among all generators. In order to implement the ERM, ANEEL designates a level of energy production, known as Assured Energy, for each generator, every five years. Assured Energy is calculated in accordance with a statistical model based on average rainfalls in the relevant region, water flows of rivers and water levels in each plant's reservoir over a multi-year time frame. Each generator is promised payment for the amount of its Assured Energy, as long as ERM members as a whole are able to meet ERM Assured Energy levels. To the extent a generator has signed contracts for the sale of its Assured Energy, it receives payments based on these contractual terms, regardless of its level of actual generation. Each generator is allowed to enter into contracts to sell up to 100% of its Assured Energy. If all ERM members meet their contracted energy and there is still produced energy remaining, then there will be an allocation of the net regional surplus generation among generators in different regions. Energy will be traded in the wholesale energy market, or MAE, at the price prevailing in the region in which the energy has been generated. MAE is the legal entity responsible for the operation of the wholesale energy market and seeks to ensure that purchases of energy in the short-term market are settled and cleared in an efficient manner. Originally created as a self-regulatory body, on February 22, 2002, MAE became a legal entity under supervision and regulation by ANEEL, due to MAE's failure in implementing a self-regulated energy market. MAE is expected to compute the spot price for energy according to guidelines that are currently in use and available to the public. The spot price is determined by the marginal cost of production according to market conditions and a number of policy and operational considerations, including the optimal use of resources, transmission bottlenecks, the costs of an energy deficit, the self-restraint of customers caused by a high spot price and projected energy requirements. The concepts of Assured Energy and the ERM, together with bilateral contracts between generators and distributors, determine the annual revenues for each generator. Initial contracts between generators and distributors are power purchase agreements in which the parties agree to purchase and sell energy at tariffs set forth by ANEEL. Initial contracts will be valid and binding during a transition period until price deregulation is completed, when they will be fully replaced by bilateral contracts. Bilateral contracts between generators and distributors may be freely negotiated at any price level and with any form of pricing adjustment, subject to compliance with certain Brazilian legal requirements governing generally permissible indexation mechanisms in contracts. ENVIRONMENTAL MATTERS Federal, state and municipal legislation contain provisions for the control and protection of the environment in Brazil. These laws oversee the use of natural resources, the reclamation and restoration of mined areas, the control of atmospheric emissions, the treatment of industrial effluents, as well as the use, 83 handling and final disposal of hazardous materials. It is possible that current environmental regulations will become more strict in the future. The strengthening of these laws may lead to greater costs for environmental compliance. In order to conduct our mining, energy generation and industrial activities, we must prepare environmental impact assessments and submit them to authorities who oversee the granting of environmental permits. We are committed to complying with all legal requirements and to achieving the best relationship with the interested parties, especially the communities located near its operational activities. The implementation of the environmental management system in all of our installations and operations provides a systematic approach for the improvement of the legal compliance and the environmental performance of our activities. Under Brazilian Federal Law No. 9,605, non-compliance with environmental laws and regulations can result in criminal penalties, such as imprisonment and other restrictions on personal rights for individuals (including directors, officers and managers of companies), and fines and the mandatory rendering of public services by companies. Administrative penalties range from warnings and fines to the suspension of corporate activities, and may also include the loss or reduction of the incentives, or the cancellation or interruption of credit facilities granted by governmental institutions. Issuance of Environmental Licenses. We must obtain environmental licenses in order to build, install, expand and operate facilities that use natural resources or may pollute the environment. Our environmental policies aim to obtain the legally required licenses for each of our facilities and activities. We have entered into agreements with the appropriate environmental authorities with respect to facilities where environmental non-compliance has been detected in order to make these facilities compliant. Prevention and Environmental Control Measures. Our environmental policies also aim to prevent, control and reduce the environmental impact caused by our business operations. To that end, we have made significant environmentally-related investments in our facilities and in employee training programs (approximately US$22.7 million in 2000). We are also investing in the development of environmental projects directed at the communities located near our operational facilities (approximately US$1.6 million in 2000). In 1996, we developed an environmental management program which will be implemented in all of our installations and operations. This program provides a systematic approach to the improvement of the legal compliance and the environmental performance of our activities, and further acknowledges our commitment to high environmental standards. The following operational facilities have obtained the International Standards Organization ("ISO") certification No. 14001: - Mineral Development Center, located in the state of Minas Gerais; - iron and manganese mines located in Carajas, in the state of Para; - mining complex of Timbopeba, located in Mariana, in the state of Minas Gerais; and - Ponta de Madeira marine terminal, located in the state of Sao Luis. Principal Environmental Projects. From 1994 to 2000, we developed an environmental program involving more than 70 projects, with a total investment of approximately US$120 million, of which US$50 million were financed by the World Bank. One of these projects, intended to reduce the atmospheric emissions from the Tubarao Marine terminal complex, has resulted in an enhancement of the air quality of the region (in the state of Espirito Santo), by reducing the total emission of particles by 62%. With respect to improvements in water quality, we are currently developing several projects, including: - control of the pollutants disposed into the sea and into the local rivers as well as proper use, handling and final disposal of hazardous materials into the Tubarao/Praia Mole marine terminal; 84 - collection and treatment of the industrial effluents created by the washing and maintenance of cars and wagons operated in the Vitoria Minas and in the Carajas railroads; and - collection and treatment of industrial effluents disposed in the sea in the Ponta da Madeira marine terminal. Our environmental program also includes reforestation projects which are intended to protect the soil against erosion processes, such as the Green Aisle Program (Programa Corredor Verde) at our Vitoria Minas railroad. We are also pursuing other legally-required projects in connection with the restoration of lands degraded in the course of our mining operations. Environmental laws require us to spend at least 0.5% of the total cost of each venture with a material environmental impact to create and maintain protected sites. PATENTS AND TRADEMARKS We hold a significant number of patents, registered with the U.S. Patent and Trademark Office, and with the Brazilian Instituto Nacional de Propriedade Industrial, or INPI, governmental agencies responsible for the granting and registration of patent and trademarks rights in the United States and in Brazil, respectively. The majority of our patents relate to proprietary ore dressing processes. One of our most successful patents relates to a concentration process for lower grade iron ore, generally known as itabirite, which is widely used by other iron ore mining companies around the world. We are currently conducting technological research to permit commercial exploitation of our deposits of hard itabirites. We have registered the "CVRD" trademark and our proprietary logo with the INPI related to the following categories: - minerals in general, - geology, prospecting, topography, photogrammetry, oceanography and land survey services, - processing, treatment and dressing services in general, - cargo transport services, - ancillary services to transportation and warehousing, and - research and analysis services of material for industrial purposes. We renew our trademark registrations with the INPI every ten years. INSURANCE We carry insurance covering various types of risks, such as general liability, liability of officers and directors, automotive vehicles, fire, operational risks, operational risks of marine terminals and transportation of precious minerals, as well as group life insurance policy, insuring our employees. The policies are currently in full force and the related premiums were duly paid. We believe that our insurance coverage is adequate for the scope of our operations. 85 EMPLOYEES The table below sets forth the number of our employees by category at the dates indicated.
AT DECEMBER 31, ------------------------ 1999 2000 2001 ------ ------ ------ Mining (other than gold).................................... 4,478 4,948 6,141 Transportation.............................................. 4,514 4,525 4,605 Gold........................................................ 588 555 528 Other operational(1)........................................ 504 511 608 Administrative.............................................. 659 903 1,522 ------ ------ ------ Total.................................................. 10,743 11,442 13,404 ====== ====== ======
- --------------- (1) Does not include pelletizing, aluminum, or pulp and paper joint venture employees. We establish our annual wage and benefits programs in July of each year following negotiations with our unions. In July 2001, our final proposals to our unions included a 6% salary increase, additions to the list of available medications, provisions for college materials for employees and annual bonus amounts. The provisions of our collective bargaining agreements with our unions also apply to our non-union employees. We have not suffered any material economic loss as a result of labor strikes or stoppages. Since 1973 we have sponsored a defined benefit pension plan, known as the old plan, covering substantially all employees, with benefits based on years of service, salary and social security benefits. This plan is administered by VALIA, and is funded by monthly contributions we and our employees make, calculated based on periodic actuarial appraisals. In May 2000, we implemented a new pension plan, which is primarily a defined contribution plan with a benefit feature relative to service prior to May 2000, known as the new plan, and offered our active employees opportunity to transfer to the new plan. Over 98% of our active employees opted to transfer to the new plan. The old plan will continue in existence, covering almost exclusively retired participants and their beneficiaries. In the first nine months of 2001 and 2000, we contributed approximately US$17 million and US$37 million, respectively, to VALIA to fund the new plan and the old plan. In addition, on March 9, 2001 we transferred our 10.3% interest in shares of Companhia Siderurgica Nacional to the new plan, as a special contribution valued at US$249 million, equivalent to the value of such shares (determined based on their weighted average price in the last thirty trading sessions on the Sao Paulo Stock Exchange during the period ended on March 9, 2001). We also provide scholarships and apprenticeships at our corporate vocational centers. We believe our relations with our union employees and other employees are good. Our employees have an equity stake in our business. On May 20, 1997, in connection with our ongoing privatization, the Brazilian government completed the sale of 11,120,919 common shares and 8,744,308 preferred shares to Investvale, an association of our current and retired employees and certain affiliates, at per share prices representing substantial discounts to prevailing market prices. LEGAL PROCEEDINGS We and our subsidiaries are defendants in numerous legal actions in the normal course of business, including civil, administrative, tax, social security and labor proceedings. We have set aside or deposited in court amounts to cover estimated contingency losses due to adverse legal judgments. Based on the advice of our legal counsel, we believe that the provision made against contingent losses is sufficient to cover probable losses in connection with such actions. Conselho Administrativo de Defesa Economica, known as CADE, the Brazilian antitrust regulator, has been conducting inquiries into our principal lines of business to determine whether undue concentration exists in our respective industries. One of such inquiries that CADE made was in the context of our 86 privatization and involved our railroad system. In November 2001, CADE issued a favorable opinion regarding this matter, on condition that we periodically provide certain financial information to CADE and to the Ministry of Transportation. Numerous lawsuits challenging the legality of our privatization are pending, including a number of class-action lawsuits. We do not believe that, individually or in the aggregate, these actions will adversely affect the course of the privatization process or otherwise have a material adverse effect on us. We are currently a defendant in two separate actions brought by the municipality of Itabira, in the state of Minas Gerais. It alleges that our Itabira iron ore mining operations have caused environmental and social damages. In one of the actions, filed in August 1996, the municipality of Itabira alleges that our Itabira iron ore mining operations have caused environmental and social damages and claims damages with respect to the degradation of the site of one of our mines, as well as the immediate restoration of the affected ecological complex and the performance of compensatory environmental programs in the region. The damages sought, as adjusted from the date of the claim, amount to approximately US$535 million. We believe that this amount is significantly higher than the amount we would actually be responsible for in the event that we were found liable. We have requested the annulment of this action as it represents no actual controversy. In fact, on June 5, 2000, the local environmental authorities granted an operating license to our Itabira iron ore mining operations. This license sets forth conditions regarding the environmental restoration of the degraded site and the performance of compensatory environmental programs. We intend to continue complying with these conditions. In the other action, the municipality of Itabira is claiming the right to be reimbursed for expenses it has incurred in connection with public services rendered as a consequence of our mining activities. We believe that this action is without merit. We are vigorously defending both pending actions. We have been subpoenaed as a defendant in a public civil action seeking to annul the concession agreement through which we and certain other defendants operate the Praia Mole port terminal. The case is in its initial stages and we believe that the claim is without merit. 87 MANAGEMENT EXECUTIVE OFFICERS The executive officers are our legal representatives and are responsible for our internal organization and day-to-day operations and the implementation of the general policies and guidelines set forth by the board of directors. Our by-laws provide for a minimum of three and a maximum of six executive officers. The board of directors appoints executive officers for three-year terms and may remove them at any time. According to the Brazilian Corporation Law and to our by-laws, executive officers must be Brazilian residents. The executive officers hold regularly scheduled meetings on a weekly basis and hold additional meetings when called by any executive officer. We are in the process of revising our corporate governance model in order to, among other things, improve the efficiency of our decision-making process. We are also defining metrics of value creation, which will improve the transparency in our communications with our investors. On April 7, 1999, the general meeting approved an amendment to our by-laws to alter the structure of the executive officers' board. As a result, we now have one chief executive officer and up to five executive officers, each responsible for business areas that the board of directors assigns to them. On October 24, 2001, the board of directors approved a new management structure with the following areas: - Ferrous Minerals, - Non-Ferrous, - Holdings and Business Development (including energy), - Logistics, - Finance and Investor Relations, - Planning and Control, and - Human Resources and Corporate Services. The table below lists our current executive officers.
YEAR OF NAME APPOINTMENT POSITION AGE - --------------------------------------- ----------- ------------------------------------ --- Roger Agnelli.......................... 2001 Chief Executive Officer 42 Armando de Oliveira Santos Neto........ 2001 Executive Officer (Ferrous Minerals) 51 Antonio Miguel Marques................. 2001 Executive Officer (Holdings and 44 Business Development and Non-Ferrous) Guilherme Rodolfo Laager............... 2001 Executive Officer (Logistics) 45 Gabriel Stoliar........................ 2001 Executive Officer (Finance, Investor 47 Relations and Planning and Control) Carla Grasso........................... 2001 Executive Officer (Human Resources 40 and Corporate Services)
We have summarized below the experience, areas of expertise, and principal outside business interests of our current executive officers. Roger Agnelli. Since July 2001, Mr. Agnelli has been our chief executive officer. He served as chairman of our board of directors from May 2000 to July 2001. He also served as a member of the board of directors of VBC Energia S.A., Companhia Paulista de Forca e Luz, Companhia Siderurgica Nacional (CSN), Brasmotor S.A., Globo Cabo S.A. and Latas de Aluminio S.A. He also served as the chief executive officer of Bradespar S.A. from March 2000 to July 2001. Mr. Agnelli worked for 22 years with Banco Bradesco S.A., where he started his career as an investment analyst and served 88 as Executive Director from 1992 to 2000. Mr. Agnelli has a degree in Economics from Fundacao Alvares Penteado. Armando de Oliveira Santos Neto. Mr. Santos was appointed as an executive officer of our ferrous minerals area in October 2001. Since 1970, Mr. Santos has held many different positions within the CVRD Group, including trainee at the railway division, assistant to the chief executive officer, marketing manager and executive officer at Rio Doce America, Inc., or RDA, sales manager of the Far East area, coordinator for planning and sales promotion, general manager and director of Rio Doce International S.A., or RDI, general sales manager and executive officer of the iron ore division, commercial officer and executive officer of RDA and member of the board of directors of CSI. Mr. Santos has a degree in civil engineering from the Universidade Federal do Espirito Santo (UFES). Antonio Miguel Marques. Mr. Marques was appointed as an executive officer of our holdings, business development and non-ferrous minerals area in October 2001. Currently, Mr. Marques is Chief Executive Officer of Aluvale and a member of the board of directors of Celmar, Albras, Alunorte, MRN and Valesul. Prior to that, Mr. Marques has held various positions at Caraiba Metais S.A. Industria e Comercio, DuPont do Brasil S.A., Billiton Metais S.A., Paranapanema Group and Votorantim Group. Mr. Marques has a degree in engineering from the Universidade Federal de Ouro Preto. He received his post-graduate degree in Mineral Treatment at the Universidade Federal de Minas Gerais (UFMG) and obtained an MBA from COPPEAD, at Universidade Federal do Rio de Janeiro (UFRJ). Guilherme Rodolfo Laager. Mr. Laager was appointed as an executive officer of our logistics area in September 2001. Mr. Laager served as logistics, supplying and technological information director for AMBEV, Companhia de Bebidas das Americas from 1989 until August 2000. Mr. Laager has a degree in civil engineering from the Universidade Federal do Rio de Janeiro (UFRJ) and obtained an MBA in business administration from COPPEAD, also at UFRJ. Gabriel Stoliar. Since April 14, 1999, Mr. Stoliar has served as our chief financial officer and as our chief accounting officer. In September 1997, he was appointed as an executive officer of the corporate center and investor relations area. In 1994, he was appointed director of BNDESPAR. In 1991, Mr. Stoliar assumed the position of superintendent of the operational division responsible for the areas of mining, metallurgy, chemicals, petrochemicals, pulp and paper. He was hired by BNDESPAR in 1988 as manager of operations in the area of capital, electronic and consumer goods. In 1982, he was promoted to manager of BNDES for the project area of FINSOCIAL. In 1978, he was hired by BNDES as an analyst in the area of pulp, paper and petrochemicals. Mr. Stoliar began his career as a business organization consultant at the Institute of Economic and Management Development of the Federation of Industries of Rio de Janeiro. Mr. Stoliar obtained an engineering degree from Universidade Federal do Rio de Janeiro, a post-graduate degree in production engineering and an MBA from PDG/EXEC-SDE in Rio de Janeiro. Carla Grasso. Mrs. Grasso was appointed as an executive officer of the human resources and corporate services area in October 2001. Prior to joining us, Mrs. Grasso served as an economic assistant to the President of Brazil. She has also been deputy coordinator of fiscal policy at the Ministry of the Economy and has held a variety of positions at the Ministry of Social Security. In 1997, she was appointed as an executive officer of Fundacao Vale de Rio Doce de Habitacao e Desenvolvimento Social (FVRD). Mrs. Grasso has both a degree in Economics and a master in Economics from Universidade de Brasilia (UNB). BOARD OF DIRECTORS The conselho de administracao, the board of directors, is our decision-making body responsible for determining general guidelines and policies for our business, our wholly-owned subsidiaries and controlled companies, and for formulating and expressing our policies. The board of directors is responsible for supervising the executive officers. It also monitors the executive officers' implementation of the general guidelines and policies. The board of directors holds regularly scheduled meetings on a monthly basis and 89 holds additional meetings when called by its chairman, vice-chairman or any two directors. Decisions of the board of directors require a quorum of a majority of the directors and are taken by majority vote. Under the Brazilian Corporation Law, the board of directors must have at least three members. Each director and his or her respective alternate are elected at a general shareholders' meeting and are subject to removal at any time. Our by-laws state that the board of directors must consist of nine members. Our current employees have the right to appoint one member of the board of directors and his respective alternate. According to our by-laws, members of the board of directors must be Brazilian residents who are both shareholders of CVRD and have managerial experience. Members of the board of directors are elected for three-year terms and can be re-elected. Each alternate director serves on behalf of a specific board member. In the absence of the director for whom an alternate director is acting, that alternate director may attend and vote at meetings of the board of directors. Six of our current directors and five of our current alternate directors were appointed to their positions directly by Valepar, our principal shareholder, pursuant to Valepar's shareholders' agreement and the provisions of the Brazilian Corporation Law. These appointments were approved at our annual general shareholders' meeting held in April 2001. For a description of Valepar's shareholders' agreement, see "Major and Selling Shareholders -- Major Shareholders -- Principal Shareholder." The table below lists the current members of the board of directors.
YEAR FIRST NAME ELECTED POSITION AGE - ----------------------------------------------------- ----------- --------------------- --- Luiz Tarquinio Sardinha Ferro(1)..................... 1999 Chairman of the Board................ 41 Joao Moises de Oliveira(1)........................... 2001 Board Member......... 56 Erik Persson(1)...................................... 2001 Board Member......... 47 Jose Marques de Lima(1).............................. 2000 Board Member......... 44 Octavio Lopes Castello Branco Neto................... 2001 Board Member......... 43 Romeu do Nascimento Teixeira(1)...................... 2001 Board Member......... 69 Renato da Cruz Gomes(1).............................. 2001 Board Member......... 49 Fabio de Oliveira Barbosa............................ 2000 Board Member......... 41 Francisco Valadares Povoa(2)......................... 1997 Board Member......... 56
- --------------- (1) Appointed by Valepar. (2) Appointed by our employees. The table below lists the alternate members of the board of directors. One additional alternate director is to be appointed by Valepar.
YEAR FIRST NAME ELECTED POSITION AGE - ----------------------------------------------------- ----------- --------------------- --- Jose Ricardo do Carmo(1)............................. 2000 Board Member......... 49 Ricardo Carvalho Giambroni(1)........................ 2001 Board Member......... 45 Octavio Mauro Muniz Freire Alves(1).................. 2001 Board Member......... 40 Eleazar de Carvalho Filho............................ 2001 Board Member......... 44 Antonio Joao Martins Torres(1)....................... 2001 Board Member......... 61 Romulo de Mello Dias(1).............................. 2001 Board Member......... 40 Renato Augusto Zagallo Villela dos Santos............ 2001 Board Member......... 46 Otto de Souza Marques Junior(2)...................... 1997 Board Member......... 53
- --------------- (1) Appointed by Valepar. (2) Appointed by our employees. 90 We have summarized below the business experience, areas of expertise, and principal outside business interests of our current directors: Luiz Tarquinio Sardinha Ferro. Mr. Ferro was appointed chairman of our board of directors in July 2001. From May 1999 to July 2001, he served as vice-chairman of our board of directors. From 1996 to 1998, he was President of PREVI -- Caixa de Previdencia dos Funcionarios do Banco do Brasil and executive superintendent of the financial department of Banco do Brasil S.A. In 1995, he was appointed general coordinator of the public accounts management unit, at the Secretariat of the National Treasury. From 1994 to 1995, he participated in an international management program of Banco do Brasil. From 1992 to 1994, Mr. Ferro worked at the Secretariat of the National Treasury. Joao Moises de Oliveira. Mr. Oliveira has served as a member of our board of directors since 2001. From 1962 to 2000, he worked at Banco Bradesco S.A. and at several companies in which Banco Bradesco S.A. has a direct or indirect ownership interest. Since 2000, Mr. Oliveira has been an executive officer at Bradespar S.A. He has served as a member of the board of directors of many companies in which Banco Bradesco or Bradespar have or had a direct or indirect ownership interest, including Companhia Siderurgica Belgo Mineira, Companhia Siderurgica Nacional and Sao Paulo Alpargatas S.A. Erik Persson. Mr. Persson has served as a member of our board of directors since April 2001. Since June 2000, he has been working as a planning director of PREVI. He has been at PREVI since 1977. Jose Marques de Lima. Mr. Lima has served as a member of our board of directors since April 2000. Currently, he also serves as general manager of the risk management unit at Banco do Brasil. In June 1999, he was appointed as an executive officer of PREVI. From 1984 to 1998, he worked for Banco do Brasil holding a variety of positions, including team work coordinator and executive manager of the investor relations department, manager of the market and shareholders division and manager of the financial analysis department. Octavio Lopes Castello Branco Neto. Mr. Castello Branco was appointed as a member of our board of directors in April 2001. He is also a managing director of BNDES. In 1995, he joined J.P. Morgan as head of the investment banking group in Brazil. From 1990 to 1995, Mr. Castello Branco worked at Caemi as the chief financial officer and member of the executive committee. Mr. Castello Branco started his career at J.P. Morgan's Sao Paulo Office in 1983 and has developed an extensive experience in mergers and acquisitions, having managed projects across a number of sectors since the inception of J.P. Morgan's mergers and acquisitions group in Brazil. Romeu do Nascimento Teixeira. Mr. Teixeira has served as a member of our board of directors since April 2001. Mr. Teixeira was also appointed as an executive officer of IESA, Internacional de Engenharia S.A., from 1986 to 1993. Since 1960, he has held many different positions within the CVRD Group. From 1958 to 1960 he worked as an engineer at DNER, Departamento Nacional de Estradas de Rodagem. Renato da Cruz Gomes. Mr. Gomes joined our board of directors in April 2001. He has also been an executive officer of Valepar since April 2001. In 2000, he was appointed as an executive officer of Bradespar. From 1976 through 2000, Mr. Gomes held a variety of positions within BNDES and participated on the boards of directors of many companies, namely Elebra Eletronica, Globo Cabo, Aracruz, Iochpe, Bahia Sul and Latasa. He is also a member of the consulting board of Factor Sinergia, a securities investment fund, and the investments committee of Bradesco Templeton Value and Liquidity Fund. Fabio de Oliveira Barbosa. Mr. Barbosa has served as a member of our board of directors since April 2000. Currently, he also serves as member of the board of directors of Valepontocom. Prior to joining us, Mr. Barbosa served as an assistant secretary at the National Treasury Ministry and became secretary in July 1999. He has also served as a member of the board of directors of the following companies: Banespa -- Banco de Estado de Sao Paulo S.A., Caixa Economica Federal and Banco do 91 Brasil. From 1996 to 1999, he served as a member on the audit committee of Banco do Brasil and all of its subsidiaries. From 1992 to 1995, he served as an executive director at the World Bank. From 1990 to 1992, he was Deputy Coordinator of Fiscal Policy in the Ministry of the Economy, and, from 1989 to 1990, he was coordinator for economic analysis at SEPLAN-PR. From 1988 to 1989, he served as assistant to the chief planning minister to the President of Brazil. Prior to that time, Mr. Barbosa held a variety of positions at the Ministry of Industry and Commerce, the Parana State Development Institute, the Ministry of Labor and the Institute for Applied Economic Research. Francisco Valadares Povoa. Mr. Povoa has served as a member of our board of directors since May 1997. Since December 1994, Mr. Povoa has served as Chief Executive Officer of Investvale. He also sits on the board of Valepar, Valepontocom, Rio Doce Manganese Europe, or RDME, Salobo Metais, CSI and Nova Era Silicon. Until March 2001, he was also a member of the board of directors of CSN and was previously an alternate member of the board of CSN. Mr. Povoa joined us as a mining engineer in 1972 and has held a variety of positions within the CVRD Group. COMMITTEES OF THE BOARD OF DIRECTORS Recently, our board of directors approved a resolution creating five non-permanent committees and appointing their respective members, as permitted under our by-laws. These committees are advisory committees and therefore have no decision capacity. The strategy committee will be advising our board with regard to our corporate strategy and to its formulation and will assist in assuring the alignment with our board's strategic guidelines, in order to preserve economic value and adherence to our strategic plan. The strategic committee will consist of five members, including our Chief Executive Officer, our Executive Officer in charge of Planning and Control, and three external members. The audit committee will be advising our board in its monitoring of our financial integrity and appointment of independent and internal auditors in order to guarantee the transparency and efficiency of our internal control systems. The audit committee will consist of three members, including Jose Ricardo do Carmo, Antonio Joao Martins Torres, and one external member. The ethics and governance committee will assist in promoting the effectiveness of our board of directors' corporate governance practices and operations, as well as our ethical behavior, legal compliance, and institutional responsibility, in order to promote our board's transparency and independence, as well as the efficiency of the conflict management system and our internal policies with respect to environmental, health, safety and social matters. The ethics and governance committee will consist of three members, including Luiz Tarquinio Sardinha Ferro, Renato da Cruz Gomes, and one external member. The finance committee will advise on the definition of capital structure and risk management financial policies, in order to promote consistency between our financial policies, our strategic guidelines, and our shareholders' risk-return profile. The finance committee will consist of five members, including our Chief Executive Officer, our Chief Financial Officer, Ricardo Carvalho Giambroni, Romulo de Mello Dias, and one external member. The executive development committee will advise our board on the selection, appraisal, development and remuneration of our senior management as well as on our human resources policies. The executive development committee will consist of four members, including Paulo Pavarini, Francisco Valadares Povoa, Joao Moises de Oliveira, and one external member. FISCAL COUNCIL Under the Brazilian Corporation Law, we may appoint the conselho fiscal, a fiscal council, as a corporate body independent of our management and external auditors. The primary responsibility of the fiscal council is to review management's activities and the financial statements, and report its findings to the shareholders. We amended our by-laws on June 18, 1997 in order to provide for the establishment of a five-member permanent fiscal council. On April 25, 2001, the shareholders appointed the current members and their respective alternates. Holders of preferred shares and the golden share together may elect one member of the fiscal council and the respective alternate. Non-controlling holders of common shares comprising at least 10% of the common shares outstanding may also elect one member of the fiscal 92 council and the respective alternate. The terms of the members of the fiscal council expire at the next general shareholders' meeting following their election. The table below lists the current members of the fiscal council.
YEAR OF NAME APPOINTMENT - ---- ----------- Luis Carlos Angelotti....................................... 2001 Ronaldo Camillo............................................. 2000 Marcos Fabio Coutinho....................................... 1999 Eliseu Martins.............................................. 1997 Claudia Torres Teixeira..................................... 2000
The table below lists the alternate members of the fiscal council.
YEAR OF NAME APPOINTMENT - ---- ----------- Antonio Jose da Barbara..................................... 2001 Eduardo Coutinho Guerra..................................... 2001 Vicente Barcelos............................................ 2001 Luiz Otavio Nunes West...................................... 1998 Mercia Maria Nascimento Pimentel............................ 2001
COMPENSATION According to our by-laws, our shareholders are responsible for establishing the aggregate compensation we pay to the members of our board of directors and our executive officers. Our shareholders determine this aggregate compensation at the annual shareholders' meeting each year. In order to establish aggregate director and officer compensation, we believe that our shareholders usually take into account various factors which range from age, experience and skills of our directors and officers to the recent performance of our operations. Once aggregate compensation is established, the members of our board of directors are then responsible for distributing such aggregate compensation individually in compliance with our by-laws. Our board of directors does not have a compensation committee. In 2001 and in 2000, we paid approximately R$5.0 and R$4.5 million, respectively, in aggregate (including benefits in kind granted) to the members of our board of directors and to the executive officers for services in all capacities. In 2001 and in 2000, the monthly amount we paid to the members of the fiscal council was the higher of (1) R$4,200 or (2) the equivalent of 10% of the amount paid to a director, excluding benefits. In addition, the members of the fiscal council receive reimbursement for expenses they incur in connection with transportation and accommodation, whenever such expenses are necessary for the performance of their functions. In 2000 and in 2001, none of our board members and executive officers acting in their individual capacities had any financial or other interests in transactions involving us which were not in the ordinary course of business. 93 MAJOR SHAREHOLDERS The table below sets forth information regarding beneficial share ownership by each person who we know to be the beneficial owner of more than 5% of any class of our outstanding capital stock, and by all directors and executive officers as a group.
PERCENT OF SHARES OWNED CLASS ------------ ---------- COMMON SHARES Valepar S.A................................................. 105,443,070 43.0% Federative Republic of Brazil (National Treasury)(1)(2)..... -- -- BNDES(1)(2)................................................. 1,003 -- BNDESPAR(2)................................................. 11,672,271 4.8 Litel Participacoes S.A.(3) Shares owned directly..................................... 25,272,641 10.3 Shares owned by Valepar S.A. ............................. 105,443,070 43.0 ----------- ----- Total beneficial ownership by Litel.................... 130,715,711 53.3 Directors and executive officers as a group................. 17 -- PREFERRED SHARES(4) Directors and executive officers as a group................. 209 -- GOLDEN SHARE Federative Republic of Brazil............................... 1 100.0
- --------------- (1) Assumes full exercise of the underwriters' overallotment option in the public offering carried out as the third step of our privatization. If the underwriters do not exercise their overallotment option, the Federative Republic of Brazil (National Treasury) will own 5,138,337 common shares representing 2.1% of our outstanding common shares and BNDES will own 5,139,340 common shares representing 2.1% of our outstanding common shares. (2) Excludes common shares owned directly by Valepar, in which this shareholder has a direct or indirect ownership interest. See note 3 below, and see the table below for information on Valepar's shareholders. (3) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In general, a person who has or shares voting power or investment power with respect to securities is treated as a beneficial owner of those securities. It does not necessarily imply that the named person has the economic or other benefits of ownership. Litel owns 42% of Valepar. See the table below for more information on Valepar's shareholders. (4) The Federative Republic of Brazil (National Treasury) owns 5,075,341 preferred shares representing 3.7% of our outstanding preferred shares and BNDESPAR owns 1,251,980 preferred shares representing 0.9% of our outstanding preferred shares. 94 The table below sets forth information regarding Valepar share ownership and Litel share ownership.
PERCENT OF TOTAL SHARES SHARES OWNED OWNED ------------ ------------ VALEPAR S.A. Litel Participacoes S.A................................... 43,985,949 42% Babie(1).................................................. 15,019,621 14 Eletron(2)................................................ 21,875,000 21 Sweet River Investments Ltd.(3)........................... 12,187,500 11 BNDESPAR.................................................. 11,250,000 11 Investvale(4)............................................. 1,125,000 1 ----------- ---------- Total.................................................. 105,443,070 100% =========== ========== LITEL PARTICIPACOES S.A. BB Carteira Ativa 0(5).................................... 129,528,472 52.41% BB Carteira Ativa I(5).................................... 64,211,703 25.98 BB Carteira Ativa II(5)................................... 53,388,022 21.60 Others.................................................... 875 -- Directors and Executive Officers as a group............... 3 -- ----------- ---------- Total.................................................. 247,129,075 100.00% =========== ==========
- --------------- (1) Babie is a holding company owned by Bradesplan and Bradespar, which are affiliated with Banco Bradesco S.A., a Brazilian bank. (2) Eletron is a company 86% of which is owned by Bradespar and approximately 14% of which is owned by Opportunity Amafi Participacoes S.A. (3) Sweet River Investments Ltd. is affiliated with Bank of America. (4) Investvale is an investment club owned by our employees. (5) Each of BB Carteira Ativa 0, BB Carteira Ativa I and BB Carteira Ativa II is a Brazilian investment fund. BB Carteira Ativa 0 and BB Carteira Ativa I are 100% owned by Previ. BB Carteira Ativa II is 59.36% owned by Funcef and 38.8% owned by Petros. Each of Previ, Petros and Funcef is a Brazilian pension fund. The Privatization In June 1995, the Brazilian government announced its intention to sell its common and preferred share ownership interests in us as part of the ongoing Brazilian privatization program. After a period of considerable governmental, judicial and public attention and debate, the Brazilian government started our privatization in May 1997. In the first step of the privatization process, on May 6, 1997, the Federative Republic of Brazil and BNDES sold 99,999,203 common shares, representing approximately 40.0% of the outstanding common shares, for approximately US$3 billion to Valepar, a special-purpose company formed to hold a controlling interest in our outstanding common shares. The initial principal investors in Valepar were a subsidiary of CSN, a Brazilian steelmaker, various Brazilian pension funds, an affiliate of Bank of America, a U.S. bank, and certain foreign investment funds. In the second step of the privatization process, on May 20, 1997, the Federative Republic of Brazil and BNDES sold 11,120,919 common shares, representing approximately 4.5% of the outstanding common shares, and 8,744,308 preferred shares, representing approximately 6.3% of the outstanding preferred shares, in an offering restricted to our current and retired employees. Substantially all of the shares sold in this step of the privatization were purchased through Investvale, an association of our current and retired employees. Employees were also granted the option, exercisable through Investvale, to obtain an interest in the controlling block held by Valepar by exchanging their common shares for equity in Valepar. The 95 shares offered to employees were sold at substantial discounts to prevailing market prices. Common shares exchanged for equity in Valepar were sold at R$11.09 per share, representing a 58.4% discount from the then-current market price. Common shares not exchanged for equity in Valepar were sold at R$8.88 per share (representing a 66.7% discount from the then-current market price). Preferred shares were sold at R$8.88 per share (representing a 63.2% discount from the then-current market price). Investvale subsequently contributed 1,125,000 common shares to Valepar, in exchange for a 0.9% equity interest in Valepar. These discounts gave rise to a US$318 million extraordinary charge in 1997. In the third step of the privatization process, on March 21, 2002 the Federative Republic of Brazil and BNDES each sold 34,255,582 shares (and will sell an additional 5,138,337 shares each if the underwriters' overallotment option in that offering is exercised in full), in the form of common shares or American depositary shares, which together represent 27.9% of our outstanding common stock (32.1% if the underwriters' overallotment option is exercised in full). In addition, assuming the exercise in full of the underwriters' overallotment option, the Federative Republic of Brazil will continue to own 5,075,341 preferred shares, representing approximately 3.7% of our outstanding preferred shares, and a golden share in us, which gives it veto powers over certain actions that we could propose to take, and BNDES will own 1,003 of our common shares. Shareholder Debentures At the time of the first step of our privatization in 1997, we issued debentures to our then-existing shareholders, including the Brazilian government. The terms of the debentures, which are described below, were set to ensure that our pre-privatization shareholders, including the Brazilian government, would participate alongside us in potential future financial benefits that we derive from exploiting our mineral resources. In preparation for the issuance of the debentures, we issued preferred class B shares on a one-for-one basis to all holders of our common shares and preferred class A shares. We then exchanged all of the preferred class B shares for the debentures. The debentures are not redeemable or convertible, and do not trade on a stapled basis or otherwise with our common or preferred shares. Currently, the debentures cannot be traded. Holders will be able to trade the debentures only after a three-month period that will commence upon completion of this offering, which will constitute the third step of our privatization. We will be required to register the debentures with the CVM in order to permit trading at that time. Under Central Bank regulations, pre-privatization shareholders that held their shares through our American depositary receipt program were not permitted to receive the debentures or any financial benefits relating to the debentures. We sought approval from the Central Bank to distribute the debentures to the holders of American depositary receipts, but the Central Bank rejected our request. We intend to renew our request to the Central Bank, but we cannot assure you that we will succeed. Under the terms of the debentures, holders will have the right to receive semiannual payments equal to an agreed percentage of our net revenues (revenues less value added tax) from certain identified mineral resources that we owned at May 1997, to the extent that we exceed defined threshold production volumes of these resources, and from the sale of mineral rights that we owned at May 1997. Our obligation to make payments to the holders will cease when the relevant mineral resources are exhausted. Based on current production levels, and on the estimates of production of our new projects, we would begin making payments related to copper in approximately 2004, payments related to iron ore resources in approximately 2012, and payments related to other mineral resources in later years. 96 The table below summarizes the amounts we will be required to pay under the debentures, based on the net revenues we earn from the identified mineral resources and the sale of mineral rights.
AREA MINERAL REQUIRED PAYMENTS BY CVRD - --------------------------------------------- -------------- ------------------------------------ Southern System.............................. Iron ore 1.8% of net revenue, after total production from May 1997 exceeds 1.7 billion tons Northern System.............................. Iron ore 1.8% of net revenue, after total production from May 1997 exceeds 1.2 billion tons Pojuca, Andorinhas, Liberdade and Sossego.... Gold and 2.5% of net revenue from the Copper beginning of commercial production Igarape Bahia and Alemao..................... Gold and 2.5% of net revenue, after total Copper production from the beginning of commercial production exceeds 70 tons of gold Fazenda Brasileiro........................... Gold 2.5% of net revenue after total production from the beginning of commercial production exceeds 26 tons Other areas, excluding Carajas/Serra Leste... Gold 2.5% of net revenue Other areas owned at May 1997................ Other minerals 1% of net revenue, 4 years after the beginning of commercial production All areas.................................... Sale of 1% of the sales price mineral rights owned at May 1997
Principal Shareholder Through the Brazilian government's privatization program, the by-laws of Valepar restrict concentration of ownership of Valepar shares by particular types of investors for a period of five years through May 9, 2002. The by-laws of Valepar state that no single investor or group of affiliated investors may hold more than 45% of Valepar's outstanding capital stock. In addition, joint shareholdings in Valepar by any group of iron ore producers or any group of steel producers, and iron ore trading companies combined, may not exceed 45% of Valepar's outstanding capital stock. Finally, shareholdings in Valepar by individual large iron ore producers, steel producers or iron ore trading companies may not exceed 10% of Valepar's outstanding capital stock. The shareholders of Valepar have entered into a shareholders' agreement, ending in 2017. This agreement: - gives rights of first refusal on any transfer of Valepar shares and preemptive rights on any new issue of Valepar shares, - prohibits encumbrances on Valepar shares (other than in connection with financing our acquisition), - requires each party generally to retain control of its special purpose company holding its interest in shares of Valepar, - allocates Valepar's and our board seats, and - establishes super-majority voting requirements for certain matters relating to Valepar or to us. BNDESPAR has a golden share in Valepar giving it a veto right over: - any change in Valepar's corporate purpose, - the liquidation of Valepar, 97 - a change in ownership of Valepar's shares if such change were to increase concentration of the ownership of Valepar over specified limits by participants in the iron ore, steel or iron ore trading businesses, and - any transfer of Valepar's shares to anyone until May 2002 if the transfer were to result in such person owning more than 45% of Valepar's shares. Another agreement among Valepar's shareholders, ending in 2002, contains similar restrictions on transfers. Continuing Relationship with the Federative Republic of Brazil and BNDES From time to time, in the ordinary course of our business, we enter into transactions with other entities which the Federative Republic of Brazil owns or controls. See "Related Party Transactions." The most significant of these transactions is with Eletronorte, a state-owned company. Pursuant to a contract between Albras and Eletronorte, Albras is able to purchase electricity at favorable rates. We are currently seeking to renegotiate this contract, which expires in May 2004. For more information on our Eletronorte contract, see "Business -- Our Lines of Business -- Holdings -- Aluminum Business." No other entity controlled by the Federative Republic of Brazil, by itself or in the aggregate, accounted for a significant percentage of our consolidated revenues or purchases in 2000. We have also entered into a Mineral Risk Contract with BNDES relating to prospecting authorizations for mining regions where drilling and exploration are still in their early stages. This contract provides for the joint development of certain unexplored mineral deposits in the Carajas region, which is part of the Northern System. BNDES is also our partner in Project 118, Alemao and Cristalino, which are joint ventures through which we conduct our copper mining exploration and development. For more information on these joint ventures, see "Business -- Our Lines of Business -- Non-Ferrous Minerals -- Current Copper Prospects -- Exploration." As a result of the transfer of our voting control to Valepar, we are no longer subject to various regulatory requirements and operating restrictions applicable to Brazilian governmental entities. However, in connection with our privatization, the Federative Republic of Brazil retained special rights with respect to our and Valepar's future decisions and caused us to enter into certain agreements which may restrict our activities and results of operations in the future. Golden Share The Federative Republic of Brazil holds one preferred golden share, which confers upon its holder veto rights over certain changes, including: - our name, - the headquarters of our head office, - our corporate purpose as regards the working of mineral deposits, and - our continued operation of integrated iron ore mining systems. For a more detailed description of the golden share, see "Description of Capital Stock -- General." Since the privatization, the Federative Republic of Brazil has not exercised its veto rights and, consequently, has refrained from interfering in our decision-making process. 98 RELATED PARTY TRANSACTIONS At September 30, 2001, we had extended guarantees for borrowings obtained by affiliates and joint ventures in the amount of US$801 million, of which US$614 million is denominated in U.S. dollars and the remaining US$187 million is denominated in Brazilian reais. For information regarding investments in affiliated companies and joint ventures and for information regarding transactions with major related parties, see notes 10 and 17 to our consolidated financial statements. The Federative Republic of Brazil owns or controls entities with which we enter into transactions in the ordinary course of business. See "Major and Selling Shareholders -- Major Shareholders -- Continuing Relationships with the Federative Republic of Brazil and BNDES." BNDES, in its role as an economic development bank, is involved with us as a lender, partner and/or co-investor in a number of projects, and will probably continue to do so in the future. Current activities of BNDES related to us include: - investments in several mining prospecting projects, including copper development projects in accordance with our Mineral Risk Contract (see "Business -- Our Lines of Businesses -- Non-Ferrous Minerals -- Mineral Risk Contract"), and - providing financing for our expansion. Our consolidated balance sheet at September 30, 2001 includes loans repayable to BNDES in the aggregate amount of US$125 million. Further, one of our directors is also an executive officer of BNDES, one of our alternate directors is the chief executive officer of BNDES, one of our executive officers was a director of an affiliate of BNDES and one of our directors is the Secretary of the National Treasury. BNDESPAR, an affiliate of BNDES, also owns eleven percent of our largest shareholder, Valepar. 99 DESCRIPTION OF NOTES In this section, references to Vale Overseas mean Vale Overseas Limited only and do not include any of its affiliated companies. References to CVRD mean Companhia Vale do Rio Doce only and do not include Vale Overseas or any of CVRD's other subsidiaries or affiliated companies. References to the notes include both the notes and the guaranty of the notes, except where the context indicates otherwise. References to holders mean those who have notes registered in their own names, on the books that Vale Overseas or the trustee maintains for this purpose, and not those who own beneficial interests in notes issued in book-entry form through The Depository Trust Company or in notes registered in a street name. Owners of beneficial interests in the notes should read "Form of notes, clearing and settlement." References to the indenture include the indenture referred to below as amended or supplemented. GENERAL The Notes are Issued under the Indenture The notes are governed by an indenture, dated as of March 8, 2002, as supplemented by the first supplemental indenture, dated as of March 8, 2002. The indenture is a contract between Vale Overseas, CVRD and JPMorgan Chase Bank, which acts as trustee. The trustee has three main roles: - First, the trustee can enforce your rights against Vale Overseas and CVRD if Vale Overseas or CVRD defaults. There are some limitations on the extent to which the trustee acts on your behalf, described below under "-- Default, remedies and waiver of default." - Second, the trustee performs administrative duties, such as sending you interest and principal payments and notices. - Third, the trustee holds a security interest over the reserve account and is the beneficiary of any letters of credit issued in connection with the notes, all in trust for you. See "-- Reserve account and letters of credit". Principal and Interest The notes have been issued in an aggregate principal amount of U.S.$300,000,000. The notes will mature on March 8, 2007, unless their maturity is extended. Their maturity can be extended to no later than September 8, 2008, if on March 8, 2007 one of the following events has occurred and is continuing: - Vale Overseas or CVRD cannot convert Brazilian currency into U.S. dollars and/or remit U.S. dollars outside Brazil as a result of any measures taken by the government of Brazil; or - the government of Brazil (or entities authorized under the laws of Brazil to operate in the foreign exchange markets) fails to effect the conversion of Brazilian currency into U.S. dollars and/or the remittance of U.S. dollars outside Brazil by Vale Overseas or CVRD; or - the government of Brazil expropriates, confiscates or takes other measures which have the effect of depriving Vale Overseas or CVRD of the use or control of Brazilian currency or U.S. dollars. These events are called Political Risk Events. In determining whether a Political Risk Event exists on any payment date, the fact that Vale Overseas or CVRD may be able to make an interest payment under the notes in U.S. dollars from offshore sources outside of Brazil will be ignored. Vale Overseas and CVRD have agreed to notify the trustee and the Luxembourg Stock Exchange whenever a Political Risk Event occurs. Notification that a Political Risk Event has occurred will also be published in a newspaper with general circulation in Luxembourg, which is expected to be the Luxembourg Wort. The exact length of any extension of maturity (up to September 8, 2008) depends upon two factors: (i) the length of the existence of the Political Risk Event which exists on March 8, 2007 and (ii) the amount of money in the reserve account or available under the letters of credit, as described below under "-- Reserve Account and Letters of Credit". The extended maturity date on which principal becomes payable will be the earlier of (x) five business days after the Political Risk Event ceases, (y) the payment 100 date after the money in the reserve account or available under the letters of credit has been fully depleted and (z) September 8, 2008. The notes will bear interest at 8.625% per annum from March 8, 2002. Interest on the notes will be payable semi-annually on March 8 and September 8 of each year, commencing September 8, 2002, to the holders in whose name the notes are registered at the close of business on the February 21 or August 24 immediately preceding the related interest payment date. Vale Overseas will pay interest on the notes on the interest payment dates stated above, and at maturity. If the maturity is extended, interest will continue to accrue and be paid on the interest payment dates stated above. Each payment of interest due on an interest payment date or at maturity will include interest accrued from and including the last date to which interest has been paid or made available for payment, or from the issue date, if none has been paid or made available for payment, to but excluding the relevant payment date. Vale Overseas will compute interest on the notes on the basis of a 360-day year of twelve 30-day months. To the extent interest due is not paid on an interest payment date, interest will accrue on any unpaid interest due until it is paid at the rate of interest otherwise payable on the principal of the notes plus 1% per annum. Reserve Account and Letters of Credit The notes are enhanced by a reserve account and/or letters of credit. Vale Overseas has delivered funds to the reserve account and/or letters of credit with an aggregate value equal to the political risk coverage. The political risk coverage is an amount of $41,421,565, which is equal to the sum of (i) 18 months interest on principal of the notes, (ii) an amount equal to 0.50% per annum interest on the principal of the notes for 18 months, (iii) 30 days default rate of interest on the amounts described in (i) and (ii) above and (iv) the estimated fees and reasonable expenses of the trustee in connection with the notes for 18 months; provided, however, that this amount shall be reduced by the amount equal to (ii) above upon the earlier of (x) the completion of the exchange offer (regardless of how many notes are exchanged therein), (y) the effectiveness of the shelf registration statement or (z) the notes being freely tradable under the Securities Act. Political risk coverage shall be reduced to zero at such time as CVRD has obtained a long-term foreign currency rating (without the benefit of pledging collateral or any other credit support) from Moody's of Baa2 or better, or when none of the notes remain outstanding and all obligations under the indenture have been satisfied, provided that no reduction in the political risk coverage will occur unless Moody's has confirmed to the trustee in writing that any such reduction will not reduce the rating then currently assigned to the notes. Security over the reserve account and all moneys in it or derived from it is granted in favor of the trustee for the benefit of the holders of notes. The trustee is authorized to apply money in the reserve account or draw funds from any letters of credit to make an interest payment if, on the interest payment date, a Political Risk Event exists. This ensures that for a maximum period of 18 months (three semi-annual periods) Vale Overseas and CVRD will be able to continue to make timely payments of interest on the notes notwithstanding the existence of a Political Risk Event that might otherwise prevent them from doing so. During a Political Risk Event, the political risk coverage amount may also be used to pay the fees and reasonable expenses of the trustee if not otherwise provided for by Vale Overseas or CVRD. Before the money in the reserve account is applied in this way, the trustee is authorized to invest the money in permitted investments, such as U.S. Government issued bonds, bills and notes, and other highly rated U.S. dollar debt instruments. Any investment made with the funds in the reserve account must come due one business day prior to the next interest payment date. Neither Vale Overseas nor CVRD is obligated to top up the reserve account or issue more amounts under letters of credit for any money applied by the trustee in making an interest payment on their behalf. If at the maturity of the notes there is money left in the reserve account or available under the letters of credit, the trustee will pay such funds back to Vale Overseas and return any letters of credit to their issuer for cancellation. If at any interest payment date the aggregate of the funds in the reserve account and the funds available under the letters of credit exceeds the applicable political risk coverage, the trustee will pay funds back to Vale Overseas or 101 accept a reduction in the letters of credit equal, in the aggregate, to such excess. The security interest in the reserve account will be released, the funds therein returned to Vale Overseas and any letters of credit returned to their issuer for cancellation if during the term of the notes CVRD has obtained a long-term foreign currency rating (without the benefit of pledging collateral or any other credit support) from Moody's of Baa2 or better. Guaranty CVRD has irrevocably and unconditionally guaranteed the full and punctual payment of principal, interest, additional amounts and all other amounts that may become due and payable in respect of the notes. Subject as provided in the next sentence below, if Vale Overseas fails to punctually pay any such amount, CVRD will immediately pay the amount required to be, but not, paid. In the event (i) the payment of principal and other amounts due under the notes is automatically accelerated due to a voluntary or involuntary bankruptcy or insolvency event on the part of Vale Overseas, (ii) CVRD is not the subject of a voluntary or involuntary bankruptcy or insolvency event and (iii) at that time there exists a Political Risk Event, then CVRD's obligation to make payment of principal under the guaranty will be suspended until the earlier of (x) five business days after the Political Risk Event terminates, (y) the date on which the funds in the reserve account or available under the letters of credit have been fully depleted and (z) 18 months after the date of acceleration. Further Issues Vale Overseas reserves the right, from time to time without your consent as a holder of the notes, to issue additional notes on terms and conditions identical to those of the notes, which additional notes shall increase the aggregate principal amount of, and shall be consolidated and form a single series with, the notes. To the extent Vale Overseas issues any such additional notes, it will establish an additional reserve account and/or cause to be issued letters of credit on the same terms and conditions as the reserve account established and/or letters of credit issued for purposes of the notes. Vale Overseas may also issue other securities under the indenture which have different terms from the notes. Likewise, CVRD has the right, without your consent, to guarantee any such additional notes, to guarantee debt of its other subsidiaries and to issue its own debt. In connection with any such further issues of debt by Vale Overseas guaranteed by CVRD, Vale Overseas is required to confirm with Moody's that such issue or guarantee will not affect the then current rating of the notes. How the Notes and the Guaranty Rank Against Other Debt The notes have the benefit of security over the reserve account as described under "-- Reserve account and letters of credit." The notes will not be secured by any of Vale Overseas' other property or assets. Thus, by owning these notes, except to the extent of funds in the reserve account or available under letters of credit, you are one of Vale Overseas' unsecured creditors. These notes will not be subordinated or senior to any of Vale Overseas' other unsecured debt obligations. This means that, in a bankruptcy or liquidation proceeding against Vale Overseas, the payment obligations of Vale Overseas under these notes (to the extent not secured by the reserve account or any letters of credit) would rank equally in right of payment with all Vale Overseas' other unsecured and unsubordinated debt. CVRD's guaranty of the notes will not be secured by any of its property or assets or any of the property or assets of any of its subsidiaries. Therefore, in the event that CVRD is required to perform under its guaranty, you would be an unsecured creditor of CVRD. The guaranty will not be subordinated to any of CVRD's other unsecured debt obligations. This means that, in a bankruptcy or liquidation proceeding against CVRD, the guaranty would rank equally in right of payment with all CVRD's other unsecured and unsubordinated debt. 102 Stated Maturity and Maturity The day on which the principal amount of the notes is scheduled to become due is called the stated maturity of the principal. The principal may also become due sooner, by reason of redemption or acceleration after a default. The principal may become due later, by reason of extension of maturity as described above. The day on which the principal actually becomes due, whether at the stated maturity, earlier or later, is called the maturity of the principal. The terms "stated maturity" and "maturity" also refer to the dates when interest payments become due. For example, a regular interest payment date when an installment of interest is scheduled to become due is referred to as the "stated maturity" of that installment. When we refer to the "stated maturity" or the "maturity" of the notes without specifying a particular payment, we mean the stated maturity or maturity, as the case may be, of the principal. This Description is Only a Summary The indenture and its associated documents, including the notes, contain the full legal text of the matters described in this section. Upon request, the trustee will provide you with a copy of the indenture. In addition, we have filed a copy of the indenture with the Commission as an exhibit to the registration statement of which this prospectus forms a part. See "Where you can find more information" for information on how to obtain copies. This section summarizes all the material terms of the notes and the indenture. It does not, however, describe every aspect of the notes and the indenture. For example, in this section, we use terms that have been given special meaning in the indenture, but we describe the meaning for only the more important of these terms. DEFINITIONS "Subsidiary" means, at any time, any entity of which CVRD or Vale Overseas directly or indirectly owns more than 51% (fifty-one percent) of the outstanding voting shares, and Vale Overseas or CVRD has the ability to elect a majority of the members of the board of directors or other governing bodies. "Significant Subsidiary" means, at any time, a Subsidiary which meets any of the following conditions: (1) CVRD's and its other Subsidiaries' investments in and advances to the Subsidiary exceed 10% of the total assets of the consolidated group as of the end of the most recently completed fiscal year; (2) CVRD's and its other Subsidiaries' proportionate share of the total assets (after intercompany eliminations) of the Subsidiary exceeds 10% of the total assets of the consolidated group as of the end of the most recently completed fiscal year; or (3) CVRD's and its other Subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle of the Subsidiary exceeds 10% of such income of the consolidated group for the most recently completed fiscal year. "Indebtedness" means any amount payable (whether as a direct obligation or indirectly through a guarantee) by such person pursuant to an agreement involving or evidencing money borrowed or received, a conditional sale or a transfer with recourse or with an obligation to repurchase or pursuant to a lease with substantially the same economic effect as any such agreement or instrument and which, under U.S. generally accepted accounting principles, would constitute a capitalized lease obligation; provided, however, as used in the second bullet point under "Default, Remedies and Waiver of Default", "Indebtedness" shall not include any payment made by CVRD on behalf of its affiliate, upon any Indebtedness of such affiliate becoming immediately due and payable as a result of a default by such affiliate, pursuant to a guarantee or similar instrument provided by CVRD in connection with such Indebtedness, provided that such payment make by CVRD is made within five business days of notice being provided to CVRD that payment is due under such guarantee or similar instrument. 103 PAYMENT OF ADDITIONAL AMOUNTS All payments by Vale Overseas or CVRD in respect of the notes will be made without withholding or deduction for or on account of any present or future taxes, duties, assessments, or other governmental charges of whatsoever nature imposed or levied by or on behalf of Brazil, the Cayman Islands, a successor jurisdiction (as defined in "Mergers and Similar Transactions") or any political subdivision or authority thereof or therein having power to tax, unless Vale Overseas or CVRD is compelled by law to deduct or withhold such taxes, duties, assessments, or governmental charges. In such event, Vale Overseas or CVRD will make such withholding, make payment of the amount so withheld to the appropriate governmental authority and pay such additional amounts as may be necessary to ensure that the net amounts receivable by holders of notes after such withholding or deduction shall equal the respective amounts of principal and interest which would have been receivable in respect of the notes in the absence of such withholding or deduction. No such additional amounts shall be payable: - to, or to a third party on behalf of, a holder who is liable for such taxes, duties, assessments or governmental charges in respect of such note by reason of his having some connection with Brazil or the Cayman Islands other than the mere holding of the note; - in respect of notes surrendered (if surrender is required) more than 30 days after the Relevant Date except to the extent that the holder of such note would have been entitled to such additional amounts on surrender of such note for payment on the last day of such period of 30 days; - where such additional amount is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of November 26-27, 2000 or any law implementing or complying with, or introduced in order to conform to, such directive; - to, or to a third party on behalf of, a holder who is liable for or subject to such deduction or withholding by reason of such holder's failure to comply with any certification, identification or other reporting requirement concerning the nationality, residence, identity or connection with Brazil, the Cayman Islands, or a successor jurisdiction or applicable political subdivision or authority thereof or therein having power to tax, of such holder, if compliance is required by such jurisdiction, or any political subdivision or authority thereof or therein having power to tax, as a precondition to exemption from, or reduction in the rate of, such deduction or withholding; - in respect of any estate, inheritance, gift, sales, transfer, personal property or similar tax, assessment or governmental charge; - in respect of any tax, assessment or other governmental charge which is payable other than by deduction or withholding from payments of principal of or interest on the note or by direct payment by Vale Overseas or CVRD in respect of claims made against Vale Overseas or CVRD; or - in respect of any combination of the above. "Relevant Date" means whichever is the later of (i) the date on which such payment first becomes due and (ii) if the full amount payable has not been received by the trustee on or prior to such due date, the date immediately following the date on which the full amount is so received by the trustee. The notes are subject in all cases to any tax, fiscal or other law or regulation or administrative or judicial interpretation. Except as specifically provided above, neither Vale Overseas nor CVRD shall be required to make a payment with respect to any tax, assessment or governmental charge imposed by any government or a political subdivision or taxing authority thereof or therein. Any reference in this offering memorandum, the indenture or the notes to principal, interest or any other amount payable in respect of the notes by Vale Overseas or the guaranty by CVRD will be deemed also to refer to any additional amount that may be payable with respect to that amount under the obligations referred to in this subsection. 104 OPTIONAL REDEMPTION Vale Overseas will not be permitted to redeem the notes before their stated maturity, except as described below. The notes will not be entitled to the benefit of any sinking fund -- that is, neither Vale Overseas nor CVRD will deposit money on a regular basis into any separate custodial account to repay your notes. In addition, you will not be entitled to require Vale Overseas or CVRD to buy your notes from you before the stated maturity. If as a result of any change in or amendment to the laws (or any regulations or rulings promulgated thereunder) of Brazil, the Cayman Islands, a successor jurisdiction or of any political subdivision or taxing authority thereof or therein affecting taxation, or any change in official position regarding application or interpretation of such laws, regulations or rulings (including a holding by a court of competent jurisdiction), which change or amendment becomes effective on or after the issue date of the notes, Vale Overseas or CVRD has or will become obliged to pay additional amounts as described above under "-- Payment of Additional Amounts" in excess of the additional amounts Vale Overseas or CVRD would be obliged to pay if payments were subject to withholding or deduction at a rate of 15% as a result of the taxes, duties, assessments and other governmental charges described above (the "Minimum Withholding Level"), Vale Overseas may, at its sole discretion, redeem all, but not less than all, of the notes, at a redemption price equal to 100% of their principal amount, together with interest accrued to the date fixed for redemption, upon publication of irrevocable notice not less than 30 days nor more than 90 days prior to the date fixed for redemption. Vale Overseas shall not have the right to so redeem the notes in the event it becomes obliged to pay additional amounts which are less than the additional amounts payable at the Minimum Withholding Level. Notwithstanding the foregoing, Vale Overseas shall not have the right to so redeem the notes unless it has taken reasonable measures to avoid the obligation to pay additional amounts. In the event that Vale Overseas elects to redeem the notes, it will deliver to the trustee a certificate, signed by an authorized officer, stating that Vale Overseas is entitled to redeem the notes pursuant to their terms and an opinion of independent counsel of recognized standing to the effect that Vale Overseas has or will become obliged to pay additional amounts in excess of the additional amounts payable at the Minimum Withholding Level. CVRD and any of its subsidiaries and affiliates may at any time purchase notes in the open market or otherwise at any price. Any purchase by tender shall be made available to all holders alike. MERGERS AND SIMILAR TRANSACTIONS Without the consent of the holders of notes, neither Vale Overseas nor CVRD will consolidate with or merge into any other corporation or convey or transfer all or substantially all of the properties or assets, or, in the case of CVRD, it shall not transfer all or substantially all of its mining properties or assets, to any other person unless: - the corporation formed by such consolidation or into which Vale Overseas or CVRD is merged or the person which acquires by conveyance or transfer all or substantially all of the properties and assets of Vale Overseas or all or substantially all of the mining properties or assets of CVRD (the "Successor Corporation") shall expressly assume the due and punctual payment of the principal of and interest on all the notes and all other obligations of Vale Overseas or CVRD under the indenture and the notes; - immediately after giving effect to such transaction, no Event of Default or Illegality Event with respect to any note shall have occurred and be continuing; - Vale Overseas and CVRD have delivered to the trustee a certificate signed by an executive officer of Vale Overseas and an executive officer of CVRD stating that such consolidation, merger, conveyance or transfer complies with this condition and that all conditions precedent herein provided, which relate to such transaction, have been complied with and an opinion of independent counsel of recognized standing as to the legal issues relating thereto; and 105 - the Successor Corporation shall expressly agree to withhold against any tax, duty, assessment or other governmental charge thereafter imposed or levied by Brazil, the Cayman Islands, a successor jurisdiction or any political subdivision or authority thereof or therein having power to tax as a consequence of such consolidation, merger, conveyance or transfer with respect to the payment of principal of or interest on the notes, and to pay such additional amounts as may be necessary to ensure that the net amounts receivable by holders of the notes after any such withholding or deduction shall equal the respective amounts of principal and interest which would have been receivable in respect of the notes in the absence of such consolidation, merger, conveyance or transfer; provided however that holders of the notes will not be subject to exceptions and limitations contained in "-- Payment of Additional Amounts", in relation to the successor jurisdiction. Upon any consolidation, merger, conveyance or transfer in accordance with these conditions, the Successor Corporation shall succeed to, and be substituted for, and may exercise every right and power of, Vale Overseas or CVRD under the notes with the same effect as if the Successor Corporation had been named as the issuer or guarantor of the notes. If a successor corporation is incorporated in or considered to be resident in a jurisdiction other than Brazil or the Cayman Islands, such jurisdiction shall be referred to as a "successor jurisdiction". If the conditions described above are satisfied, neither Vale Overseas nor CVRD will need to obtain the approval of the holders in order to merge or consolidate or to sell or otherwise dispose of its properties and assets substantially as an entirety. Also, these conditions will apply only if Vale Overseas or CVRD wish to merge into or consolidate with another person or sell or otherwise dispose of its properties and assets substantially as an entirety. Vale Overseas and CVRD will not need to satisfy these conditions if Vale Overseas or CVRD enters into other types of transactions, including any transaction in which either Vale Overseas or CVRD acquires the stock or assets of another person, any transaction that involves a change of control of Vale Overseas or CVRD, but in which neither Vale Overseas nor CVRD merges or consolidates, and any transaction in which Vale Overseas or CVRD sells or otherwise disposes of its assets less than substantially as an entirety. RESTRICTIONS ON LIENS CVRD and Vale Overseas have agreed that for so long as any note remains outstanding, CVRD and Vale Overseas will not create or permit to subsist any mortgage, pledge, lien or other charge or encumbrance except for Permitted Liens (as defined below), upon the whole or any part of its assets, present or future, to secure any of its Indebtedness or the Indebtedness of any other person without, at the same time or prior thereto, securing the notes equally and ratably therewith, or providing such other security for the notes as shall be approved by the holders of a majority in principal amount of the outstanding notes. "Permitted Liens" means any mortgage, pledge, lien or other charge or encumbrance: - granted upon or with regard to any property hereafter acquired by Vale Overseas or CVRD to secure the purchase price of such property or to secure Indebtedness incurred solely for the purpose of financing the acquisition of such property; provided, however, that the maximum sum secured thereby shall not exceed the purchase price of such property or the debt incurred solely for the purpose of financing the acquisition of such property; - in existence on the date hereof and any extension, renewal or replacement thereof; provided, however, that the total amount of Indebtedness so secured shall not exceed the amount so secured on the date hereof; - arising by operation of law, such as tax, merchants', maritime or other similar liens arising in the ordinary course of Vale Overseas' or CVRD's business; - arising in the ordinary course of business in connection with the financing of export, import or other trade transactions to secure Indebtedness of Vale Overseas or CVRD; - securing or providing for the payment of Indebtedness incurred in connection with any project financing by CVRD; provided that (1) such security shall not extend to any property in existence on the date hereof, to any revenues from such property, or to any proceeds from claims belonging 106 to CVRD which arise from the operation, failure to meet specifications, failure to complete, exploitation, sale or loss of, or damage to, such property in existence on the date hereof ("Proceeds"), (2) such security shall not extend to any property (or to any revenues or Proceeds therefrom) at any project in existence on the date hereof, other than the existing power plant projects named Vitoria Energia, Aimores, Candonga, Funil, Capim Branco I and Capim Branco II, Foz de Chapeco, Santa Isabel, Serra Quebrada and Estreito projects and (3) such security only extends to properties which are the subject of such project financing, to any revenues from such properties, or to any Proceeds from such properties; - granted upon or with regard to any present or future asset or property of Vale Overseas or CVRD for the benefit of (i) any Brazilian Governmental credit agency (including, but not limited to the Brazilian National Treasury, Banco Nacional de Desenvolvimento Economico e Social, BNDES Participacoes S.A., Financiadora de Estudos e Projetos and Agencia Especial de Financiamento Industrial); (ii) any Brazilian official financial institutions (including, but not limited to Banco da Amazonia S.A -- BASA e Banco do Nordeste do Brasil S.A. -- BNB); (iii) any international official export-import bank or official export-import credit insurer, or (iv) the International Finance Corporation or any international multilateral or government-sponsored agency; - existing on any asset prior to the acquisition thereof by Vale Overseas or CVRD and not created in contemplation of such acquisition; - granted upon or with regard to the reserve account, as set forth in the indenture, as supplemented by the first supplemental indenture regarding the notes; or - hereafter granted upon or in respect of any asset of Vale Overseas or CVRD other than those referred to above, provided that the aggregate amount of Indebtedness secured pursuant to this bullet point shall not, on the date any such Indebtedness is incurred, exceed an amount equal to 10% of CVRD's stockholders' equity calculated on the basis of CVRD's latest quarterly unaudited or annual audited non-consolidated financial statements (whichever is the most recently prepared) prepared in accordance with accounting principles generally accepted in Brazil and currency exchange rates prevailing on the last day of the period covered by such financial statements). PROVISION OF INFORMATION CVRD will file with the trustee copies of its annual report and the information, documents and other reports that it is required to file with the SEC pursuant to Sections 12, 13 or 15(d) of the Exchange Act. If any of Vale Overseas' or CVRD's officers discovers that a default or Event of Default is continuing, Vale Overseas will also file a certificate with the trustee describing the details thereof and the action Vale Overseas is taking or proposes to take. RESTRICTIVE COVENANTS The Indenture contains restrictive covenants in relation to Vale Overseas, including: - by CVRD not to make any changes to the constitutive documents of Vale Overseas that would allow Vale Overseas to engage in any business or carry out any activities other than the financing of CVRD Group companies by issuing securities under the indenture and incidental or related activities, except as the trustee may otherwise approve if so directed by the holders of not less than 25% of the principal amount of the notes, or to take any action which could lead to the entry of a decree, order or other action by a court placing Vale Overseas in bankruptcy, liquidation or similar proceeding or otherwise declaring Vale Overseas insolvent; and - by Vale Overseas not to (i) incur any indebtedness, other than the notes, a further issuance of securities on the same terms as the notes or the issue of any other securities under the indenture, (ii) engage in any business or carry out any activities other than the financing of CVRD Group companies by issuing securities under the indenture and incidental or related activities, except as 107 the trustee may otherwise approve if so directed by the holders of not less than 25% of the principal amount of the notes, (iii) declare any dividends, have any subsidiaries or employees, purchase, own, lease or otherwise acquire any real property, or consolidate or merge with any other person (other than as provided in the indenture) or (iv) file for, or consent to the filing of, any bankruptcy, liquidation or similar proceeding. DEFAULT, REMEDIES AND WAIVER OF DEFAULT You will have special rights if an Event of Default or an Illegality Event with respect to the series of notes you hold occurs and is not cured, as described in this subsection. Events of Default References to an Event of Default mean any of the following: - failure to pay any interest (or additional amounts, if any) on any of the notes on the date when due and such failure shall continue for a period of 30 days; or failure to pay any principal (or additional amounts, if any) on any of the notes on the date when due, taking into account the extension of maturity in case of a Political Risk Event; - in relation to CVRD, its Significant Subsidiaries and Vale Overseas: any default or Event of Default occurring and continuing under any agreement, instrument or other document evidencing outstanding Indebtedness in excess of U.S.$50,000,000.00 in aggregate (or its equivalent in other currencies) and such default or Event of Default results in the actual acceleration of such Indebtedness; - failure to notify the trustee within five business days of the coming into existence or termination of a Political Risk Event, or notify the trustee one business day prior to each interest payment date during the period when a Political Risk Event is in existence; - Vale Overseas or CVRD shall notify the trustee of the existence of a Political Risk Event when a Political Risk Event is not in existence, and such Event of Default will be cause for acceleration of the maturity of the notes upon the affirmative vote of only 10% of the principal amount of the notes then outstanding; - any representation or warranty by Vale Overseas or CVRD in the indenture proves to have been incorrect in any material respect when made; - Vale Overseas or CVRD shall fail to duly perform or observe any other material covenant or agreement in respect of the notes contained in the indenture or the notes and such failure shall continue for a period of 30 days after it occurs; or - Vale Overseas, CVRD or its Significant Subsidiary (i) has a court decree or order in an involuntary case or proceeding under any applicable bankruptcy, insolvency, suspension of payments, reorganization or other similar law, entered against it, or has a court decree or order adjudging it bankrupt or insolvent, or suspending its payments, or approving a petition seeking its reorganization, arrangement, adjustment or composition or appointing a liquidator or other similar official of it or of any substantial part of its property, or ordering its winding up or liquidation, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (ii) commences a voluntary bankruptcy, insolvency, reorganization or other similar proceeding or consents to a decree or order in, or commencement of, an involuntary bankruptcy or the filing or consent to filing of a petition seeking reorganization or consent to the appointment of a liquidator or similar official of it or of any substantial part of its property, or the making of an assignment for the benefit of its creditors, or the admission in writing of its inability to pay its debts generally as they become due. 108 Illegality Events References to an Illegality Event mean any of the following: - any governmental authorization necessary for the performance of any obligation of Vale Overseas or CVRD under the indenture or the notes fails to enter into or come into full force and effect or remain in full force and effect; or - it is or will become unlawful for Vale Overseas or CVRD to perform or comply with any one or more of its obligations under any of the notes; or - any event occurs which under the laws of Brazil or the Cayman Islands has an analogous effect to any of the events referred to in the first bullet point above; provided, however, that if an event which is an Illegality Event is also a Political Risk Event, it shall be treated as a Political Risk Event and not an Illegality Event. Remedies if an Event of Default or an Illegality Event Occurs Except as provided in the next sentence, if an Event of Default or an Illegality Event has occurred and has not been cured or waived, the trustee at the request of holders of not less than 25% in principal amount of the notes may declare the entire principal amount of the notes to be due immediately and upon any such declaration the principal, accrued interest and additional amounts shall become due. If an Event of Default occurs because of a bankruptcy, insolvency or reorganization relating to Vale Overseas or CVRD (but not any Significant Subsidiary) the entire principal amount of the notes will be automatically accelerated, without any action by the trustee or any holder and any principal, interest or additional amounts will become due. In the event payments of principal under the guaranty have been suspended due to the existence of a Political Risk Event, the accelerated principal of the notes will continue to accrue interest at the otherwise applicable non-default rate of interest, and payments of such accrued interest will continue to be made on each March 8 and September 8 in accordance with the terms and conditions of the notes. Each of the situations described above is called an acceleration of the maturity of the notes. If the maturity of the notes is accelerated and a judgment for payment has not yet been obtained, the holders of a majority in aggregate principal amount of the notes may cancel the acceleration of the notes, provided that all amounts then due (other than amounts due solely because of such acceleration) have been paid and all other defaults with respect to the notes have been cured. If any Event of Default or Illegality Event occurs, the trustee will have special duties. In that situation, the trustee will be obligated to use those of its rights and powers under the indenture, and to use the same degree of care and skill in doing so, that a prudent person would use in that situation in conducting his or her own affairs. Except as described in the prior paragraph, the trustee is not required to take any action under the indenture at the request of any holders unless the holders offer the trustee reasonable protection from expenses and liability. This is called an indemnity. If the trustee receives an indemnity that is reasonably satisfactory to it, the holders of a majority in principal amount of the notes may direct the time, method and place of conducting any lawsuit or other formal legal action seeking any remedy available to the trustee. These majority holders may also direct the trustee in performing any other action under the indenture with respect to the notes. Before you bypass the trustee and bring your own lawsuit or other formal legal action or take other steps to enforce your rights or protect your interests relating to the notes, the following must occur: - you must give the trustee written notice that an Event of Default or Illegality Event has occurred and the Event of Default or Illegality Event has not been cured or waived, - the holders of not less than 25% in principal amount of the notes must make a written request that the trustee take action with respect to the notes because of the default and they or other holders 109 must offer to the trustee indemnity reasonably satisfactory to the trustee against the cost and other liabilities of taking that action, and - the trustee must not have taken action for 60 days after the above steps have been taken, and during those 60 days, the holders of a majority in principal amount of the notes must not have given the trustee directions that are inconsistent with the written request of the holders of not less than 25% in principal amount of the notes. You are entitled, however, at any time to bring a lawsuit for the payment of money due on your note on or after its due date and which was not paid in full by Vale Overseas or CVRD or by application of sums in the reserve account or available under letters of credit. Book-entry and other indirect holders should consult their bank or brokers for information on how to give notice or direction to or make a request of the trustee and how to declare or cancel an acceleration of the maturity. Waiver of Default The holders of not less than a majority in principal amount of the notes may waive a default for the notes. If this happens, the default will be treated as if it had not occurred. No one can waive a payment default on any note, however, without the approval of the particular holder of that note. MODIFICATION AND WAIVER OF COVENANTS There are four types of changes Vale Overseas and CVRD can make to the indenture and the notes. A supplemental indenture will be prepared if noteholder approval is required. The Luxembourg Stock Exchange will be notified of any change regardless of whether noteholder approval is required. Changes Requiring Each Holder's Approval First, there are changes that cannot be made without the approval of each holder of the notes. Those types of changes are: - a change in the stated maturity for any principal or interest payment on the notes, - a reduction in the principal amount, the interest rate or the redemption price for the notes, - a change in the obligation to pay additional amounts, - a change in the currency of any payment on the notes, - a change in the place of any payment on the notes, - an impairment of the holder's right to sue for payment of any amount due on its notes, - a reduction in the percentage in principal amount of the notes needed to change the indenture or the notes, - any change to the terms of payment from, or control over, the reserve account, including a reduction in the amount initially deposited in the reserve account, except as allowed under the terms of the notes, - a release of the collateral while any of the notes or the exchange notes remain outstanding, - a reduction in the percentage in principal amount of the notes needed to waive its compliance with the indenture or to waive defaults, and - a reduction in the percentage in principal amount of the notes needed for the adoption of a resolution or the formation of a quorum for meetings of holders. 110 Changes Not Requiring Approval Second, there are changes that do not require any approval by holders of notes. This type of change is limited to clarifications and changes that would not adversely affect the notes in any material respect. Changes Requiring Majority Approval Most other changes to the indenture and the notes must be approved by the holders of a majority in principal amount of the notes. The required approval must be given by written consent. The same majority approval would be required for Vale Overseas or CVRD to obtain a waiver of any of its covenants in the indenture. Their covenants include the promises Vale Overseas and CVRD make about merging and creating liens on their assets, which are described above under "-- Mergers and Similar Transactions" and "-- Restrictions on Liens". If the holders approve a waiver of a covenant, Vale Overseas and CVRD will not have to comply with it. The holders, however, cannot approve a waiver of any provision in the notes or the indenture, as it affects any note, that Vale Overseas and CVRD cannot change without the approval of the holder of that note as described above in "-- Changes Requiring Each Holder's Approval," unless that holder approves the waiver. Book-entry and other indirect holders should consult their banks or brokers for information on how approval may be granted or denied if Vale Overseas or CVRD seek to change the indenture or the notes or request a waiver. Changes Requiring Approval of 25% of the Holders The holders of 25% of the notes may approve certain changes involving restrictions on Vale Overseas' ability to conduct business. SPECIAL RULES FOR ACTION BY HOLDERS When holders take any action under the indenture, such as giving a notice of default, declaring an acceleration, approving any change or waiver or giving the trustee an instruction, Vale Overseas will apply the following rules. Only Outstanding Notes are Eligible Only holders of outstanding notes will be eligible to participate in any action by holders. Also, Vale Overseas will count only outstanding notes in determining whether the various percentage requirements for taking action have been met. For these purposes, a note will not be "outstanding" if it has been surrendered for cancellation or if Vale Overseas has deposited or set aside, in trust for its holder, money for its payment or redemption; provided, however, that notes held by Vale Overseas, CVRD or their affiliates are not considered outstanding. Determining Record Dates for Action by Holders Vale Overseas will generally be entitled to set any day as a record date for the purpose of determining the holders that are entitled to take action under the indenture. In some limited circumstances, only the trustee will be entitled to set a record date for action by holders. If Vale Overseas or the trustee set a record date for an approval or other action to be taken by holders, that vote or action may be taken only by persons or entities who are holders on the record date and must be taken during the period that Vale Overseas specifies for this purpose, or that the trustee specifies if it sets the record date. Vale Overseas or the trustee, as applicable, may shorten or lengthen this period from time to time. This period, however, may not extend beyond the 180th day after the record date for the action. In addition, record dates for any Global Notes may be set in accordance with procedures established by the depositary from time to time. 111 PAYMENT MECHANICS Who Receives Payment For interest due on the interest payment dates, Vale Overseas will pay the interest to the holder in whose name the note is registered at the close of business on the regular record date relating to the interest payment date. For interest due at maturity but on a day that is not an interest payment date, Vale Overseas will pay the interest to the person or entity entitled to receive the principal of the note. For principal due on the notes at maturity, Vale Overseas will pay the amount to the holders of the notes against surrender of the notes at the proper place of payment. Regular Record Dates for Interest The regular record dates relating to the interest payment dates for the notes are February 21 for each March 8 and August 24 for each September 8. For the purpose of determining the holder at the close of business on a regular record date when business is not being conducted, the close of business will mean 5:00 p.m., New York City time, on that day. How Vale Overseas Will Make Payments Vale Overseas will make payments on the notes in accordance with the applicable rules of the depositary, Clearstream and Euroclear from time to time. Under those policies, Vale Overseas will make payments directly to the depositary, or its nominee, and not to any indirect holders who own beneficial interests in a Global Note. An indirect holder's right to receive those payments will be governed by the rules and practices of the depositary and its participants. Payment When Offices Are Closed If any payment is due on the notes on a day that is not a business day, Vale Overseas will make the payment on the day that is the next business day. Payments postponed to the next business day in this situation will be treated under the indenture as if they were made on the original due date. Postponement of this kind will not result in a default under the notes or the indenture, and no interest will accrue on the postponed amount from the original due date to the next day that is a business day. References to a business day mean each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in New York City or Rio de Janeiro generally are authorized or obligated by law, regulation or executive order to close. With respect to notes in certificated form, the reference to business day will also mean a day on which banking institutions generally are open for business in the location of each office of a transfer agent, but only with respect to a payment or other action to occur at that office. Transfer Agent Vale Overseas may appoint one or more financial institutions to act as its transfer agents, at whose designated offices the notes in certificated form must be surrendered before payment is made at their maturity. Each of those offices is referred to as a transfer agent. The initial transfer agent is J.P. Morgan Bank Luxembourg S.A. Vale Overseas may add, replace or terminate transfer agents from time to time, provided that if any notes are issued in certificated form, so long as such notes are outstanding, Vale Overseas will maintain a transfer agent in Luxembourg, for so long as any notes are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange require it, and in New York City. Vale Overseas may also choose to act as its own transfer agent. Initially, Vale Overseas has appointed the trustee, at its corporate trust office in New York City, as a transfer agent. Vale Overseas must notify you of changes in the transfer agents pursuant to the provisions described under "-- Notices." 112 Unclaimed Payments All money paid by Vale Overseas to the trustee that remains unclaimed at the end of two years after the amount is due to a holder will be repaid to Vale Overseas. After that two-year period, the holder may look only to Vale Overseas and CVRD for payment and not to the trustee, any other transfer agent or anyone else. NOTICES As long as notes in global form are outstanding, notices to be given to holders will be given to the depositary, in accordance with its applicable policies as in effect from time to time. If Vale Overseas issues notes in certificated form, notices to be given to holders will be sent by mail to the respective addresses of the holders as they appear in the trustee's records, and will be deemed given when mailed. For so long as any notes are listed on the Luxembourg Stock Exchange and in accordance with the rules and regulations of the Luxembourg Stock Exchange, Vale Overseas will publish all notices to holders in a newspaper with general circulation in Luxembourg, which is expected to be the Luxemburger Wort. Neither the failure to give any notice to a particular holder, nor any defect in a notice given to a particular holder, will affect the sufficiency of any notice given to another holder. GOVERNING LAW The indenture and the notes will be governed by the laws of the State of New York. Vale Overseas and CVRD will in the indenture agree that any legal suit, action or proceeding arising out of or relating to the indenture and the notes may be instituted in any federal or state court in the Borough of Manhattan, The City of New York, and will designate agents upon which process may be served. PRESCRIPTION PERIOD Claims for payment of principal in respect of the notes shall be prescribed upon the expiration of 10 years, and claims for payment of interest in respect of the notes shall be prescribed upon the expiration of 5 years, in each case from the Relevant Date (as defined below) thereof. The "Relevant Date" in respect of any payment means the date on which such payment first becomes due or (if the full amount of the monies payable has not been received by the trustee on or prior to such due date) the date on which notice is given to the holders that such monies have been so received. RELATIONSHIPS WITH THE TRUSTEE JPMorgan Chase Bank is serving as the trustee for the notes. JPMorgan Chase Bank and its affiliates may from time to time have other business relationships with Vale Overseas, CVRD and their affiliates. 113 THE EXCHANGE OFFER In the registration rights agreement among Vale Overseas, CVRD and the initial purchasers of the old securities, Vale Overseas agreed to cause the exchange offer to be completed on or prior to September 8, 2002. The registration rights agreement provides that, in the event Vale Overseas fails to cause the exchange offer to be completed by September 8, 2002, we will be required to pay additional interest on the old securities over and above the regular interest on the securities. Once the exchange offer is completed, Vale Overseas will no longer be required to pay additional interest on the old securities. The exchange offer is not being made to, nor will tenders for exchange be accepted from, holders of old securities in any jurisdiction in which the exchange offer or acceptance of the exchange offer would violate the securities or blue sky laws of that jurisdiction. TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD SECURITIES This prospectus and the accompanying letter of transmittal contain the terms and conditions of the exchange offer. Upon the terms and subject to the conditions included in this prospectus and in the accompanying letter of transmittal, which together are the exchange offer, Vale Overseas will accept for exchange old securities which are properly tendered on or prior to the expiration date, unless you have previously withdrawn them. - When you tender to Vale Overseas old securities as provided below, its acceptance of the old securities will constitute a binding agreement between you and Vale Overseas upon the terms and subject to the conditions in this prospectus and in the accompanying letter of transmittal. - For each $1,000 principal amount of old securities surrendered to Vale Overseas in the exchange offer, Vale Overseas will give you $1,000 principal amount of new securities. - Vale Overseas will keep the exchange offer open for not less than 20 business days, or longer if required by applicable law, after the date that Vale Overseas first mails notice of the exchange offer to the holders of the old securities. Vale Overseas is sending this prospectus, together with the letter of transmittal, on or about the date of this prospectus to all of the registered holders of old securities at their addresses listed in the trustee's security register with respect to the old securities. - The exchange offer expires at 5:00 p.m., New York City time, on , 2002; provided, however, that Vale Overseas, in its sole discretion, may extend the period of time for which the exchange offer is open. The term "expiration date" means , 2002 or, if extended by Vale Overseas, the latest time and date to which the exchange offer is extended. - As of the date of this prospectus, $300,000,000 in aggregate principal amount of the old securities were outstanding. The exchange offer is not conditioned upon any minimum principal amount of old securities being tendered. - Vale Overseas' obligation to accept old securities for exchange in the exchange offer is subject to the conditions described in the section called "Conditions to the Exchange Offer" below. - Vale Overseas expressly reserves the right, at any time, to extend the period of time during which the exchange offer is open, and thereby delay acceptance of any old securities, by giving oral (promptly confirmed in writing) or written notice of an extension to the exchange agent and notice of that extension to the holders as described below. During any extension, all old securities previously tendered will remain subject to the exchange offer unless withdrawal rights are exercised. Any old securities not accepted for exchange for any reason will be returned without expense to the tendering holder as promptly as practicable after the expiration or termination of the exchange offer. - Vale Overseas expressly reserves the right to amend or terminate the exchange offer, and not to accept for exchange any old securities that we have not yet accepted for exchange, if any of the 114 conditions of the exchange offer specified below under "Conditions to the Exchange Offer" are not satisfied. - Vale Overseas will give oral or written notice of any extension, amendment, termination or non-acceptance described above to holders of the old securities as promptly as practicable. If Vale Overseas extends the expiration date, Vale Overseas will give notice by means of a press release or other public announcement no later than 9:00 a.m., New York City time, on the business day after the previously scheduled expiration date. Without limiting the manner in which Vale Overseas may choose to make any public announcement and subject to applicable law, Vale Overseas will have no obligation to publish, advertise or otherwise communicate any public announcement other than by issuing a release to the Dow Jones News Service. - Holders of old securities do not have any appraisal or dissenters' rights in connection with the exchange offer. - Old securities which are not tendered for exchange or are tendered but not accepted in connection with the exchange offer will remain outstanding and be entitled to the benefits of the indenture, but will not be entitled to any further registration rights under the registration rights agreement. - Vale Overseas intends to conduct the exchange offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the SEC thereunder. - By executing, or otherwise becoming bound by, the letter of transmittal, you will be making the representations described below to Vale Overseas. See "-- Resales of the New Securities." IMPORTANT RULES CONCERNING THE EXCHANGE OFFER You should note that: - All questions as to the validity, form, eligibility, time of receipt and acceptance of old securities tendered for exchange will be determined by Vale Overseas in its sole discretion, which determination shall be final and binding. - Vale Overseas reserves the absolute right to reject any and all tenders of any particular old securities not properly tendered or to not accept any particular old securities which acceptance might, in its judgment or the judgment of our counsel, be unlawful. - Vale Overseas also reserves the absolute right to waive any defects or irregularities or conditions of the exchange offer as to any particular old securities either before or after the expiration date, including the right to waive the ineligibility of any holder who seeks to tender old securities in the exchange offer. Unless Vale Overseas agrees to waive any defect or irregularity in connection with the tender of old securities for exchange, you must cure any defect or irregularity within any reasonable period of time as Vale Overseas shall determine. - Vale Overseas' interpretation of the terms and conditions of the exchange offer as to any particular old securities either before or after the expiration date shall be final and binding on all parties. - Neither Vale Overseas, the exchange agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of old securities for exchange, nor shall any of them incur any liability for failure to give any notification. PROCEDURES FOR TENDERING OLD SECURITIES WHAT TO SUBMIT AND HOW If you, as the registered holder of an old security, wish to tender your old securities for exchange in the exchange offer, you must transmit a properly completed and duly executed letter of transmittal to JPMorgan Chase Bank at the address set forth below under "Exchange Agent" on or prior to the expiration date. 115 In addition, (1) certificates for old securities must be received by the exchange agent along with the letter of transmittal, or (2) a timely confirmation of a book-entry transfer of old securities, if such procedure is available, into the exchange agent's account at the Depository Trust Company, or DTC, using the procedure for book-entry transfer described below, must be received by the exchange agent on or prior to the expiration date or (3) you must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD SECURITIES, LETTERS OF TRANSMITTAL AND NOTICES OF GUARANTEED DELIVERY IS AT YOUR ELECTION AND RISK. IF DELIVERY IS BY MAIL, WE RECOMMEND THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD SECURITIES SHOULD BE SENT TO VALE OVERSEAS. HOW TO SIGN YOUR LETTER OF TRANSMITTAL AND OTHER DOCUMENTS Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the old securities being surrendered for exchange are tendered (1) by a registered holder of the old securities who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal or (2) for the account of an eligible institution. If signatures on a letter of transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, the guarantees must be by any of the following eligible institutions: - a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or - a commercial bank or trust company having an office or correspondent in the United States If the letter of transmittal is signed by a person or persons other than the registered holder or holders of old securities, the old securities must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name or names of the registered holder or holders that appear on the old securities and with the signature guaranteed. If the letter of transmittal or any old securities or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers or corporations or others acting in a fiduciary or representative capacity, the person should so indicate when signing and, unless waived by Vale Overseas, proper evidence satisfactory to Vale Overseas of its authority to so act must be submitted. ACCEPTANCE OF OLD SECURITIES FOR EXCHANGE; DELIVERY OF NEW SECURITIES Once all of the conditions to the exchange offer are satisfied or waived, Vale Overseas will accept, promptly after the expiration date, all old securities properly tendered and will issue the new securities promptly after acceptance of the old securities. See "Conditions to the Exchange Offer" below. For purposes of the exchange offer, Vale Overseas' giving of oral (promptly confirmed in writing) or written notice of its acceptance to the exchange agent will be considered its acceptance of the exchange offer. In all cases, Vale Overseas will issue new securities in exchange for old securities that are accepted for exchange only after timely receipt by the exchange agent of: - certificates for old securities, or - a timely book-entry confirmation of transfer of old securities into the exchange agent's account at DTC using the book-entry transfer procedures described below, and - a properly completed and duly executed letter of transmittal. If Vale Overseas does not accept any tendered old securities for any reason included in the terms and conditions of the exchange offer or if you submit certificates representing old securities in a greater 116 principal amount than you wish to exchange, Vale Overseas will return any unaccepted or non-exchanged old securities without expense to the tendering holder or, in the case of old securities tendered by book-entry transfer into the exchange agent's account at DTC using the book-entry transfer procedures described below, non-exchanged old securities will be credited to an account maintained with DTC as promptly as practicable after the expiration or termination of the exchange offer. BOOK-ENTRY TRANSFER The exchange agent will make a request to establish an account with respect to the old securities at DTC for purposes of the exchange offer promptly after the date of this prospectus. Any financial institution that is a participant in DTC's systems may make book-entry delivery of old securities by causing DTC to transfer old securities into the exchange agent's account in accordance with DTC's Automated Tender Offer Program procedures for transfer. However, the exchange for the old securities so tendered will only be made after timely confirmation of book-entry transfer of old securities into the exchange agent's account, and timely receipt by the exchange agent of an agent's message, transmitted by DTC and received by the exchange agent and forming a part of a book-entry confirmation. The agent's message must state that DTC has received an express acknowledgment from the participant tendering old securities that are the subject of that book-entry confirmation that the participant has received and agrees to be bound by the terms of the letter of transmittal, and that Vale Overseas may enforce the agreement against that participant. Although delivery of old securities may be effected through book-entry transfer into the exchange agent's account at DTC, the letter of transmittal, or a facsimile copy, properly completed and duly executed, with any required signature guarantees, or an agent's message in lieu thereof, must in any case be delivered to and received by the exchange agent at its address listed under "-- Exchange Agent" on or prior to the expiration date. If your old securities are held through DTC, you must complete a form called "instructions to registered holder and/or book-entry participant," which will instruct the DTC participant through whom you hold your securities of your intention to tender your old securities or not tender your old securities. Please note that delivery of documents to DTC in accordance with its procedures does not constitute delivery to the exchange agent and we will not be able to accept your tender of securities until the exchange agent receives a letter of transmittal or an agent's message in lieu thereof, and a book-entry confirmation from DTC with respect to your securities. A copy of that form is available from the exchange agent. GUARANTEED DELIVERY PROCEDURES If you are a registered holder of old securities and you want to tender your old securities but your old securities are not immediately available, or time will not permit your old securities to reach the exchange agent before the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if (1) the tender is made through an eligible institution, (2) on or prior to the expiration date, the exchange agent receives, by facsimile transmission, mail or hand delivery, from that eligible institution a properly completed and duly executed notice of guaranteed delivery, substantially in the form provided by Vale Overseas, stating: - the name and address of the holder of old securities - the amount of old securities tendered - the tender is being made by delivering that notice and guaranteeing that within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery, the certificates of all physically tendered old securities, in proper form for transfer, or a book-entry confirmation, as the case may be, will be deposited by that eligible institution with the exchange agent, and 117 (3) the certificates for all physically tendered old securities, in proper form for transfer, or a book-entry confirmation, as the case may be, together with the Letter of Transmittal and any other document required by the Letter of Transmittal or an agent's message in lieu thereof, are received by the exchange agent within three New York Stock Exchange trading days after the date of execution of the Notice of Guaranteed Delivery. WITHDRAWAL RIGHTS You can withdraw your tender of old securities at any time on or prior to the expiration date. For a withdrawal to be effective, a written notice of withdrawal must be received by the exchange agent at one of the addresses listed below under "Exchange Agent." Any notice of withdrawal must specify: - the name of the person having tendered the old securities to be withdrawn, - the old securities to be withdrawn - the principal amount of the old securities to be withdrawn - if certificates for old securities have been delivered to the exchange agent, the name in which the old securities are registered, if different from that of the withdrawing holder - if certificates for old securities have been delivered or otherwise identified to the exchange agent, then, prior to the release of those certificates, you must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an eligible institution unless you are an eligible institution. - if old securities have been tendered using the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn old securities and otherwise comply with the procedures of that facility. Please note that all questions as to the validity, form, eligibility and time of receipt of notices of withdrawal will be determined by Vale Overseas, and its determination shall be final and binding on all parties. Any old securities so withdrawn will be considered not to have been validly tendered for exchange for purposes of the exchange offer. If you have properly withdrawn old securities and wish to re-tender them, you may do so by following one of the procedures described under "Procedures for Tendering Old Securities" above at any time on or prior to the expiration date. CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provisions of the exchange offer, Vale Overseas will not be required to accept for exchange, or to issue new securities in exchange for, any old securities and may terminate or amend the exchange offer, if at any time before the acceptance of old securities for exchange or the exchange of the new securities for old securities, that acceptance or issuance would violate applicable law or any interpretation of the staff of the SEC. That condition is for the sole benefit of Vale Overseas and may be asserted by Vale Overseas regardless of the circumstances giving rise to that condition. Vale Overseas' failure at any time to exercise the foregoing rights shall not be considered a waiver by Vale Overseas of that right. Vale Overseas' rights described in the prior paragraph are ongoing rights which Vale Overseas may assert at any time and from time to time. In addition, Vale Overseas will not accept for exchange any old securities tendered, and no new securities will be issued in exchange for any old securities, if at that time any stop order shall be threatened or in effect with respect to the exchange offer to which this prospectus relates or the qualification of the indenture under the Trust Indenture Act. 118 EXCHANGE AGENT JPMorgan Chase Bank has been appointed as the exchange agent for the exchange offer. All executed letters of transmittal should be directed to the exchange agent at one of the addresses set forth below. Questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery should be directed to the exchange agent, addressed as follows: Deliver To: JPMorgan Chase Bank, Exchange Agent 450 West 33rd Street, 15th Floor New York, New York 10001 Attn: Institutional Trust Services Facsimile Transmissions: (212) 946-8177 or (212) 946-8178 To Confirm by Telephone or for Information: (212) 946-3028 DELIVERY TO AN ADDRESS OTHER THAN AS LISTED ABOVE OR TRANSMISSION OF THE LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS LISTED ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. FEES AND EXPENSES The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by Vale Overseas' officers, regular employees and affiliates. Vale Overseas will not pay any additional compensation to any of its officers and employees who engage in soliciting tenders. Vale Overseas will not make any payment to brokers, dealers, or others soliciting acceptances of the exchange offer. However, Vale Overseas will pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection with the exchange offer. The estimated cash expenses to be incurred in connection with the exchange offer, including legal, accounting, SEC filing, printing and exchange agent expenses, will be paid by Vale Overseas. Vale Overseas estimates that such expenses will be approximately US$250,000. TRANSFER TAXES Holders who tender their old securities for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct us to register new securities in the name of, or request that old securities not tendered or not accepted in the exchange offer be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax thereon. RESALE OF THE NEW SECURITIES Under existing interpretations of the staff of the SEC contained in several no-action letters to third parties, the new securities would in general be freely transferable after the exchange offer without further registration under the Securities Act. The relevant no-action letters include the Exxon Capital Holdings Corporation letter, which was made available by the SEC on May 13, 1988, and the Morgan Stanley & Co. Incorporated letter, made available on June 5, 1991. However, any purchaser of old securities who is an "affiliate" of Vale Overseas or CVRD or who intends to participate in the exchange offer for the purpose of distributing the new securities (1) will not be able to rely on the interpretation of the staff of the SEC, 119 (2) will not be able to tender its old securities in the exchange offer and (3) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the securities unless that sale or transfer is made using an exemption from those requirements. By executing, or otherwise becoming bound by, the Letter of Transmittal each holder of the old securities will represent that: (1) it is not an "affiliate" of Vale Overseas or CVRD; (2) any new securities to be received by it were acquired in the ordinary course of its business; and (3) it has no arrangement or understanding with any person to participate, and is not engaged in and does not intend to engage, in the "distribution," within the meaning of the Securities Act, of the new securities. In addition, in connection with any resales of new securities, any broker-dealer participating in the exchange offer who acquired securities for its own account as a result of market-making or other trading activities must deliver a prospectus meeting the requirements of the Securities Act. The SEC has taken the position in the Shearman & Sterling no-action letter, which it made available on July 2, 1993, that participating broker-dealers may fulfill their prospectus delivery requirements with respect to the new securities, other than a resale of an unsold allotment from the original sale of the old securities, with the prospectus contained in the exchange offer registration statement. Under the registration rights agreement, Vale Overseas is required to allow participating broker-dealers and other persons, if any, subject to similar prospectus delivery requirements to use this prospectus as it may be amended or supplemented from time to time, in connection with the resale of new securities. MATERIAL TAX CONSEQUENCES OF THE EXCHANGE OFFER In the opinion of Davis Polk & Wardwell, United States counsel for the issuer, the exchange of old securities for new securities in the exchange offer will not result in any United States federal income tax consequences to holders. When a holder exchanges an old security for a new security in the exchange offer, the holder will have the same adjusted basis and holding period in the new security as in the old security immediately before the exchange. In the opinion of Walkers, Cayman Islands counsel for the issuer, the exchange offer will not result in any Cayman Islands income tax consequences to holders. In the opinion of Paulo Francisco de Almeida Lopes, Esq., CVRD's general counsel, the exchange offer will not result in any Brazilian income tax consequences to holders. PLAN OF DISTRIBUTION Each broker-dealer that receives new securities for its own account in the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of new securities. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new securities received in exchange for old securities where old securities were acquired as a result of market-making activities or other trading activities. Vale Overseas and CVRD have agreed that, for a period of 180 days after the expiration date, they will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any resale of new securities received by it in exchange for old securities. Neither Vale Overseas nor CVRD will receive any proceeds from any sale of new securities by broker-dealers. New securities received by broker-dealers for their own account in the exchange offer may be sold from time to time in one or more transactions - in the over-the-counter market 120 - in negotiated transactions - through the writing of options on the new securities or - a combination of those methods of resale at market prices prevailing at the time of resale, at prices related to prevailing market prices or negotiated prices. Any resale may be made: - directly to purchasers or - to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any broker-dealer or the purchasers of any new securities. Any broker-dealer that resells new securities that were received by it for its own account in the exchange offer and any broker or dealer that participates in a distribution of those new securities may be considered to be an "underwriter" within the meaning of the Securities Act. Any profit on any resale of those new securities and any commission or concessions received by any of those persons may be considered to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be considered to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the expiration date, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests those documents in the letter of transmittal. Vale Overseas has agreed to pay all expenses incident to the exchange offer, including the expenses of one counsel for the holders of the securities, other than commissions or concessions of any brokers or dealers and will indemnify the holders of the securities, including any broker-dealers, against some liabilities, including liabilities under the Securities Act. 121 VALIDITY OF THE NEW NOTES The validity of the new notes will be passed upon for Vale Overseas and CVRD by Davis Polk & Wardwell, New York, New York. Certain matters of Cayman Islands law relating to the notes will be passed upon by Walkers, Cayman Islands counsel for CVRD and Vale Overseas. Certain matters of Brazilian law relating to the notes will be passed upon by Paulo Francisco de Almeida Lopes, Esq., General Counsel for CVRD. EXPERTS CVRD's consolidated financial statements as of December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000 are included in this Registration Statement in reliance upon the report of PricewaterhouseCoopers Auditores Independentes, independent accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements of certain of our subsidiaries and affiliates, not separately included in this prospectus, have been audited by various independent accountants other than PricewaterhouseCoopers Auditores Independentes. The companies and periods covered by these audits are indicated in the individual accountants' reports appearing in this prospectus. These financial statements, to the extent they have been included in our consolidated financial statements, have been included in reliance on the reports of the various independent accountants given on the authority of said firms as experts in auditing and accounting. With respect to CVRD's unaudited interim consolidated financial statements, at and for the nine months ended September 30, 2000 and 2001, PricewaterhouseCoopers Auditores Independentes reported that they have applied limited procedures in accordance with professional standards for a review of that information. However, their separate report thereon states that they did not audit and they did not express an opinion on our unaudited information. Accordingly, the degree of reliance on their report on that information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers Auditores Independentes is not subject to the liability provisions of Section 11 of the Securities Act for their report on our interim financial information because that report is not a "report" or a "part" of the registration statement prepared or certified by PricewaterhouseCoopers Auditores Independentes within the meaning of Sections 7 and 11 of the Securities Act. We have engaged Mineral Resources Development, Inc., or MRDI, experts in geology, mining and ore reserve determination, to perform an audit of our estimates of proven and probable reserves and mine life at December 31, 2000. The estimates of proven and probable reserves and mine life as presented herein have been audited and verified by MRDI, which has indicated that our proven and probable reserves have been estimated in accordance with good engineering practices, using current reasonable cost estimates. Reserves classified as "other mineral deposits" have not been audited by MRDI. Vale Overseas' financial statement as of September 30, 2001 is included in reliance upon the report of PricewaterhouseCoopers Auditores Independentes, independent accountants, given on the authority of said firm as experts in auditing and accounting. ENFORCEMENT OF CIVIL LIABILITIES AGAINST NON-U.S. PERSONS VALE OVERSEAS Vale Overseas has been advised by its Cayman Islands counsel, Walkers, that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will, based on the principle that a judgment by a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given, recognise and enforce a foreign judgment of a court having jurisdiction over the defendant according to Cayman Islands conflict of law rules, if such judgment is final, for a liquidated sum not in respect of taxes or a fine or penalty, is not inconsistent with a Cayman Islands judgment in respect of the same matters and was not obtained in a manner, and is not of a kind the enforcement of which is, contrary to natural justice, statute 122 or the public policy of the Cayman Islands. There is doubt, however, as to whether the courts of the Cayman Islands will (i) recognize or enforce judgments of United States courts predicated upon the civil liability provisions of the securities laws of the United States or any State thereof, or (ii) in original actions brought in the Cayman Islands, impose liabilities upon the civil liability provisions of the securities laws of the United States or any State thereof, on the grounds that such provisions are penal in nature. A Cayman Islands' court may stay proceedings if concurrent proceedings are being brought elsewhere. CVRD We are organized under the laws of Brazil and substantially all of our assets are located outside of the United States. The majority of our directors and executive officers and certain experts named in this prospectus reside outside of the United States and substantially all of the assets of such persons are located outside the United States. As a result, it may not be possible (or may be difficult) for investors to effect service of process upon us or such persons within the United States or to enforce against us or them judgments obtained in U.S. courts, including those predicated upon the civil liability provisions of the federal securities laws of the United States. We have been advised by Paulo Francisco de Almeida Lopes, Esq., our general counsel, that a judgment of a U.S. court for civil liabilities predicated upon the federal securities laws of the United States may be enforced in Brazil against us and our directors and executive officers and certain of the experts named herein without reconsideration of the merits, upon confirmation of that judgment by the Brazilian Federal Supreme Court. Such confirmation, generally, will be available if the foreign judgment (i) is for a payment of a sum certain, (ii) fulfills all formalities required for its enforceability under the laws of the United States, (iii) is issued by a competent court after proper service of process, (iv) is not subject to appeal, (v) is authenticated by a Brazilian consular office in the United States and is accompanied by a sworn translation in Portuguese and (vi) does not violate Brazilian national sovereignty, public policy or "good morals" (as set forth in Brazilian law). We have also been advised by our General Counsel that (i) original civil actions may be brought in connection with this prospectus predicated solely on the federal securities laws of the United States in Brazilian courts and that Brazilian courts may enforce such liabilities in such actions against us and our directors and executive officers and certain of the experts named herein (provided that provisions of the federal securities laws of the United States do not contravene Brazilian public policy and provided further that Brazilian courts can assert jurisdiction over the particular action) and (ii) the ability of a judgment creditor to satisfy a judgment by attaching certain assets of the defendant is limited by provisions of Brazilian law. In addition, a plaintiff (whether Brazilian or non-Brazilian) that resides outside Brazil during the course of the litigation in Brazil must provide a bond to guarantee court costs and legal fees if the plaintiff owns no real property in Brazil. 123 MINING TERMS
Alumina........................................... Aluminum oxide. It is extracted from bauxite in a chemical refining process and is the principal raw material in the electro-chemical process from which aluminum is produced. Bauxite........................................... A rock composed primarily of hydrated aluminum oxides. It is the principal ore of alumina, the raw material from which aluminum is made. Beneficiation..................................... The process of separating, concentrating and classifying ore by particle size or some other characteristic (e.g., specific gravity, magnetic susceptibility, surface chemistry, etc.) in order to obtain the mineral or metal of interest. CIF............................................... Cost, insurance and freight. It indicates that the seller pays for shipping, insurance, and all other costs associated with transportation of the commodity to its destination. CIL............................................... Carbon-in-Leach. A method of recovering gold in solution from slurry streams by contacting activated carbon with the pulp during the leaching process within agitated vessels and separating loaded carbon from the pulp by screening. CIP............................................... Carbon-in-Pulp. A method of recovering gold and silver extracted from pregnant cyanide solutions by absorbing the precious metals to granules of activated carbon, which are typically ground up coconut shells. Concentration..................................... Physical, chemical or biological process to increase the grade of the metal or mineral of interest. DR................................................ Direct reduction. DR iron ore pellets are used by steelmakers that employ minimill technology. DWT............................................... Deadweight ton. The measurement unit of a vessel's capacity for cargo, fuel oil, stores and crew, measured in metric tons of 1,000 kg. A vessel's total deadweight is the total weight the vessel can carry when loaded to a particular load line. Fines............................................. Refers to iron ore with particles in the range of 0.10 mm to 6.35 mm diameter. FOB............................................... Free on Board. It indicates that the purchaser pays for shipping, insurance, and all the other costs associated with transportation of the commodity to its destination. Grade............................................. The proportion of metal or mineral present in ore or any other host material. HL................................................ Heap Leaching. A low cost method of extracting metals such as gold and copper from low-grade ores. It consists of building a heap of ore and applying a solution (lixiviant) which dissolves the metal to produce a pregnant solution (leachate) from which the metal is recovered by precipitation and smelting or carbon absorption, stripping and electrowinning methods.
124
Kaolin............................................ A fine white aluminum silicate clay used as a coating agent, filler, extender and absorbent in the paper, ceramics and pharmaceutical industries. Lump ore.......................................... Iron ore or manganese ore with the coarsest particle size in the range of 6.35 mm to 75 mm diameter, but varying slightly between different mines and ores. Manganese......................................... A hard brittle metallic element found primarily in the minerals pyrolusite, hausmannite and manganate. Mineral deposit(s) or mineralized material(s)..... Refers to a mineralized body which has been intersected by a sufficient number of closely-spaced drill holes and/or underground/surface samples to support sufficient tonnage and grade of metal(s) or mineral(s) of interest to warrant further exploration-development work. The deposit does not qualify as an ore body until it can be legally and economically extracted at the time of ore reserve determination. Open pit mining................................... The extraction method by which surface or barren rock is removed so that ore may be removed using power shovels, front-end loaders, hydraulic excavators, draglines, etc. Oxides............................................ Compounds of oxygen with another element. For example, magnetite (Fe(3)O(4)) is an oxide mineral formed by the chemical union of iron with oxygen. Pellet feed....................................... Fine (0.10 mm to 6.35 mm) and ultra-fine (less than 0.10 mm) iron ore particles generated by the mining, grading, handling and transporting of iron ore, with no practical direct application in the steel industry, unless the material is aggregated into pellets through an agglomeration process. Pellets........................................... Balls of agglomerated fine and ultra-fine iron ore particles of a size and quality suitable for particular steelmaking processes. Our pellets range in size from 8 mm to 18 mm. Potash............................................ A potassium chloride compound, chiefly KCl, used in industry and agriculture. Probable (indicated) reserves..................... Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.
125
Proven (measured) reserves........................ Reserves for which (1) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; (2) grade and/or quality are computed from the results of detailed sampling; and (3) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well- established. Recoverable reserve............................... That portion of interest in the ore that can be physically recovered through processing. Reserve........................................... Refers to that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Run-of-mine....................................... Ore in its natural (unprocessed) state, as mined, without having been crushed. Seaborne market................................... The market for iron ore products that are shipped in vessels which have a capacity in excess of 50,000 DWT. Sinter feed....................................... Iron or manganese ore suitable for sintering. Sintering......................................... Refers to the agglomeration of small particles into a coherent mass by heating without melting. S/P............................................... Stockpile. Refers to ore or materials accumulated or piled at the surface for future use. Sulfides.......................................... Compounds of sulphur with more than one element and metallic sulfides (such as galena, PbS, and chalcopyrite, CuFeS(2)) which occur as minerals.
126 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS COMPANHIA VALE DO RIO DOCE Index to Consolidated Financial Statements.................. F-1 Report of PricewaterhouseCoopers Auditores Independentes dated February 21, 2001 for the three years ended December 31, 2000, 1999 and 1998................................... F-3 Consolidated Balance Sheets as of December 31, 2000 and 1999...................................................... F-4 Consolidated Statements of Income for the three years ended December 31, 2000, 1999 and 1998.......................... F-5 Consolidated Statements of Cash Flows for the three years ended December 31, 2000, 1999 and 1998.................... F-6 Consolidated Statements of Changes in Stockholders' Equity for the three years ended December 31, 2000, 1999 and 1998...................................................... F-7 Notes to Consolidated Financial Statements.................. F-8 Report of PricewaterhouseCoopers Auditores Independentes dated October 22, 2001 for the Nine-month periods ended September 30, 2001 and 2000............................... F-46 Consolidated Balance Sheets as of September 30, 2001 and 2000...................................................... F-47 Consolidated Statements of Income for the Nine-month periods ended September 30, 2001 and 2000......................... F-48 Consolidated Statements of Cash Flows for the Nine-month periods ended September 30, 2001 and 2000................. F-49 Consolidated Statements of Changes in Stockholders' Equity for the Nine-month periods ended September 30, 2001 and 2000...................................................... F-50 Notes to Consolidated Financial Statements.................. F-51 VALE OVERSEAS LIMITED Report of PricewaterhouseCoopers Auditores Independentes dated October 22, 2001 for the nine-month period ended September 30, 2001................ F-83 Balance Sheet as at September 30, 2001...................... F-84 Notes to the Consolidated Financial Information............. F-85 INDEX TO AUDIT REPORTS FROM INDEPENDENT ACCOUNTANTS LISTED IN NOTE 23 TO OUR CONSOLIDATED FINANCIAL STATEMENTS Index to Audit Reports...................................... B-1 Report of Deloitte Touche Tohmatsu dated January 19, 2001 with respect to the financial statements of Albras for the three years ended December 31, 2000, 1999 and 1998........ B-2 Report of Deloitte Touche Tohmatsu dated January 17, 2001 with respect to the financial statements of Alunorte for the three years ended December 31, 2000, 1999 and 1998.... B-3 Report of Deloitte Touche Tohmatsu dated January 19, 2001 with respect to the financial statements of Aluvale for the three years ended December 31, 2000, 1999 and 1998.... B-4 Report of KPMG Auditores Independentes dated February 6, 2001 with respect to the consolidated financial statements of Bahia Sul Celulose S.A. and subsidiaries for the three years ended December 31, 2000, 1999 and 1998.............. B-5 Report of KPMG LLP dated January 19, 2001 with respect to the financial statements of CSI for the three years ended December 31, 2000, 1999 and 1998.......................... B-6 Report of Deloitte Touche Tohmatsu dated January 19, 2001 with respect to the financial statements of Cenibra for the two years ended December 31, 2000 and 1999............ B-7 Reports of Deloitte Touche Tohmatsu dated February 8, 2001 and February 12, 1999 with respect to the financial statements of Docenave for the three years ended December 31, 2000, 1999 and 1998................................... B-8 Report of Deloitte Touche Tohmatsu dated January 19, 2001 with respect to the financial statements of Docepar for the two years ended December 31, 2000 and 1999............ B-11 Report of Arthur Andersen S/C dated January 15, 2001 with respect to the financial statements of Hispanobras for the three years ended December 31, 2000, 1999 and 1998........ B-12 Report of Arthur Andersen S/C dated January 15, 2001 with respect to the financial statements of Itabrasco for the three years ended December 31, 2000, 1999 and 1998........ B-13 Report of Deloitte Touche Tohmatsu dated January 29, 2001 with respect to the financial statements of Kobrasco for the year ended December 31, 2000.......................... B-14
F-1 Reports of Arthur Andersen S/C dated January 18, 2001 and January 17, 2000 with respect to the financial statements of MRN for the three years ended December 31, 2000, 1999 and 1998.................................................. B-15 Report of Deloitte Touche Tohmatsu dated January 29, 2001 with respect to the financial statements of Nibrasco for the three years ended December 31, 2000, 1999 and 1998.... B-17 Report of KPMG Auditores Independentes dated January 19, 2001 with respect to the financial statements of Valesul for the two years ended December 31, 2000 and 1999........ B-18 Report of Deloitte Touche Tohmatsu dated January 20, 1999 with respect to the financial statements of Valesul for the two years ended December 31, 1998 and 1997............ B-19 Report from Arthur Andersen S/C dated February 19, 2001 with respect to their consolidated financial statements of CSN for the two years ended December 31, 2000 and 1999........ B-20 Reports of Deloitte Touche Tohmatsu dated February 2, 2001 and April 28, 2000 with respect to financial statements of Terminal Vila Velha S.A for the three years ended December 31, 2000, 1999, and 1998 (English Version)................ B-21 Report of Deloitte Touche Tohmatsu dated January 19, 2001 with respect to financial statements of Nova Era Silicon S.A. for the year ended December 31, 2000 (English Version).................................................. B-23 Report of Trevisan dated January 18, 2000 with respect to financial statements of Nova Era Silicon S.A. for the two years ended December 31, 1999 and 1998 (English Version).................................................. B-25 Report of Deloitte Touche Tohmatsu dated January 19, 2001 with respect to financial statements of Celmar S.A.-Industria de Celulose e Papel for the year ended December 31, 2000 (English Version)....................... B-27 Report of Deloitte Touche Tohmatsu dated January 22, 2001 with respect to financial statements of SIBRA Eletrosiderurgica Brasileira S.A. for the year ended December 31, 2000 (English Version)....................... B-28 INDEX TO REVIEW REPORTS FROM INDEPENDENT ACCOUNTANTS LISTED IN NOTE 20 TO OUR CONSOLIDATED INTERIM FINANCIAL STATEMENTS Index to Review Reports..................................... C-1 Report of Deloitte Touche Tohmatsu dated October 23, 2001 with respect to the financial statements of Albras for the nine-month periods ended September 30, 2001 and 2000...... C-2 Report of Deloitte Touche Tohmatsu dated October 23, 2001 with respect to the financial statements of Alunorte for the nine-month periods ended September 30, 2001 and 2000...................................................... C-3 Report of KPMG Auditores Independentes dated October 18, 2000 with respect to the financial statements of Bahia Sul for the nine-month periods ended September 30, 2000 and 1999...................................................... C-4 Report of Deloitte Touche Tohmatsu dated November 1, 2001 with respect to the financial statements of Cenibra for the nine-month periods ended September 30, 2001 and 2000...................................................... C-5 Report of Deloitte Touche Tohmatsu dated October 22, 2001 with respect to the financial statements of Docenave for the nine-month periods ended September 30, 2001 and 2000...................................................... C-6 Report of Deloitte Touche Tohmatsu dated October 22 , 2001 with respect to the financial statements of Docepar for the nine-month periods ended September 30, 2001 and 2000...................................................... C-7 Report of Arthur Andersen S/C dated October 19, 2001 with respect to the financial statements of Hispanobras for the nine-month periods ended September 30, 2001 and 2000...... C-8 Report of Arthur Andersen S/C dated October 19, 2001 with respect to the financial statements of Itabrasco for the nine-month periods ended September 30, 2001 and 2000...... C-9 Report of Deloitte Touche Tohmatsu dated October 19, 2001 with respect to the financial statements of Kobrasco for the nine-month periods ended September 30, 2001 and 2000...................................................... C-10 Report of Arthur Andersen S/C dated October 22, 2001 with respect to the financial statements of MRN for the nine-month periods ended September 30, 2001 and 2000...... C-11 Report of Deloitte Touche Tohmatsu dated October 19, 2001 with respect to the financial statements of Nibrasco for the nine-month periods ended September 30, 2001 and 2000...................................................... C-12 Report of KPMG Auditores Independentes dated October 19, 2001 with respect to the financial statements of Valesul for the nine-month periods ended September 30, 2001 and 2000...................................................... C-13 Report of Arthur Andersen S/C dated October 20, 2000 with respect to the financial statements of CSN for the nine-month period ended September 30, 2000................ C-14
F-2 [PRICEWATERHOUSECOOPERS LETTERHEAD] - -------------------------------------------------------------------------------- PricewaterhouseCoopers Rua da Candelaria, 65 11--15- 20091-020 Rio de Janeiro, RJ-Brasil Caixa Postal 949 Telefone (21) 3232-6112 Fax (21) 2516-6319 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF COMPANHIA VALE DO RIO DOCE In our opinion, based upon our audits and the reports of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows and of changes in stockholders' equity, present fairly, in all material respects, the financial position of Companhia Vale do Rio Doce and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain affiliates, the investments in which total US$1,188 million and US$929 million at December 31, 2000 and 1999, respectively, and equity in earnings of US$213 million, US$42 million and US$21 million for 2000, 1999 and 1998, respectively. Also, we did not audit the financial statements of the majority-owned shipping and ferro alloys subsidiaries as at and for the years ended December 31, 2000, 1999 and 1998, which statements reflect total assets of US$584 million and US$569 million at December 31, 2000 and 1999, respectively, and total revenues of US$480 million, US$177 million and US$222 million for 2000, 1999 and 1998, respectively. The financial statements of these affiliates and subsidiaries were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts for these affiliates and subsidiaries, is based solely on the reports of the other auditors. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for the opinion expressed above. As discussed in Note 21 to the financial statements, the Company has made changes in the application of certain accounting principles. /S/ PRICEWATERHOUSECOOPERS PRICEWATERHOUSECOOPERS Auditores Independentes Rio de Janeiro, Brazil February 21, 2001, except for the accounting changes described in Note 21 and the information on subsequent events contained in Note 22, which are as of February 22, 2002 and March 8, 2002, respectively. F-3 CONSOLIDATED BALANCE SHEETS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS
AS OF DECEMBER 31 ---------------- 2000 1999 ------ ------ ASSETS CURRENT ASSETS Cash and cash equivalents................................. 1,211 1,453 Accounts receivable Related parties......................................... 125 107 Unrelated parties....................................... 365 350 Loans and advances to related parties..................... 121 93 Inventories............................................... 306 244 Deferred income tax....................................... 89 60 Others.................................................... 285 183 ------ ------ 2,502 2,490 Property, plant and equipment, net.......................... 3,955 3,943 Investments in affiliated companies and joint ventures and other investments......................................... 2,216 1,707 Provision for losses and write-downs on equity investments............................................... (421) (504) OTHER ASSETS Goodwill on acquisition of consolidated subsidiaries...... 175 -- Loans and advances Related parties......................................... 704 601 Unrelated parties....................................... 52 66 Unrecognized pension obligation........................... 125 64 Deferred income tax....................................... 255 192 Judicial deposits......................................... 119 72 Others.................................................... 113 57 ------ ------ TOTAL....................................................... 9,795 8,688 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Suppliers................................................. 321 251 Payroll and related charges............................... 51 48 Interest attributed to stockholders....................... 657 254 Current portion of long-term debt Related parties......................................... 30 30 Unrelated parties....................................... 250 458 Short-term debt........................................... 465 690 Loans from related parties................................ 152 190 Others.................................................... 210 151 ------ ------ 2,136 2,072 ------ ------ LONG-TERM LIABILITIES Employees postretirement benefits......................... 591 314 Long-term debt Related parties......................................... 128 121 Unrelated parties....................................... 1,892 1,200 Loans from related parties................................ 21 4 Provisions for contingencies (Note 15).................... 338 185 Others.................................................... 111 98 ------ ------ 3,081 1,922 ------ ------ Minority interest........................................... 9 3 ------ ------ STOCKHOLDERS' EQUITY Preferred class A stock -- 600,000,000 no-par-value shares authorized and 138,575,913 issued....................... 709 709 Common stock -- 300,000,000 no-par-value shares authorized and 249,983,143 issued.................................. 1,279 1,279 Treasury stock -- 3,659,311 (1999 -- 3,659,311) preferred and 7,300 common shares................................. (61) (61) Additional paid-in capital................................ 498 498 Other cumulative comprehensive income..................... (3,040) (2,487) Appropriated retained earnings............................ 3,537 3,567 Unappropriated retained earnings.......................... 1,647 1,186 ------ ------ 4,569 4,691 ------ ------ TOTAL....................................................... 9,795 8,688 ====== ======
See Notes to Consolidated Financial Statements. F-4 CONSOLIDATED STATEMENTS OF INCOME EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS (EXCEPT NUMBER OF SHARES AND PER-SHARE AMOUNTS)
YEAR ENDED DECEMBER 31 --------------------------- 2000 1999 1998 ------- ------- ------- Operating revenues, net of discounts, returns and allowances Sales of ores and metals Iron ore and pellets................................... 2,177 1,694 1,930 Gold................................................... 156 155 168 Others................................................. 412 175 200 ------- ------- ------- 2,745 2,024 2,298 Revenues from transportation services..................... 760 642 848 Aluminum products......................................... 362 363 407 Other products and services............................... 202 128 105 ------- ------- ------- 4,069 3,157 3,658 Value-added tax........................................... (134) (81) (105) ------- ------- ------- Net operating revenues.................................... 3,935 3,076 3,553 ------- ------- ------- Operating costs and expenses Cost of ores and metals sold.............................. (1,423) (996) (1,348) Cost of transportation services........................... (481) (368) (440) Cost of aluminum products................................. (334) (323) (387) Others.................................................... (191) (119) (97) ------- ------- ------- (2,429) (1,806) (2,272) Selling, general and administrative expenses.............. (225) (138) (171) Research and development.................................. (48) (27) (48) Employee profit sharing plan.............................. (29) (24) (29) Other..................................................... (220) (161) (179) ------- ------- ------- (2,951) (2,156) (2,699) ------- ------- ------- Operating income............................................ 984 920 854 ------- ------- ------- Non-operating income (expenses) Financial income.......................................... 208 200 394 Financial expenses........................................ (315) (233) (243) Foreign exchange and monetary gains (losses), net......... (142) (213) (108) Others.................................................... (4) (4) (5) ------- ------- ------- (253) (250) 38 ------- ------- ------- Income before income taxes, equity results and minority interests................................................. 731 670 892 ------- ------- ------- Income taxes Current................................................... (10) -- (28) Deferred.................................................. 42 (33) 28 ------- ------- ------- 32 (33) -- ------- ------- ------- Equity in results of affiliates and joint ventures.......... 260 41 80 Change in provision for losses and write-downs on equity investments............................................... 62 (268) (273) Minority interests.......................................... 1 2 (1) ------- ------- ------- Net income.................................................. 1,086 412 698 ======= ======= ======= Basic earnings per Common Share............................. 2.82 1.07 1.80 ------- ------- ------- Basic earnings per Preferred Class A Share.................. 2.82 1.07 1.80 ------- ------- ------- Weighted average number of shares outstanding (thousands of shares) Common shares............................................. 249,983 249,983 249,983 Preferred Class A shares.................................. 134,917 134,917 137,965
See Notes to Consolidated Financial Statements F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS
YEAR ENDED DECEMBER 31 ------------------------ 2000 1999 1998 ------ ----- ----- Cash flows from operating activities: Net income................................................ 1,086 412 698 Adjustments to reconcile net income with cash provided by operating activities: Depreciation, depletion and amortization................ 195 163 231 Equity in results of affiliates and joint ventures, net of dividends received.................................. (127) 23 36 Change in provision for losses and write-downs on equity investments............................................ (62) 268 273 Deferred income taxes................................... (42) 33 (28) Provisions for contingencies............................ 101 57 78 Loss on disposals of property, plant and equipment...... 47 23 64 Gain on Alunorte/MRN transaction........................ (54) -- -- Pension plan............................................ 105 55 88 Foreign exchange and monetary losses.................... 208 399 135 Others.................................................. 54 61 (50) Decrease (increase) in assets: Accounts receivable..................................... (63) (135) (69) Inventories............................................. (50) (6) (58) Others.................................................. (103) (25) (2) Increase (decrease) in liabilities: Suppliers............................................... 84 49 (2) Payroll and related charges............................. (1) 2 (20) Others.................................................. 46 (43) (2) ------ ----- ----- Net cash provided by operating activities................. 1,424 1,336 1,372 ------ ----- ----- Cash flows from investing activities: Loans and advances receivable Related parties Additions............................................. (168) (202) (399) Repayments............................................ 32 42 230 Others................................................ 8 5 6 Guarantees and deposits................................... (98) (4) (47) Additions to investments.................................. (538) (49) (36) Additions to property, plant and equipment................ (447) (265) (412) Proceeds from disposal of property, plant and equipment... 1 1 12 Proceeds from disposal of investments..................... 44 -- -- Net cash used to acquire subsidiaries..................... (323) -- -- Others.................................................... -- 3 15 ------ ----- ----- Net cash used in investing activities..................... (1,489) (469) (631) ------ ----- ----- Cash flows from financing activities: Short-term debt, net issuances............................ (278) (110) 60 Loans Related parties Additions............................................. 8 223 46 Repayments............................................ (42) (42) (38) Perpetual notes........................................... 120 -- -- Long-term debt Related parties......................................... 62 60 38 Unrelated parties....................................... 750 175 288 Repayments of long-term debt Related parties......................................... (25) (48) (87) Unrelated parties....................................... (419) (299) (239) Interest attributed to stockholders....................... (246) (452) (607) Treasury stock............................................ -- -- (36) ------ ----- ----- Net cash used in financing activities..................... (70) (493) (575) ------ ----- ----- Increase (decrease) in cash and cash equivalents.......... (135) 374 166 Effect of exchange rate changes on cash and cash equivalents............................................. (107) (110) (85) Cash and cash equivalents, beginning of year.............. 1,453 1,189 1,108 ------ ----- ----- Cash and cash equivalents, end of year.................... 1,211 1,453 1,189 ====== ===== ===== Cash paid during the year for: Interest on short-term debt............................. (48) (55) (68) Interest on long-term debt, net of interest capitalized of $12 in 2000, $12 in 1999 and $23 in 1998............ (128) (107) (98) Income tax.............................................. (6) -- -- Non-cash transactions Exchange of loans receivable for investments............ 7 241 240 Transfer of credits from related parties at fair value.................................................. -- 126 --
See Notes to Consolidated Financial Statements F-6 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS (EXCEPT NUMBER OF SHARES AND PER-SHARE AMOUNTS)
YEAR ENDED DECEMBER 31 ------------------------------------- SHARES 2000 1999 1998 ----------- ------ ------ ----- Preferred class A stock (including one special share) Balance January 1, 2000, 1999 and 1998.................... 138,575,913 709 642 468 Transfer from appropriated retained earnings.............. -- -- 67 174 ----------- ------ ------ ----- Balance December 31, 2000, 1999 and 1998.................. 138,575,913 709 709 642 ----------- ------ ------ ----- Common stock Balance January 1, 2000, 1999 and 1998.................... 249,983,143 1,279 1,159 845 Transfer from appropriated retained earnings.............. -- -- 120 314 ----------- ------ ------ ----- Balance December 31, 2000, 1999 and 1998.................. 249,983,143 1,279 1,279 1,159 ----------- ------ ------ ----- Treasury stock Balance January 1......................................... (1,347,500) (61) (61) (25) Acquisitions in 1998...................................... (2,311,500) -- -- (36) Acquisitions in 1999...................................... (311) -- -- -- Acquisitions in 2000...................................... (7,300) -- -- -- ----------- ------ ------ ----- Balance December 31....................................... (3,666,611) (61) (61) (61) ----------- ------ ------ ----- Additional paid-in capital Balance January 1 and December 31......................... 498 498 498 ------ ------ ----- Other cumulative comprehensive income Amounts not recognized as net periodic pension cost Balance January 1....................................... -- (153) (77) Excess of additional minimum liability.................. (151) 229 (115) Tax effect on above..................................... 51 (76) 39 ------ ------ ----- Balance December 31..................................... (100) -- (153) ------ ------ ----- Cumulative translation adjustments Balance January 1....................................... (2,513) (731) (218) Change in the year...................................... (459) (1,804) (517) ------ ------ ----- Balance December 31..................................... (2,972) (2,535) (735) ------ ------ ----- Unrealized gain on available-for-sale securities Balance January 1....................................... 54 30 -- Unrealized gain (loss) in the year...................... (30) 24 30 ------ ------ ----- Balance December 31..................................... 24 54 30 ------ ------ ----- Adjustments relating to investments in affiliates Balance January 1....................................... (6) (7) -- Change in adjustments relating to investments in affiliates............................................ 14 1 (7) ------ ------ ----- Balance December 31..................................... 8 (6) (7) ------ ------ ----- Total other cumulative comprehensive income................. (3,040) (2,487) (865) ------ ------ ----- Appropriated retained earnings Balance January 1....................................... 3,567 5,212 5,806 Transfer to retained earnings........................... (30) (1,458) (106) Transfer to capital stock............................... -- (187) (488) ------ ------ ----- Balance December 31..................................... 3,537 3,567 5,212 ------ ------ ----- Retained earnings Balance January 1......................................... 1,186 (193) (391) Net income.............................................. 1,086 412 698 Interest attributed to stockholders Preferred class A stock ($1.70, $1.28 and $1.58 per share in 2000, 1999 and 1998)....................... (230) (172) (212) Common stock ($1.70, $1.28 and $1.58 per share in 2000, 1999 and 1998).............................. (425) (319) (394) Appropriation from reserves............................. 30 1,458 106 ------ ------ ----- Balance December 31....................................... 1,647 1,186 (193) ----------- ------ ------ ----- Total stockholders' equity.................................. 384,892,445 4,569 4,691 6,392 =========== ====== ====== ===== Comprehensive income is comprised as follows: Net income................................................ 1,086 412 698 Amounts not recognized as net period pension cost......... (100) 153 (76) Cumulative translation adjustments........................ (459) (1,804) (517) Unrealized gain (loss) on available-for-sale securities... (30) 24 30 Adjustments relating to investments in affiliates......... 14 1 (7) ------ ------ ----- Total comprehensive income (loss)........................... 511 (1,214) 128 ====== ====== =====
See Notes to Consolidated Financial Statements F-7 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED 1. THE COMPANY AND ITS OPERATIONS Companhia Vale do Rio Doce (CVRD) is a limited liability company, duly organized and existing under the laws of the Federative Republic of Brazil. Our operations are carried out through CVRD and its subsidiary companies, joint ventures and affiliates, and mainly consist of mining, non-ferrous metal production and logistics, as well as pulp and paper, aluminum and steel activities. Further details of our operations and those of our joint ventures and affiliates are described in Note 16. The main operating subsidiaries we consolidate are as follows:
HEAD OFFICE SUBSIDIARY % OWNERSHIP LOCATION PRINCIPAL ACTIVITY - ---------- ----------- ------------- --------------------- S.A. Mineracao da Trindade -- SAMITRI....... 100 Brazil Iron ore and pellets Para Pigmentos S.A. ........................ 76 Brazil Kaolin SIBRA -- Eletrosiderurgica Brasileira S.A....................................... 98 Brazil Ferrous alloys Navegacao Vale do Rio Doce S.A. -- DOCENAVE.................................. 100 Brazil Shipping Vale do Rio Doce Aluminio S.A. -- ALUVALE... 100 Brazil Aluminum Itabira Rio Doce Company Ltd. -- ITACO...... 100 Cayman Trading Islands Rio Doce International Finance Ltd. -- RDIF.............................. 100 Bahamas International finance
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES In preparing the consolidated financial statements, we are required to use estimates to account for certain assets, liabilities, revenues and expenses. Our consolidated financial statements therefore include various estimates concerning the selection of useful lives of property, plant and equipment, provisions necessary for contingent liabilities, fair values assigned to assets and liabilities acquired in business combinations, income tax valuation allowances, employee postretirement benefits and other similar evaluations; actual results may vary from our estimates. (a) BASIS OF PRESENTATION We have prepared the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("US GAAP"), which differ in certain respects from the Brazilian accounting principles that we use in preparing our statutory financial information. The U.S. dollar amounts for the years presented have been remeasured (translated) from the Brazilian currency amounts in accordance with the criteria set forth in Statement of Financial Accounting Standards 52 -- "Foreign Currency Translation" (SFAS 52). Prior to July 1, 1997, Brazil was considered under SFAS 52 to have a highly inflationary economy, defined as an economy in which the cumulative inflation rate over the latest thirty-six month period has exceeded 100%. Accordingly, up to June 30, 1997, we adopted the U.S. dollar as both our functional currency and reporting currency. As from July 1, 1997, we concluded that the Brazilian economy had ceased to be highly inflationary and changed our functional currency from the reporting currency (U.S. dollars) to the local currency (Brazilian reais). Accordingly, at July 1, 1997, we translated the U.S. dollar amounts of non-monetary assets and liabilities into reais at the current exchange rate, and those amounts became the new accounting bases for such assets and liabilities. The resulting deferred taxes associated with the differences between the new functional currency bases and the tax bases, including those relating to affiliates and joint F-8 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) ventures, net of related valuation allowances, were reflected in the cumulative translation adjustments component of stockholders' equity. We have remeasured all assets and liabilities into U.S. dollars at the current exchange rate at each balance sheet date (R$1.9554 and R$1.7890 to US$1.00 at December 31, 2000 and 1999, respectively), and all accounts in the statements of income (including amounts relative to local currency indexation and exchange variances on assets and liabilities denominated in foreign currency) at the average rates prevailing during the year. The translation gain or loss resulting from this remeasurement process is included in the cumulative translation adjustments account in stockholders' equity. The net transaction loss included in our statement of income was $115, $265 and $114 in 2000, 1999 and 1998, respectively. (b) BASIS OF CONSOLIDATION All majority-owned subsidiaries where we have both share and management control are consolidated, with elimination of all significant intercompany accounts and transactions. Investments in unconsolidated affiliates and joint ventures are reported at cost less amortized goodwill plus our equity in undistributed earnings or losses. Included in this category are certain joint ventures in which we have majority ownership but, by force of shareholders' agreements, do not have effective management control. We provide for losses on equity investments with negative stockholders' equity and for other than temporary decreases in market value below carrying value where applicable (see Notes 10 and 21). We evaluate the carrying value of our listed equity investments as at year end, relative to publicly available quoted market prices. If the quoted market price is below book value and such decline is considered other than temporary, we write-down our equity investments to quoted market value. We define joint ventures as businesses in which we and a small group of other partners each participate actively in the overall management thereof, based on a shareholders agreement. We define affiliates as businesses in which we participate as a minority stockholder but with significant influence over the operating and financial policies of the investee. (c) BUSINESS COMBINATIONS We adopt the procedures determined by Accounting Principles Board Opinion 16 -- "Business Combinations" (APB 16) to recognize acquisitions of interests in other companies. The method of accounting normally used in our business combination transactions is the "purchase method", which requires that acquirers reasonably determine the fair value of the identifiable assets and liabilities of acquired companies, individually, in order to determine the goodwill paid in the purchase to be recognized as an intangible asset. On the acquisition of assets which include the rights to mine reserves of natural resources, the establishment of values for these assets includes the placing of fair values on purchased reserves, which are classified in the balance sheet as property, plant and equipment. Goodwill recorded in our business combination transactions is amortized in a systematic manner over the periods estimated to be benefited. (d) INVENTORIES Inventories are stated at the average cost of purchase or production, lower than replacement or realizable values. We record allowances for slow-moving or obsolete inventories when considered appropriate, reflecting our periodic assessment of recoverability. A write-down of inventory utilizing the allowance establishes a new cost basis for the related inventory. F-9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) Finished goods inventories include all related materials, labor and direct production expenditures, and exclude general and administrative expenses. (e) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost, including interest cost incurred during the construction of major new facilities. We compute depreciation on the straight-line basis at rates which take into consideration the useful lives of the items, principally an average of 80 years for the railroads, 20 years for ships, 25 years for buildings and improvements and between 10 to 20 years for mining and other equipment. Expenditures for maintenance and repairs are charged to operating costs and expenses as incurred. We capitalize the costs of developing major new ore bodies or expanding the capacity of operating mines and amortize these to operations on the unit-of-production method based on the total probable and proven quantity of ore to be recovered. Exploration costs are expensed until viability of mining activities is established; subsequently such costs are capitalized together with further exploration costs. We capitalize mine development costs as from the time we actually begin such development. (f) AVAILABLE-FOR-SALE EQUITY SECURITIES Equity securities classified as "available-for-sale" are recorded in accordance with SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities". Accordingly, we exclude unrealized holding gains and losses, net of taxes, if applicable, from income and recognize them as a separate component of stockholders' equity until realized. (g) REVENUES AND EXPENSES Revenues are recognized when title has transferred to the customer or services are rendered. Expenses and costs are recognized on the accrual basis. Revenue from exported products is recognized when such products are loaded on board the ship. Revenue from products sold in the domestic market is recognized when delivery is made to the customer. Revenue from transportation services, other than shipping operations, is recognized when the service order has been fulfilled. Shipping operations are recorded on the completed voyage basis and net revenue, costs and expenses of voyages not completed at period-end are deferred. Anticipated losses on voyages are provided when probable and can be reasonably estimated. (h) ENVIRONMENTAL AND SITE RECLAMATION AND RESTORATION COSTS Expenditures relating to ongoing compliance with environmental regulations are charged against earnings or capitalized as appropriate. These ongoing programs are designed to minimize the environmental impact of our activities. With respect to our two major iron ore mines at Itabira and Carajas, which have extensive remaining reserves, liabilities for final site reclamation and restoration costs will be recorded when the respective reclamation and restoration strategies can be reasonably determined and the related costs can be reasonably estimated. At December 31, 2000 we have recorded provisions of $14. (i) COMPENSATED ABSENCES We fully accrue the liability for future compensation to employees for vacations vested during the year. F-10 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) (j) INCOME TAXES In accordance with SFAS 109 "Accounting for Income Taxes", the deferred tax effects of temporary differences have been recognized in the consolidated financial statements. A valuation allowance is made when we believe that it is more likely than not that tax assets will not be fully recoverable in the future. (k) Statement of Cash Flows Cash flows relating to overnight financing and investment are reported net. Short-term investments that have a ready market and maturity to us, when purchased, of 90 days or less are considered cash equivalents. In 2000, dividends of $133 received from equity method affiliates and joint ventures have been netted against the equity in results of these entities in the statement of cash flows. For comparative purposes dividends received in 1999 and 1998 of $64 and $116, respectively, have been reclassified from investing activities to reflect the same presentation. (l) Earnings Per Share Earnings per share are computed by dividing net income by the weighted average number of common and preferred shares outstanding during the year. (m) Interest Attributed to Stockholders As from January 1, 1996 Brazilian corporations are permitted to attribute interest on stockholders' equity. The calculation is based on the stockholders' equity amounts as stated in the statutory accounting records and the interest rate applied may not exceed the long-term interest rate (TJLP) determined by the Brazilian Central Bank. Also, such interest may not exceed the greater of 50% of net income for the year or 50% of retained earnings plus revenue reserves. The amount of interest attributed to stockholders is deductible for income tax purposes. Accordingly, the benefit to us, as opposed to making a dividend payment, is a reduction in our income tax charge equivalent to the statutory tax rate applied to such amount. Income tax is withheld from the stockholders relative to interest at the rate of 15%, except for interest due to the Brazilian Government which is exempt from tax withholdings. We have opted to pay such tax-deductible interest to our stockholders and have therefore accrued the amounts due as of December 31, 2000 and 1999, with a direct charge to stockholders' equity. Under Brazilian law interest attributable to stockholders is considered as part of the annual minimum dividend (See Note 13). Accordingly such distributions are treated as dividends for accounting purposes. (n) Accounting for Derivatives and Hedging Activities In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 -- Accounting for Derivative Financial Instruments and Hedging Activities (SFAS 133). The standard, as amended by SFAS 137 -- Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB 133, and amendment of FASB Statement No. 133 and SFAS 138 -- Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133 (referred to hereafter as "FAS 133"), is effective for us as from January 1, 2001. FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or in other comprehensive income, depending on whether the derivative is designated as part of a hedge transaction and, if it is, depending on the type of hedge relationship. The ineffective portion of all hedges F-11 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) is recognized in current period earnings. We currently believe that the initial impact of the adoption of SFAS 133 will not be significant. (o) Comprehensive Income We have disclosed comprehensive income as part of the Statement of Changes in Stockholders' Equity, in compliance with SFAS 130 -- "Reporting Comprehensive Income". 3. OUR PRIVATIZATION In May 1997, we were privatized by the Brazilian Government, which transferred voting control to Valepar S.A. ("Valepar"). The Brazilian Government has retained certain rights with respect to our future decisions and those of Valepar and has also caused us to enter into agreements which may affect our activities and results of operations in the future. These rights and agreements are: - Preferred Special Share. The Brazilian Government holds a preferred special share of CVRD which confers upon it permanent veto rights over changes in our (i) name, (ii) headquarters location, (iii) corporate purpose with respect to mineral exploration, (iv) continued operation of our integrated iron ore mining systems and (v) certain other matters. - Preferred Class A Share of Valepar. The Brazilian Government holds a preferred class A share of Valepar which confers upon it approval rights for a period of five years in respect of (i) concentration of ownership of Valepar by particular types of investors in excess of prescribed limitations and (ii) changes in the Valepar holding company structure relating to ownership of our common shares. - Shareholder revenue interests. On July 7, 1997, we issued to shareholders of record on April 18, 1997 (including the Brazilian Government) revenue interests providing holders thereof with the right to receive semi-annual payments based on a percentage of our net revenues above threshold production volumes from identified mining resources. These instruments are not secured by the corresponding mineral reserves and deposits. In addition to the preferred special share mentioned above, the National Treasury and the Banco Nacional de Desenvolvimento Economico e Social - BNDES, the Government-owned development bank, together currently own 32% of our common shares and 4% of our preferred shares, which in aggregate represents 22% of our total capital. 4. MAJOR ACQUISITIONS We made the following acquisitions during the year ended December 31, 2000. Pro forma information with respect to results of operations is not presented since the effects are not considered material to an understanding of our consolidated financial statements. (a) On May 11, 2000, we acquired the entire capital of Mineracao SOCOIMEX S.A., a non-public company whose main activity is production and commercialization of iron ore, for the total price of $55, being an initial cash payment of $47 and two further cash payments of $3 and $5, in 2001 and 2002, respectively, plus interest based on 89% of the Brazilian Interbank Rate through the payment date. The increment of the fair value over the book value of SOCOIMEX at the date of purchase was entirely attributable to its mineral reserves, which are included in the property, plant and equipment. In August 2000 SOCOIMEX was merged into CVRD. (b) On May 30, 2000, we acquired 4,026,694,190 common shares and 4,231,324,374 preferred shares of S.A. Mineracao Trindade -- SAMITRI, representing 79.27% of the voting capital and 63.06% of the total capital for $520 in cash: becoming the controlling stockholder. At the date of the F-12 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) purchase, SAMITRI was a publicly listed Brazilian iron ore mining company, which also owned a 51% interest in the voting capital of SAMARCO Mineracao S.A., a large iron ore pellets producer (see Note 10). On June 29, 2000, we sold 1% of the share capital of SAMARCO to BHP Brasil Ltda. (BHP), a subsidiary of The Broken Hill Proprietary Company Limited of Australia, for $8, to equalize our shareholdings in the joint venture. (c) The assets and liabilities acquired as a result of the above transactions and corresponding goodwill were as follows:
UNCONSOLIDATED {CONSOLIDATED SUBSIDIARIES} JOINT VENTURE ---------------------------- SAMARCO SAMITRI SOCOIMEX -------------- ------------ ------------- Fair value of assets............................... 1,006 293 77 Fair value of liabilities.......................... (450) (144) (22) ----- ----- ------ Net assets at fair value........................... 556 149 55 ----- ----- ------ Interest acquired.................................. 50.00% 63.06% 100.00% Fair value of net assets acquired.................. 278 94 55 Attributable to minority stockholders of SAMITRI (36.94%)......................................... (103) -- -- Tax benefits....................................... 31 -- -- ----- ----- ------ Effective interest acquired........................ 206 94 55 Purchase price..................................... 252 268 55 ----- ----- ------ Goodwill........................................... 46 174 -- ===== ===== ======
The main assets for which fair values differ from book values are inventories and property, plant and equipment. We determined the fair values of inventories based on the current replacement costs for raw materials and the estimated selling prices for finished goods, net of disposal costs and a selling margin. The fair values of property, plant and equipment were determined based on current replacement costs for similar capacity and the estimated market value of purchased reserves. Deferred taxes were recorded for the differences between fair values and tax bases. For SAMARCO, SAMITRI and SOCOIMEX inventories were valued at $36, $38 and $9, respectively, property, plant and equipment were valued at $830, $161 and $58, respectively, and the deferred tax liability was $60, $49 and $15, respectively. We amortize the goodwill on the SAMITRI and SAMARCO purchases on the straight-line basis over a period of 6 years starting on the date of acquisition. (d) On September 22, 2000 we acquired via public tender a further 1,014,529,197 common shares and 3,716,344,366 preferred shares of SAMITRI bringing our ownership to 99.25% of the voting capital and 99.19% of the total capital. The cash cost of this purchase was $180 and resulted in additional goodwill of $27, all attributed to SAMARCO. (e) In October 2000, we acquired 50% of Gulf Industrial Investment Company (GIIC), a pelletizing company located in Bahrain, for $91, including goodwill of $20. F-13 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) 5. INCOME TAXES Income taxes in Brazil comprise federal income tax and social contribution, which is an additional federal tax. The statutory enacted tax rates applicable in the years presented are as follows:
YEAR ENDED DECEMBER 31 -- % ------------------------------- 2000 1999 1998 -------------- -------------- ----- Federal income tax............................. 25.00 25.00 25.00 Social contribution(*)......................... 9.00 to 12.00 8.00 to 12.00 8.00 -------------- -------------- ----- Composite tax rate............................. 34.00 to 37.00 33.00 to 37.00 33.00 ============== ============== =====
- --------------- (*) As from May 1, 1999 through January 31, 2000, the social contribution rate has been increased from 8% to 12% (not enacted). Pursuant to a provisional measure, which is valid only for 30 days unless approved by the Congress, the social contribution rate will be 9% from February 1, 2000 to December 31, 2002 and will be reduced to 8% as from January 1, 2003. Since the provisional measure is not enacted, the social contribution rate of 8% was used to calculate deferred taxes at December 31, 2000. The amount reported as income tax expense in these consolidated financial statements is reconciled to the statutory rates as follows:
YEAR ENDED DECEMBER 31 ------------------------ 2000 1999 1998 ------ ------ ------ Income before income taxes, equity results, provision for losses on equity investments and minority interests....... 731 670 892 ==== ==== ==== Federal income tax and social contribution expense at statutory not enacted rates............................... (249) (248) (294) Adjustments to derive effective tax rate: Tax benefit on interest attributed to stockholders........ 222 181 200 Tax incentives............................................ 31 -- -- Exempt foreign income (losses)............................ 69 (4) 23 Impairment write-downs on investments..................... -- -- 96 Valuation allowance reversal (provision).................. (51) 37 (2) Other non-taxable gains (loss)......................... 10 1 (23) ---- ---- ---- Federal income tax and social contribution benefit (expense) in consolidated financial statements...................... 32 (33) -- ==== ==== ====
In 2000, we obtained government approval of certain tax incentives relative to our iron ore and manganese operations in Carajas. The incentives comprise full income tax exemption on defined production levels up to 2005 and partial exemption thereafter up to 2013. An amount equal to the tax saving must be appropriated to a reserve account within stockholders' equity (Note 13) and may not be distributed in the form of cash dividends. F-14 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) The major components of the deferred tax accounts in the balance sheet are as follows:
AS OF DECEMBER 31 ----------- 2000 1999 ---- ---- Net current deferred tax assets Accrued expenses deductible only when disbursed........... 89 58 Tax loss carryforwards................................. -- 2 ---- ---- 89 60 ==== ==== Long-term deferred tax Assets Deferred tax relative to temporary differences : Established on the July 1, 1997 change in functional currency, less reversals............................... 16 23 Relative to investments acquired.......................... 15 -- Tax-deductible goodwill in business combinations............ 103 -- Write-downs of investments.................................. 61 76 Additional retirement benefits provision, net of unrecognized pension obligation........................... 158 84 Tax loss carryforwards...................................... 190 214 Other temporary differences................................. 6 1 ---- ---- 549 398 ---- ---- Liabilities Inflationary income......................................... (32) (28) Fair value adjustments in business combinations............. (61) -- ---- ---- (93) (28) ---- ---- Valuation allowance Beginning balance........................................... (178) (54) Translation adjustments..................................... 15 17 Additions................................................... (51) -- Valuation allowance of ferro alloys subsidiaries............ 13 (158) Reversals................................................... -- 17 ---- ---- Ending balance.............................................. (201) (178) ---- ---- Net long-term deferred tax assets........................... 255 192 ==== ====
6. CASH AND CASH EQUIVALENTS
AS OF DECEMBER 31 ------------- 2000 1999 ----- ----- Cash........................................................ 28 20 Deposits in local currency.................................. 694 338 Deposits in United States dollars........................... 489 1,095 ----- ----- 1,211 1,453 ===== =====
F-15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) 7. ACCOUNTS RECEIVABLE
AS OF DECEMBER 31 ----------- 2000 1999 ---- ---- Customers Domestic.................................................. 198 195 Export, all denominated in United States dollars.......... 312 280 --- --- 510 475 Allowance for doubtful accounts............................. (14) (13) Allowance for ore weight credits............................ (6) (5) --- --- Total....................................................... 490 457 === ===
Accounts receivable from customers in the steel industry amount to 16.3% and 14.5% of domestic receivables (export receivables -- 78.8% and 80.8%) at December 31, 2000 and 1999, respectively. No single customer accounted for more than 10% of total revenues in any of the years presented. 8. INVENTORIES
AS OF DECEMBER 31 ----------- 2000 1999 ---- ---- Finished products Iron ore.................................................. 100 57 Gold...................................................... 4 9 Manganese................................................. 7 22 Ferro alloys.............................................. 32 31 Others.................................................... 34 20 Spare parts and maintenance supplies........................ 129 105 --- --- 306 244 === ===
F-16 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) 9. PROPERTY, PLANT AND EQUIPMENT a) Per Business Area:
AS OF DECEMBER 31, 2000 AS OF DECEMBER 31, 1999 ---------------------------- ---------------------------- ACCUMULATED ACCUMULATED COST DEPRECIATION NET COST DEPRECIATION NET ----- ------------ ----- ----- ------------ ----- Ferrous Ferrous -- Southern System Mining............................ 1,096 533 563 969 560 409 Railroads......................... 1,022 513 509 1,110 574 536 Marine terminals.................. 157 102 55 184 115 69 ----- ----- ----- ----- ----- ----- 2,275 1,148 1,127 2,263 1,249 1,014 Ferrous -- Northern System Mining............................ 691 310 381 783 333 450 Railroads......................... 1,206 439 767 1,289 457 832 Marine terminals.................. 222 108 114 229 112 117 ----- ----- ----- ----- ----- ----- 2,119 857 1,262 2,301 902 1,399 Pelletizing....................... 194 123 71 190 125 65 Ferro alloys...................... 278 140 138 295 152 143 Energy............................ 77 4 73 81 2 79 Construction in progress.......... 406 -- 406 250 -- 250 ----- ----- ----- ----- ----- ----- 5,349 2,272 3,077 5,380 2,430 2,950 ----- ----- ----- ----- ----- ----- Non-Ferrous Potash............................... 47 16 31 48 14 34 Gold................................. 295 132 163 323 134 189 Kaolin............................... 91 12 79 153 18 135 Research and projects................ 19 10 9 21 10 11 Construction in progress............. 43 -- 43 31 -- 31 ----- ----- ----- ----- ----- ----- 495 170 325 576 176 400 ----- ----- ----- ----- ----- ----- Logistics General cargo........................ 349 173 176 371 177 194 Maritime transportation.............. 351 167 184 361 158 203 Construction in progress............. 14 -- 14 7 -- 7 ----- ----- ----- ----- ----- ----- 714 340 374 739 335 404 ----- ----- ----- ----- ----- ----- Holdings Pulp and paper....................... 175 26 149 191 33 158 ----- ----- ----- ----- ----- ----- Corporate Center Corporate............................ 41 15 26 35 14 21 Construction in progress............. 4 -- 4 10 -- 10 ----- ----- ----- ----- ----- ----- 45 15 30 45 14 31 ----- ----- ----- ----- ----- ----- Total.................................. 6,778 2,823 3,955 6,931 2,988 3,943 ===== ===== ===== ===== ===== =====
F-17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) b) PER TYPE OF ASSETS:
AS OF DECEMBER 31, 2000 AS OF DECEMBER 31, 1999 ---------------------------- ---------------------------- ACCUMULATED ACCUMULATED COST DEPRECIATION NET COST DEPRECIATION NET ----- ------------ ----- ----- ------------ ----- Land and buildings..................... 824 289 535 899 317 582 Installations.......................... 1,634 885 749 1,806 976 830 Equipment.............................. 597 290 307 519 259 260 Ships.................................. 348 165 183 358 156 202 Railroads.............................. 1,741 770 971 2,043 947 1,096 Mine development costs................. 326 83 243 303 64 239 Others................................. 841 341 500 705 269 436 ----- ----- ----- ----- ----- ----- 6,311 2,823 3,488 6,633 2,988 3,645 Construction in progress............... 467 -- 467 298 -- 298 ----- ----- ----- ----- ----- ----- Total.................................. 6,778 2,823 3,955 6,931 2,988 3,943 ===== ===== ===== ===== ===== =====
Losses on disposals of property, plant and equipment totaled $47, $23 and $64 in 2000, 1999 and 1998, respectively. In 2000 and 1999, disposals mainly relate to sales of trucks, locomotives and other equipment which were replaced in the normal course of business. In 1998, additional losses of $28 were incurred with respect to closure of the Serra Leste gold mine and $13 on sale of two ships. 10. INVESTMENTS
AS OF DECEMBER 31 ---------------------------------------------------------------------------------- 2000 INVESTMENTS EQUITY ADJUSTMENTS --------------------------------------------- ------------- ------------------ NET INCOME PARTICIPATION IN NET (LOSS) FOR CAPITAL(%) EQUITY(1) THE YEAR(1) 2000 1999 2000 1999 1998 ----------------- --------- ------------- ----- ----- ---- ---- ---- VOTING TOTAL ------- ------- Investments in Affiliated Companies and Joint Ventures STEEL Usinas Siderurgicas de Minas Gerais SA -- USIMINAS(2)............... 22.99 11.46 1,213 61 225 255 7 (13) 10 Companhia Siderurgica Nacional -- CSN(3)(7)..... 10.33 10.33 1,621 129 167 134 13 3 39 Companhia Siderurgica de Tubarao -- CST(4)......... 20.51 22.85 1,096 100 250 233 22 (5) 19 California Steel Industries Inc -- CSI................ 50.00 50.00 238 34 119 110 17 22 14 PAPER AND PULP Celulose Nipo-Brasileira SA -- CENIBRA............. 50.67 51.48 407 129 210 177 66 (4) 6 Bahia-Sul Celulose SA -- BSC................. 50.00 32.00 506 131 162 141 42 13 (28) ALUMINUM AND BAUXITE Mineracao Rio do Norte SA -- MRN....................... 40.00 40.00 383 91 153 145 36 10 28 Valesul Aluminio SA -- VALESUL................... 54.51 54.51 80 21 44 41 12 -- 16
F-18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED)
AS OF DECEMBER 31 ---------------------------------------------------------------------------------- 2000 INVESTMENTS EQUITY ADJUSTMENTS --------------------------------------------- ------------- ------------------ NET INCOME PARTICIPATION IN NET (LOSS) FOR CAPITAL(%) EQUITY(1) THE YEAR(1) 2000 1999 2000 1999 1998 ----------------- --------- ------------- ----- ----- ---- ---- ---- VOTING TOTAL ------- ------- Aluminio Brasileiro SA -- ALBRAS.................... 51.00 51.00 -- -- -- -- -- -- (25) Alumina do Norte do Brasil SA -- ALUNORTE............ 50.28 49.29 102 23 80 105 11 -- -- PELLETS Companhia Nipo-Brasileira de Pelotizacao -- NIBRASCO... 51.11 51.00 54 22 28 39 11 10 11 Companhia Hispano-Brasileira de Pelotizacao -- HISPANOBRAS............... 51.00 50.89 42 17 21 21 9 7 9 Companhia Coreano Brasileira de Pelotizacao -- KOBRASCO.................. 50.00 50.00 24 3 12 12 2 (11) (5) Companhia Italo-Brasileira de Pelotizacao -- ITABRASCO.. 51.00 50.90 32 13 16 17 7 7 5 Gulf Industrial Investment Company -- GIIC........... 50.00 50.00 186 2 93 -- 1 -- -- SAMARCO Mineracao SA........ 50.00 50.00 519 30 318 -- 8 -- -- OTHERS Fertilizantes Fosfatados SA -- FOSFERTIL(6)........ 10.96 10.96 281 48 31 33 5 7 6 Salobo Metais SA(5)......... 50.00 50.00 50 -- 25 27 -- -- -- Ferrovia Centro-Atlantica SA -- FCA................. 20.00 45.65 131 (67) 82 -- (30) -- 0 Vale Usiminas Participacoes SA -- VUPSA(8)............ -- -- -- -- -- (15) Para Pigmentos SA(8)........ -- -- -- -- -- (8) Others...................... 131 111 21 (5) (2) ----- ----- --- ---- ---- 2,167 1,601 260 41 80 Investments at cost ACOMINAS.................... 2.28 2.28 -- 29 -- -- -- SIDERAR (market value $42 in 2000 -- $69 in 1999)...... 4.85 4.85 15 15 -- -- -- Unrealized holding gains on equity security........... 27 54 -- -- -- Others...................... 7 8 -- -- -- ----- ----- --- ---- ---- 2,216 1,707 260 41 80 ===== ===== === ==== ====
F-19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED)
AS OF DECEMBER 31 ---------------------------------------------------------------------------------- 2000 INVESTMENTS EQUITY ADJUSTMENTS --------------------------------------------- ------------- ------------------ NET INCOME PARTICIPATION IN NET (LOSS) FOR CAPITAL(%) EQUITY(1) THE YEAR(1) 2000 1999 2000 1999 1998 ----------------- --------- ------------- ----- ----- ---- ---- ---- VOTING TOTAL ------- ------- Change in provision for losses and write-downs on equity investments: Usinas Siderurgicas de Minas Gerais S.A. -- USIMINAS(2)............... -- -- (174) Companhia Siderurgica de Tubarao -- CST(4)......... -- -- (120) Para Pigmentos SA(8)........ -- (15) -- Cia Ferroviaria do Nordeste.................. (4) (4) -- Vale Usiminas Participacoes S.A. -- VUPSA(8).......... -- (56) -- Aluminio Brasileiro S.A. -- ALBRAS.................... 66 (104) -- Alumina do Norte do Brasil S.A. -- ALUNORTE.......... -- (89) 21 --- ---- ---- 62 (268) (273) === ==== ====
- --------------- (1) Based on US GAAP financial statements. (2) Value based on quoted market price at December 31, 2000 is $75 compared to net book value of $40. (3) Value based on quoted market price at December 31, 2000 is $218. (4) Value based on quoted market price at December 31, 2000 is $129 compared to net book value of $35. (5) Development state enterprises. (6) Value based on quoted market price at December 31, 2000 is $47. (7) In 2000, based on September 30 financial statements. (8) Consolidated as from 1999 upon increase in ownership to over 50%. Goodwill included in the above investments is as follows:
AS OF ORIGINAL TERM REMAINING DECEMBER 31 OF AMORTIZATION AMORTIZATION ----------- INVESTEE (YEARS) (YEARS) 2000 1999 - -------- ---------------- ------------ ---- ---- Alumina do Norte do Brasil S.A. -- ALUNORTE... 35 35 30 78 SAMARCO Mineracao S.A......................... 6 5 59 -- Ferrovia Centro-Atlantica S.A. -- FCA......... 30 26 22 -- Gulf Industrial Investment Company -- GIIC.... 20 20 20 -- --- --- 131 78 === ===
F-20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) The combined financial position and results of operations of the Company's affiliates in the steel sector is as follows:
STEEL SECTOR AFFILIATES (COMBINED) AS OF DECEMBER 31 ----------------- 2000 1999 ------- ------- Balance sheet Current assets.............................................. 3,094 3,013 Noncurrent assets......................................... 10,231 10,542 Current liabilities....................................... (2,695) (3,626) Noncurrent liabilities.................................... (5,094) (4,314) Purchase accounting adjustments........................... (1,368) (1,681) ------ ------ Stockholders' equity...................................... 4,168 3,934 ====== ====== Investments............................................... 761 732 ====== ======
STEEL SECTOR AFFILIATES (COMBINED) YEAR ENDED DECEMBER 31 ------------------------ 2000 1999 1998 ------ ------ ------ Statement of operations Net sales.................................................. 4,581 4,174 5,095 Cost and expenses........................................ (4,082) (4,790) (4,351) Purchase accounting adjustments.......................... 24 83 26 ------ ------ ------ Income before income taxes............................... 523 (533) 770 Income taxes............................................. (199) 556 (58) ------ ------ ------ Net income............................................... 324 23 712 ====== ====== ====== Equity adjustments....................................... 59 7 82 ====== ====== ======
Information with respect to other major affiliates' financial position and results of operations is as follows:
AS OF DECEMBER 31 ------------------------------------------------------------- ALUNORTE ALBRAS MRN BSC ------------- ------------- ------------- ------------- 2000 1999 2000 1999 2000 1999 2000 1999 ----- ----- ----- ----- ----- ----- ----- ----- Balance Sheet Current assets........................... 130 74 128 145 90 99 164 144 Noncurrent assets........................ 505 531 627 632 349 346 857 923 Current liabilities...................... (79) (123) (247) (321) (19) (33) (232) (299) Noncurrent liabilities................... (454) (446) (538) (620) (37) (49) (283) (328) ----- ----- ----- ----- ----- ----- ----- ----- Stockholders' equity..................... 102 36 (30) (164) 383 363 506 440 ===== ===== ===== ===== ===== ===== ===== ===== Company's participation.................... 49.29% 74.06% 51.00% 51.00% 40.00% 40.00% 32.00% 32.00% ----- ----- ----- ----- ----- ----- ----- ----- Investments................................ 50 27 (15) (84) 153 145 162 141 ===== ===== ===== ===== ===== ===== ===== =====
F-21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED)
YEAR ENDED DECEMBER 31 ----------------------------------------------------------------------------------------------- ALUNORTE ALBRAS MRN BSC ---------------------- --------------------- --------------------- ---------------------- 2000 1999 1998 2000 1999 1998 2000 1999 1998 2000 1999 1998 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Statement of Operations Net sales.......... 322 253 268 551 459 452 217 205 224 402 326 288 Costs and expenses......... (327) (446)(*) (286) (452) (755) (535) (109) (156) (136) (274) (397)(*) (380) Income (loss) before income taxes............ (5) (193) (18) 99 (296) (83) 108 49 88 128 (71) (92) Income taxes....... 28 56 57 30 93 33 (17) (23) (19) 3 112(**) -- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Net income (loss).. 23 (137) 39 129 (203) (50) 91 26 69 131 41 (92) ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== Company's participation...... 49.29% 65.82% 53.61% 51.00% 51.00% 51.00% 40.00% 40.00% 40.00% 32.00% 32.00% 30.48% Participation in results............ 11 (89) 21 66 (104) (25) 36 10 28 42 13 (28) Change in provision for losses......... -- 89 (21) (66) 104 -- -- -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Equity adjustments... 11 -- -- -- -- (25) 36 10 28 42 13 (28) ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
- --------------- (*) Includes exchange losses of $213 (ALUNORTE), $378 (ALBRAS), and $127 (BSC) for the year ended December 31, 1999 -- see Note 20 (**) Includes $19 of tax benefit on 1999 losses and $93 of valuation allowance reversal relative to prior year losses F-22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) The provision for losses and write-downs on equity investments of $421 and $504 at December 31, 2000 and 1999, respectively, relates to other than temporary declines to the public quoted market price below carrying value of our affiliates' equity securities and to our investments in affiliates which have reported negative stockholders' equity in their financial statements prepared in accordance with US GAAP and in circumstances where we have assumed commitments to fund our share of the accumulated losses, if necessary, through additional capital contributions or other means. Accordingly we (a) first reduce the value of the investment to zero and (b) subsequently provide for our portion of negative equity. The provision is comprised as follows:
CIA FERROVIARIA PARA DO CST USIMINAS PIGMENTOS NORDESTE VUPSA ALBRAS ALUNORTE TOTAL ---- -------- --------- ----------- ----- ------ -------- ----- Provision at January 1, 1999............ (250) (224) -- -- -- -- (9) (483) Change in provision -- results............ -- -- (15) (4) (56) (104) (89) (268) ---- ---- --- -- --- ---- --- ---- (250) (224) (15) (4) (56) (104) (98) (751) Cumulative translation adjustment......... 27 30 -- -- 10 21 (7) 81 Payment of capital... -- -- 76 76 Elimination upon consolidation in 1999............... -- -- 15 -- 46 -- -- 61 Effect of capitalization of interest-free debentures......... -- -- -- -- -- -- 29 29 ---- ---- --- -- --- ---- --- ---- PROVISION AT DECEMBER 31, 1999........... (223) (194) -- (4) -- (83) -- (504) Change in provision -- results............ -- -- -- (4) -- 66 -- 62 ---- ---- --- -- --- ---- --- ---- (223) (194) -- (8) -- (17) -- (442) Cumulative translation adjustment......... 8 9 -- 1 -- 2 -- 20 Payment of capital... -- -- -- 1 -- -- -- 1 ---- ---- --- -- --- ---- --- ---- PROVISION AT DECEMBER 31, 2000........... (215) (185) -- (6) -- (15) -- (421) ==== ==== === == === ==== === ====
F-23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) Our participation in ALUNORTE (49.29% at December 31, 2000) changed several times during the periods presented, but we did not consolidate the financial statements of this investee due to the temporary nature of our increased holding. Movements on the investment account and related provision during 1999 and 2000 are as follows:
TOTAL ALUNORTE SHARES OF SHARES OWNED ALUNORTE BY CVRD INVESTMENT GOODWILL PROVISION NET -------------- -------------- ---------- -------- --------- --- (IN THOUSANDS) (IN THOUSANDS) Balance January 1, 1999.................. 325,107 174,279 -- -- (9) (9) Purchase of additional participation: January 1999........................... 453,921 124,491 68 48 9 125 December 1999.......................... 598,184 144,263 55 30 -- 85 Participation in 1999 losses............. (89) (89) Translation adjustment................... (7) (7) -------- --- --- -- --- BALANCE DECEMBER 31, 1999................ 598,184 443,033 27 78 -- 105 Sale of participation in January 2000.... 598,184 (124,491) (7) (48) -- (55) Changes in participation-subscriptions by other shareholders..................... 19 -- 19 Capital call............................. 673,494 13,437 5 5 Participation in 2000 net income......... 11 11 Translation adjustment................... (5) (5) -------- --- --- -- --- BALANCE DECEMBER 31, 2000................ 673,494 331,979 50 30 -- 80 ======== === === == ===
On January 14, 2000 we entered into a structured transaction with an unrelated party to sell both a 20.81% of the capital of ALUNORTE and a beneficial interest in 8% of the capital of MRN owned by us for a total of $164, resulting in a net gain to us of $54, recorded in other operating income, as follows:
Book value of 124,491 thousand shares of ALUNORTE sold...... (7) Goodwill amortized.......................................... (48) Book value of beneficial interest in 8% of MRN.............. -- --- Cash received by us......................................... (55) On transfer of ALUNORTE shares............................ 44 On issue and sale of Perpetual Notes...................... 120 Fair value of Perpetual Notes............................... (55) --- Gain recognized on the transaction.......................... 54 ===
The Perpetual Notes are exchangeable for 48 billion preferred shares of the affiliate MRN (initially equivalent to 8% of the total number of shares of MRN owned by us). Interest is payable on the Notes in an amount equal to dividends paid on the underlying preferred shares, relative to periods starting as from the 2000 fiscal year. The Notes may be redeemed at our option or the Noteholders at any time by transfer of the underlying preferred shares to the Noteholders, providing the rights of pre-emption of the existing shareholders of MRN have been waived or have expired. Redemption by transfer of the underlying net assets of MRN is compulsory if certain events occur, including the liquidation or merger of MRN or the transfer of MRN's asset and liabilities to a consortium formed by its shareholders to take over the operations of MRN. In the event of early termination the Notes may be redeemed, at the option the Noteholders, in lieu of transfer of the shares, for a cash sum equal to $48 plus the net present value of average annual earnings declared and paid by MRN for the three years immediately preceding such F-24 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) termination multiplied by 20 and discounted by 10% per year. This latter amount represents a fair value of $55. On October 6, 2000, with the objective of financing part of the expansion in its alumina production capacity from 1,5 million tons to 2,3 million tons per year, ALUNORTE called a capital increase of $126, to be paid up in 6 installments. ALUVALE contributed only $5 to the first of these installments ($15), changing its stockholding interest to 49.29%. During 1999 our 50%-owned affiliate VUPSA incurred significant losses, of which we recognized our portion of $56 through the provision for losses on equity investments. In December 1999 we acquired the remaining 50% of VUPSA in exchange for the transfer of amounts owed to the seller from subsidiaries of VUPSA amounting to $126, resulting in negative goodwill of $86. At December 31, 1999 the balance sheet of VUPSA has been consolidated and the negative goodwill used to reduce the carrying value of VUPSA's property, plant and equipment. In 2000, we acquired a further 34.41% of Ferrovia Centro-Atlantica S.A., for $25, bringing our participation to 45.65%. Dividends received from investees aggregated $133, $64 and $116 in 2000, 1999 and 1998 respectively. 11. SHORT-TERM DEBT Our short-term borrowings are principally from commercial banks and include import and export financing denominated in United States dollars, as follows:
AS OF DECEMBER 31 ----------- 2000 1999 ---- ---- Export...................................................... 386 655 Import...................................................... 11 21 Working Capital............................................. 68 14 --- --- 465 690 === ===
Average annual interest rates on short-term borrowings were 8.18% and 7.13% in 2000 and 1999, respectively. F-25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) 12. LONG-TERM DEBT
AS OF DECEMBER 31 --------------------------- CURRENT LONG-TERM LIABILITIES LIABILITIES ----------- ------------- 2000 1999 2000 1999 ---- ---- ----- ----- Foreign debt Loans and financing contracted in the following currencies, maturing up to 2011: United States dollars................................ 170 336 990 576 Japanese Yen......................................... 10 11 4 5 Others............................................... 2 2 4 6 Fixed Rate Notes -- US$ denominated....................... -- -- 500 500 Export Securitization -- US$ denominated.................. -- -- 300 -- Perpetual Notes........................................... -- -- 55 -- Accrued charges........................................... 41 28 -- -- --- --- ----- ----- 223 377 1,853 1,087 --- --- ----- ----- Local debt Indexed by Long-Term Interest Rate -- TJLP maturing up to 2002.............................................. 6 6 40 51 Indexed by General Price Index-Market (IGPM) maturing up to 2005.............................................. 21 38 49 66 Basket of currencies.................................... 15 9 51 52 Capital Lease........................................... 1 1 -- -- Shareholder revenue interests (Note 2).................. -- -- 3 4 Indexed by US dollars................................... 11 55 24 61 Accrued charges......................................... 3 2 -- -- --- --- ----- ----- 57 111 167 234 --- --- ----- ----- Total..................................................... 280 488 2,020 1,321 === === ===== =====
The long-term portion at December 31, 2000 becomes due in the following years:
2002........................................................ 236 2003........................................................ 625 2004........................................................ 580 2005........................................................ 170 2006........................................................ 107 2007 and thereafter......................................... 247 No due date (Perpetual notes)............................... 55 ----- 2,020 =====
F-26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) At December 31, 2000 annual interest rates on long-term debt were as follows:
Up to 7%.................................................... 410 7.1% to 9%.................................................. 1,183 9.1% to 11%................................................. 579 Over 11%.................................................... 73 Variable (Perpetual notes).................................. 55 ----- 2,300 =====
The indexes applied to debt and respective percentage variations in each year were as follows:
2000 1999 1998 ---- ----- ---- TJLP -- Long-Term Interest Rate (effective rate)............ 4.56 6.92 5.41 IGP-M -- General Price Index -- Market...................... 9.95 20.10 1.78 United States Dollar........................................ 9.30 48.01 8.27
Long-term debt at December 31, 2000 is guaranteed or secured as follows:
AMOUNT OF GUARANTEE --------- Federal Government guarantee (for which we have provided counter-guarantees)....................................... 353 Shares and securities given in guarantee.................... 28 Ships....................................................... 69
In October 2000 we issued $300 under a US dollar -- denominated export securitization program, divided into three tranches as follows:
TENOR GRACE PERIOD EFFECTIVE RATE AMOUNT (YEARS) (YEARS) P.A. ------ ------- ------------ -------------- Tranche 1.................................. 25 7 2 8.682% Tranche 2.................................. 125 7 2 Libor+0.65% Tranche 3.................................. 150 10 3 8.926% --- 300 ===
Tranche 2 is guaranteed by an insurance contract with a major U.S. insurance company. 13. STOCKHOLDERS' EQUITY Each holder of common and preferred class A stock is entitled to one vote for each share on all matters that come before a stockholders' meeting, except for the election of the Board of Directors, which is restricted to the holders of common stock. As described in Note 3, the Brazilian Government holds a preferred special share which confers on it permanent veto rights over certain matters. The Board of Directors authorized the acquisition of up to 9,832,691 of our own preferred class A shares, to remain in treasury for subsequent disposal or cancellation. As of December 31, 2000, 3,659,311 shares had been acquired, at an average weighted unit cost of R$20,83 (minimum cost of R$14,02 and maximum of R$24,19). Both common and preferred stockholders are entitled to receive a dividend of at least 25% of annual net income, upon approval at the annual stockholders' meeting. In the case of preferred stockholders, this dividend cannot be less than 6% of the preferred capital as stated in the statutory accounting records. With respect to each of 2000, 1999 and 1998 we distributed dividends to preferred stockholders in excess of this limit. Interest attributed to stockholders as from January 1, 1996 is considered part of the minimum dividend. F-27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) Brazilian law permits the payment of cash dividends only from retained earnings as stated in the statutory accounting records and such payments are made in Reais. At December 31, 2000, we had no undistributed retained earnings. In addition appropriated retained earnings at December 31, 2000 includes $2,420, related to the unrealized income and expansion reserves, which could be freely transferred to retained earnings and paid as dividends, if approved by the stockholders. No withholding tax is payable on distribution of profits earned as from January 1, 1996, except for distributions in the form of interest attributed to stockholders as explained in Note 2(m). Brazilian laws and our by-laws require that certain appropriations be made from retained earnings to reserve accounts on an annual basis, all determined in accordance with amounts stated in the statutory accounting records, as detailed below:
YEAR ENDED DECEMBER 31 ------------------------ 2000 1999 1998 ------ ------ ------ Appropriated retained earnings Unrealized income reserve Balance January 1...................................... 1,062 1,636 1,850 Transfer to retained earnings.......................... (188) (574) (214) ----- ----- ----- Balance December 31.................................... 874 1,062 1,636 Expansion reserve Balance January 1...................................... 1,367 1,685 1,936 Transfer to capital stock.............................. -- -- (469) Transfer (to) from retained earnings................... 179 (318) 218 ----- ----- ----- Balance December 31.................................... 1,546 1,367 1,685 Legal reserve Balance January 1...................................... 284 368 352 Transfer (to) from retained earnings................... 23 (84) 16 ----- ----- ----- Balance December 31.................................... 307 284 368 Fiscal incentive depletion reserve Balance January 1...................................... 842 1,246 1,349 Transfer to retained earnings.......................... (71) (404) (103) ----- ----- ----- Balance December 31.................................... 771 842 1,246 Fiscal incentive investment reserve Balance January 1...................................... 12 277 300 Transfer to capital stock.............................. -- (187) -- Transfer to retained earnings.......................... 27 (78) (23) ----- ----- ----- Balance December 31.................................... 39 12 277 Development reserve Balance January 1..................... -- -- 19 Transfer to capital stock.............................. -- -- (19) ----- ----- ----- Balance December 31.................................... -- -- -- ----- ----- ----- Total appropriated retained earnings........................ 3,537 3,567 5,212 ===== ===== =====
The purpose and basis of appropriation to such reserves is as follows: - Unrealized income reserve -- this represents principally inflationary profit up to December 31, 1995 and our share of the earnings of affiliates and joint ventures, not yet received in the form of cash dividends. F-28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) - Expansion reserve -- this is a general reserve for expansion of our activities. - Legal reserve -- this reserve is a requirement for all Brazilian corporations and represents the appropriation of 5% of annual net income under Brazilian GAAP up to a limit of 20% of capital stock under Brazilian GAAP. - Fiscal incentive depletion reserve -- this represents an additional amount relative to mineral reserve depletion equivalent to 20% of the sales price of mining production, which is deductible for tax purposes providing an equivalent amount is transferred from retained earnings to the reserve account. This fiscal incentive expired in 1996. - Fiscal incentive investment reserve -- this reserve results from an option to designate a portion of income tax otherwise payable for investment in government approved projects and is recorded in the year following that in which the taxable income was earned. As from 2000, this reserve also contemplates the tax incentives described in Note 5. - Development reserve -- this was a general reserve for assisting economic and social development in areas in which we operate. During 1998, this reserve was extinguished by transfer to capital stock. 14. PENSION PLAN Since 1973 we have sponsored a defined benefit pension plan (the "Old Plan") covering substantially all employees, with benefits based on years of service, salary and social security benefits. This plan is administered by Fundacao Vale do Rio Doce de Seguridade Social -- VALIA and was funded by monthly contributions made by us and our employees, calculated based on periodic actuarial appraisals. In May 2000, we implemented a new pension plan, which is primarily a defined contribution plan with a defined benefit feature relative to service prior to May 2000 (the "New Plan"), and offered our active employees the opportunity of transferring to the New Plan. Over 98% of our active employees opted to transfer to the New Plan. The Old Plan will continue in existence, covering almost exclusively retired participants and their beneficiaries. The following information details the status of the defined benefit elements of our plans in accordance with SFAS 132 -- "Employers' Disclosure about Pensions and Other Postretirement Benefits": (a) CHANGE IN BENEFIT OBLIGATION
AS OF DECEMBER 31 -------------- 2000 1999 ----- ----- Benefit obligation at beginning of year..................... 1,440 2,102 Service cost................................................ 10 31 Interest cost............................................... 91 126 Benefits paid............................................... (109) (107) Plan amendments............................................. (13) -- Effect of exchange rate changes............................. (65) (734) Actuarial loss.............................................. 242 22 ----- ----- Benefit obligation at end of year........................... 1,596 1,440 ===== =====
The actuarial loss of $242 in 2000 is mainly due to the adoption of a new mortality table which is considered to better reflect the current life expectancy of the plan participants. F-29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) (b) CHANGE IN PLAN ASSETS
AS OF DECEMBER 31 -------------- 2000 1999 ----- ----- Fair value of plan assets at beginning of year.............. 1,231 1,402 Actual return on plan assets................................ 128 345 Employer contributions...................................... 34 27 Employee contributions...................................... 5 15 Benefits paid............................................... (109) (107) Effect of exchange rate changes............................. (100) (451) ----- ----- Fair value of plan assets at end of year.................... 1,189 1,231 ===== =====
Plan assets at December 31, 2000 include $95 of portfolio investments in our own shares ($93 at December 31, 1999) and $9 of shares of related parties ($1 at December 31, 1999), as well as $480 of Federal Government Securities ($439 at December 31, 1999). (c) ACCRUED PENSION COST LIABILITY
AS OF DECEMBER 31 ----------- 2000 1999 ---- ---- Funded status, excess of benefit obligation over plan assets.................................................... 407 209 Unrecognized net transitory obligation...................... (125) (165) Unrecognized net actuarial gains (loss)..................... (152) 88 ---- ---- Accrued pension cost liability.............................. 130 132 ==== ====
(d) RECOGNITION OF ADDITIONAL MINIMUM LIABILITY
AS OF DECEMBER 31 ----------- 2000 1999 ---- ---- Accrued pension cost liability.............................. 130 132 Unrecognized pension obligation, limited to unrecognized net transitory obligation..................................... 125 64 Additional amount recognized in stockholders' equity........ 151 -- --- --- Minimum liability........................................... 406 196 === ===
(e) ASSUMPTIONS USED IN EACH PERIOD
2000 1999 ---------- ---------- Discount rate............................................... 6% p.a. 6% p.a. Expected return on plan assets.............................. 6% p.a. 6% p.a. Rate of compensation increase............................... 1.82% p.a. 1.82% p.a.
F-30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) Net pension cost includes the following components:
YEAR ENDED DECEMBER 31 ------------------------ 2000 1999 1998 ------ ------ ------ Service cost -- benefits earned during the period........... 10 31 52 Interest cost on projected benefit obligation............... 91 126 126 Actual return on assets..................................... (128) (345) (104) Amortization of initial transitory obligation............... 15 17 24 Net deferral................................................ 58 241 17 ---- ---- ---- 46 70 115 Employee contributions...................................... (5) (15) (27) ---- ---- ---- Net periodic pension cost................................... 41 55 88 ==== ==== ====
The cost recognized in 2000 relative to the defined contribution element of the New Plan was $3. In addition to benefits provided under our pension plans accruals have been made relative to supplementary benefits extended in previous periods as part of early-retirement programs. Such accruals included in long-term liabilities totalled $185 and $118, at December 31, 2000 and 1999, respectively, plus $30 and $19 in current liabilities. 15. COMMITMENTS AND CONTINGENCIES (a) At December 31, 2000, we had extended guarantees for borrowings obtained by affiliates and joint ventures in the amount of $788, of which $607 is denominated in United States dollars and the remaining $181 in local currency. These guarantees include $372 relative to ALBRAS and $75 relative to ALUNORTE (see Note 10). (b) CVRD and its subsidiaries are defendants in numerous legal actions in the normal course of business. Based on the advice of its legal counsel, management believes that the provision made against contingent losses is sufficient to cover probable losses in connection with such actions. The provision for contingencies and the related judicial deposits are composed as follows:
AS OF DECEMBER 31} --------------------------------------------------- 2000 1999 ------------------------ ------------------------ PROVISION FOR JUDICIAL PROVISION FOR JUDICIAL CONTINGENCIES DEPOSITS CONTINGENCIES DEPOSITS ------------- -------- ------------- -------- Labor claims.............................. 114 60 72 52 Civil claims.............................. 137 4 88 3 Tax-related actions....................... 80 54 24 16 Others.................................... 7 1 1 1 --- --- --- -- 338 119 185 72 === === === == Current................................... -- -- -- -- Long-term................................. 338 119 185 72 --- --- --- -- 338 119 185 72 === === === ==
Labor-related actions principally comprise employee claims for (i) payment of time spent travelling from their residences to the work-place, (ii) additional payments for alleged dangerous or unhealthy working conditions and (iii) various other matters, often in connection with disputes about the amount of indemnities paid upon dismissal. F-31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) Civil actions principally relate to claims made against us by contractors in connection with losses alleged to have been incurred by them as a result of various past government economic plans during which full indexation of contracts for inflation was not permitted. Tax-related actions principally comprise our challenges of changes in basis of calculation and rates of certain revenue taxes and of the tax on financial movements -- CPMF. We continue to vigorously pursue our interests in all the above actions but recognize that probably we will incur some losses in the final instance, for which we have made provisions. Our judicial deposits are made as required by the courts for us to be able to enter or continue a legal action. When judgment is favorable to us, we receive the deposits back; when unfavorable, the deposits are delivered to the prevailing party. Contingencies settled in 2000 and 1999 aggregated $36 and $12, respectively, and additional provisions aggregated $101 and $60 in these years, respectively. (c) We are defendant in two actions seeking substantial compensatory damages brought by the Municipality of Itabira, State of Minas Gerais, which we believe are without merit. Due to the remote likelihood that any loss will arise therefrom no provision has been made in the financial statements with respect to these two actions. (d) We are committed under a take-or-pay agreement to take delivery of approximately 175,950 metric tons per year of aluminum from ALBRAS at market prices. This estimate is based on 51% of ALBRAS expected production and, at a market price of $1,567.20 per metric ton at December 31, 2000, represents an annual commitment of $275. We are also committed to take-or-pay 465,816 metric tons per year of alumina produced by ALUNORTE which at a market price of $194.17 per metric ton at December 31, 2000, represents an annual commitment of $90. Actual take from ALBRAS was $260, $222 and $222 in 2000, 1999 and 1998, respectively, and direct from ALUNORTE was $45 (net of take ceded to ALBRAS), $30 and $83 in 2000, 1999 and 1998, respectively. (e) We and BNDES entered into a contract, known as the Mineral Risk Contract, in March 1997, relating to prospecting authorizations for mining regions where drilling and exploration are still in their early stages. The Mineral Risk Contract provides for the joint development of certain unexplored mineral deposits in approximately two million identified hectares of land in the Carajas region, as well as proportional participation in any financial benefits earned from the development of such resources. Iron ore and manganese deposits already identified and subject to development are specifically excluded from the Mineral Risk Contract. Pursuant to the Mineral Risk Contract, we and BNDES each agreed to provide $205, which represents half of the $410 in expenditures estimated as necessary to complete geological exploration and mineral resource development projects in the region over a period of five years. Under certain circumstances, this period may be extended for an additional two years. We will oversee these projects and BNDES will advance us half of our costs on a quarterly basis. Under the Mineral Risk Contract, as of December 31, 2000, each of us and BNDES had remaining commitments to contribute an additional $93 toward exploration and development activities. We both expect to fund a portion of these contributions each year through 2001. In the event that either of us wishes to conduct further exploration and development after having spent such $205, the contract provides that each party may either choose to match the other party's contributions, or may choose to have its financial interest proportionally diluted. If a party's participation in the project is diluted to an amount lower than 40% of the amount invested in connection with exploration and development projects, then the Mineral Risk Contract provides that the diluted party will lose (1) all the rights and benefits provided for in the Mineral Risk Contract and (2) any amount previously contributed to the project. Under the Mineral Risk Contract, BNDES has agreed to compensate us for our contribution of existing development and ownership rights in the Carajas region through a finder's fee production royalty F-32 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) on mineral resources that are discovered and placed into production. This finder's fee is equal to 3.5% of the revenues derived from the sale of gold, silver and platinum group metals and 1.5% of the revenues derived from the sale of other minerals, including copper, except for gold and other minerals discovered at Serra Leste, for which the finder's fee is equal to 6.5% of revenues. (f) At the time of our privatization in 1997, we issued shareholder revenue interests known in Brazil as "debentures" to our then-existing shareholders, including the Brazilian Government. The terms of the debentures, which are described below, were set to ensure that our pre-privatization shareholders, including the Brazilian Government, would participate alongside us in potential future financial benefits that we are able to derive from exploiting our mineral resources. In preparation for the issuance of the debentures, we issued series B preferred shares on a one-for-one basis to all holders of our common shares and series A preferred shares. We then exchanged all of the series B shares for the debentures at par value. The debentures are not redeemable or convertible, and do not trade on a stapled basis or otherwise with our common or preferred shares. At present the debentures cannot be traded. Holders will be able to trade the debentures only after a three-month period that will commence upon completion of the sale by the Brazilian Government of its 32% stake in our common shares, which will constitute the final step of our privatization. We will be required to register the debentures with the CVM in order to permit trading at this time. We cannot be sure when the final step of our privatization will take place. Under Brazilian Central Bank regulations, pre-privatization shareholders that held their shares through our American Depositary Receipt, or ADR, program were not permitted to receive the debentures or any financial benefits relating to the debentures. We sought approval from the Central Bank to distribute the debentures to the ADR holders, but the Central Bank rejected our request. We intend to renew our request to the Central Bank, but we cannot be sure that we will succeed. If the Central Bank does not approve our request, the ADR depositary will not be able to distribute the debentures to the ADR holders and will not be able to sell the debentures. Therefore, unless the Central Bank approves our request, the debentures will not have any value for ADR holders. Under the terms of the debentures, holders will have the right to receive semi-annual payments equal to an agreed percentage of our net revenues (revenues less value added tax) from certain identified mineral resources that we owned as of May 1997, to that extent that we exceed defined threshold production volumes of these resources, and from the sale of mineral rights that we owned as of May 1997. Our obligation to make payments to the holders will cease when the relevant mineral resources are exhausted. Based on current production levels, and on the estimates of production of our new projects, we would begin making payments related to iron ore resources in approximately 2012, and payments related to other mineral resources in later years. The table below summarizes the amounts we will be required to pay under the debentures based on the net revenues we earn from the identified mineral resources and the sale of mineral rights.
AREA MINERAL REQUIRED PAYMENTS BY CVRD - ---- ------- ------------------------- Southern System Iron ore 1.8% of net revenue, after total production from May 1997 exceeds 1.7 billion tons Northern System Iron ore 1.8% of net revenue, after total production from May 1997 exceeds 1.2 billion tons Pojuca, Andorinhas, Liberdade and Sossego Gold and copper 2.5% of net revenue from the beginning of commercial production Igarape Bahia and Alemao Gold and copper 2.5% of net revenue, after total production from the beginning of commercial production exceeds 70 tons of gold
F-33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED)
AREA MINERAL REQUIRED PAYMENTS BY CVRD - ---- ------- ------------------------- Fazenda Brasileiro Gold 2.5% of net revenue after total production from the beginning of commercial production exceeds 26 tons Other areas, excluding Carajas/ Serra Leste Gold 2.5% of net revenue Other areas owned as of May 1997 Other minerals 1% of net revenue, 4 years after the beginning of commercial production All areas Sale of mineral 1% of the sales price rights owned as of May 1997
(g) At December 31, 2000 we have provided $14 for environmental liabilities. Such provisions relate to site restoration at mines already closed or which are expected to be closed in the next two years. We use various judgments and assumptions when measuring our environmental liabilities. Changes in circumstances, law or technology may affect our estimates and we periodically review the amounts accrued and adjust them as necessary. Our accruals do not reflect unasserted claims because we are currently not aware of any such issues. Also the amounts provided are not reduced by any potential recoveries under cost sharing, insurance or indemnification arrangements because such recoveries are considered uncertain. 16. SEGMENT AND GEOGRAPHICAL INFORMATION In 1999 we adopted SFAS 131 "Disclosures about Segments of an Enterprise and Related Information" with respect to the information we present about our operating segments. SFAS 131 introduced a "management approach" concept for reporting segment information, whereby financial information is required to be reported on the basis that the top decision-maker uses such information internally for evaluating segment performance and deciding how to allocate resources to segments. Our business segments are currently organized as follows: Ferrous products -- comprises iron ore mining and pellet production, as well as the Northern and Southern transportation systems, including railroads, ports and terminals, as they pertain to mining operations. Manganese mining and ferro alloys are also classified in this segment. Non-ferrous products -- comprises the production of gold and other non-ferrous minerals. Logistics -- comprises our transportation systems as they pertain to external commercial operations, and the operations of our ships. Holdings -- divided into the following sub-groups: - Pulp and paper -- comprises our forestation activities and investments in joint ventures and affiliates engaged in the manufacture of pulp and paper products. - Aluminium -- comprises aluminum trading activities and investments in joint ventures and affiliates engaged in bauxite mining, alumina refining and aluminum metal smelting. - Steel -- comprises our investments in joint ventures and affiliates operating in the steel industry. - Others -- comprises our investments in joint ventures and affiliates engaged in other businesses. Corporate Center -- the Corporate Center is responsible for accounting and control, finance, legal matters, human resources and administration, investor and external relations and internal auditing. Information presented to top management with respect to the performance of each segment is generally derived directly from the accounting records maintained in accordance with Brazilian corporate law together with certain relatively minor inter-segment allocations, and is focused primarily on return on capital employed (ROCE), net operating profit less taxes (NOPLT) as well as net income. For return on F-34 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) capital employed purposes we consider dividends received from affiliates and joint ventures as part of our net operating profit less taxes. In 2000 we transferred various accounting, control, legal and information technology functions from the operating divisions to our Corporate Center. We estimate that this transfer increased the costs in our Corporate Center by approximately $8, and reduced the costs of our ferrous, non ferrous and logistics segments by $6, $1 and $1, respectively. Consolidated net income and principal assets are reconciled as follows (certain minor reclassifications have been made to the 1999 and 1998 information to be comparable with that for 2000):
HOLDINGS ------------------------------------ 2000 NON PULP AND CORPORATE ------------ FERROUS FERROUS LOGISTICS PAPER ALUMINUM STEEL OTHERS CENTER ELIMINATIONS ------- ------- --------- -------- -------- ----- ------ --------- ------------ RESULTS Revenues -- Export... 2,849 198 195 121 351 -- -- -- (1,068) Revenues -- Domestic.. 1,000 90 403 21 12 1 -- -- (104) Cost and expenses.... (2,585) (214) (418) (156) (261) (10) -- (578) 1,196 Interest revenue..... 52 1 1 7 25 5 -- 173 (56) Interest expense..... (74) (12) (6) -- (2) (6) -- (247) 32 Depreciation......... (115) (30) (22) (22) -- -- -- (6) -- Pension plan......... (7) (2) -- -- -- -- -- -- -- Equity and provision for losses and write-downs........ 45 -- (22) 108 126 60 5 -- -- Income taxes......... 8 -- 5 (7) (5) (48) -- 79 -- ------ ---- ---- ---- ---- --- -- ---- ------ Net income........... 1,173 31 136 72 246 2 5 (579) -- ====== ==== ==== ==== ==== === == ==== ====== SALES CLASSIFIED BY GEOGRAPHIC DESTINATION: Export market Latin America........ 224 -- 30 -- 23 -- -- -- (91) United States........ 252 156 64 73 39 -- -- -- (108) Europe............... 969 35 75 48 237 -- -- -- (222) Middle East.......... 209 -- 6 -- 16 -- -- -- (19) Japan................ 544 4 15 -- 34 -- -- -- (308) Asia, other than Japan.............. 651 3 5 -- 2 -- -- -- (320) ------ ---- ---- ---- ---- --- -- ---- ------ 2,849 198 195 121 351 -- -- -- (1,068) Domestic market...... 1,000 90 403 21 12 1 -- -- (104) ------ ---- ---- ---- ---- --- -- ---- ------ 3,849 288 598 142 363 1 -- -- (1,172) ====== ==== ==== ==== ==== === == ==== ====== ASSETS : Property, plant and equipment, net..... 3,077 325 374 149 -- -- -- 30 -- Capital expenditures....... 373 50 14 -- -- -- -- 10 -- Investments in affiliated companies and joint ventures and other investments........ 519 31 151 372 262 423 37 -- -- ====== ==== ==== ==== ==== === == ==== ====== Capital employed..... 3,064 316 390 135 (10) 1 14 (6) 8 NOPLT................ 1,155 52 165 (44) 23 (54) -- (63) 16 ROCE................. 38% 16% 42% (33%) -- -- -- -- -- 2000 ------------ CONSOLIDATED ------------ RESULTS Revenues -- Export... 2,646 Revenues -- Domestic. 1,423 Cost and expenses.... (3,026) Interest revenue..... 208 Interest expense..... (315) Depreciation......... (195) Pension plan......... (9) Equity and provision for losses and write-downs........ 322 Income taxes......... 32 ------ Net income........... 1,086 ====== SALES CLASSIFIED BY GEOGRAPHIC DESTINATION: Export market Latin America........ 186 United States........ 476 Europe............... 1,142 Middle East.......... 212 Japan................ 289 Asia, other than Japan.............. 341 ------ 2,646 Domestic market...... 1,423 ------ 4,069 ====== ASSETS : Property, plant and equipment, net..... 3,955 Capital expenditures....... 447 Investments in affiliated companies and joint ventures and other investments........ 1,795 ====== Capital employed..... 3,912 NOPLT................ 1,250 ROCE................. 32%
F-35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED)
HOLDINGS --------------------------------- PULP 1999 NON AND CORPORATE --------------------------- FERROUS FERROUS LOGISTICS PAPER ALUMINUM STEEL OTHERS CENTER ELIMINATIONS CONSOLIDATED ------- ------- --------- ----- -------- ----- ------ --------- ------------ ------------ RESULTS Revenues -- Export..... 1,989 143 100 101 318 -- -- -- (578) 2,073 Revenues -- Domestic... 639 96 318 10 62 -- -- -- (41) 1,084 Cost and expenses...... (1,435) (151) (396) (103) (367) -- -- (428) 619 (2,261) Interest revenue....... 46 -- 8 4 9 -- -- 170 (37) 200 Interest expense....... (50) -- (13) -- (6) -- -- (201) 37 (233) Depreciation........... (120) (16) (21) (6) -- -- -- -- -- (163) Pension plan........... (21) (4) (3) -- -- -- -- -- -- (28) Equity and provision for losses and write-downs.......... (44) (15) (9) 9 (182) 7 -- 7 -- (227) Income taxes........... -- -- 14 (5) -- -- -- (42) -- (33) ------ ---- ---- ---- ---- --- -- ---- ---- ------ Net income............. 1,004 53 (2) 10 (166) 7 -- (494) -- 412 ====== ==== ==== ==== ==== === == ==== ==== ====== SALES CLASSIFIED BY GEOGRAPHIC DESTINATION: Export market Latin America........ 149 -- 13 -- 5 -- -- -- (60) 107 United States.......... 147 139 34 62 23 -- -- -- (71) 334 Europe................. 621 -- 31 39 146 -- -- -- (110) 727 Middle East............ 146 -- 3 -- -- -- -- -- (13) 136 Japan.................. 351 -- 9 -- 94 -- -- -- (83) 371 Asia, other than Japan................ 575 4 9 -- 50 -- -- -- (241) 397 Others................. -- -- 1 -- -- -- -- -- -- 1 ------ ---- ---- ---- ---- --- -- ---- ---- ------ 1,989 143 100 101 318 -- -- -- (578) 2,073 Domestic market........ 639 96 318 10 62 -- -- -- (41) 1,084 ------ ---- ---- ---- ---- --- -- ---- ---- ------ 2,628 239 418 111 380 -- -- -- (619) 3,157 ====== ==== ==== ==== ==== === == ==== ==== ====== ASSETS: Property, plant and equipment, net....... 2,950 400 404 158 -- -- -- 31 -- 3,943 Capital expenditures... 201 56 4 -- -- -- -- 4 -- 265 Investments in affiliated companies and joint ventures and other investments.......... 116 33 68 318 208 426 34 -- -- 1,203 ====== ==== ==== ==== ==== === == ==== ==== ====== Capital employed....... 3,081 399 419 148 9 -- -- (9) -- 4,047 NOPLT.................. 1,055 68 28 6 28 -- -- (309) 11 887 ROCE................... 34% 17% 7% 4% 311% -- -- -- -- 22%
F-36 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED)
HOLDINGS --------------------------------- PULP 1998 NON AND CORPORATE --------------------------- FERROUS FERROUS LOGISTICS PAPER ALUMINUM STEEL OTHERS CENTER ELIMINATIONS CONSOLIDATED ------- ------- --------- ----- -------- ----- ------ --------- ------------ ------------ RESULTS Revenues -- Export.... 2,004 145 135 80 419 -- -- -- (443) 2,340 Revenues -- Domestic... 776 124 396 8 65 -- -- -- (51) 1,318 Cost and expenses..... (1,548) (213) (382) (90) (473) -- -- (422) 494 (2,634) Interest revenue...... 20 -- 16 4 25 -- -- 367 (38) 394 Interest expense...... (23) -- (25) -- (10) -- -- (223) 38 (243) Depreciation.......... (167) (32) (28) (4) -- -- -- -- -- (231) Pension plan.......... (46) (7) -- -- -- -- -- -- -- (53) Equity and provision for losses and write-downs......... 2 (9) 1 (22) 40 (211) 6 -- -- (193) Income taxes.......... -- -- -- -- -- -- -- 0 -- 0 ------ ---- ---- --- ---- ----- -- ---- ---- ------ Net income............ 1,018 8 113 (24) 66 (211) 6 (278) -- 698 ====== ==== ==== === ==== ===== == ==== ==== ====== SALES CLASSIFIED BY GEOGRAPHIC DESTINATION: Export market Latin America......... 177 -- 5 -- 105 -- -- -- (121) 166 United States......... 185 145 36 37 44 -- -- -- (96) 351 Europe................ 751 -- 40 43 269 -- -- -- (65) 1,038 Middle East........... 135 -- 2 -- -- -- -- -- (3) 134 Japan................. 299 -- 31 -- -- -- -- -- -- 330 Asia, other than Japan............... 456 -- 15 -- -- -- -- -- (158) 313 Others................ 1 -- 6 -- 1 -- -- -- -- 8 ------ ---- ---- --- ---- ----- -- ---- ---- ------ 2,004 145 135 80 419 -- -- -- (443) 2,340 Domestic market....... 776 124 396 8 65 -- -- -- (51) 1,318 ------ ---- ---- --- ---- ----- -- ---- ---- ------ 2,780 269 531 88 484 -- -- -- (494) 3,658 ====== ==== ==== === ==== ===== == ==== ==== ====== ASSETS: Property, plant and equipment, net...... 4,132 392 508 203 -- -- -- 26 -- 5,261 Capital expenditures........ 366 32 1 8 -- -- -- 5 -- 412 Investments in affiliated companies and joint ventures and other investments......... 166 45 64 424 240 571 47 -- -- 1,557 ====== ==== ==== === ==== ===== == ==== ==== ====== Capital employed...... 4,098 401 523 204 15 -- -- (32) -- 5,209 NOPLT................. 1,018 17 133 (5) 11 -- -- (316) (4) 854 ROCE.................. 25% 4% 25% (2)% 73% -- -- -- -- 16%
F-37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) 17. RELATED PARTY TRANSACTIONS Transactions with major related parties (including agencies of the Brazilian Federal Government) resulted in the following balances:
AS OF DECEMBER 31 ------------------------------------------- 2000 1999 -------------------- -------------------- ASSETS LIABILITIES ASSETS LIABILITIES ------ ----------- ------ ----------- AFFILIATED COMPANIES AND JOINT VENTURES ALUNORTE(1)....................................... 332 45 333 5 CENIBRA(2)........................................ 126 41 161 69 Salobo Metais S.A.(3)............................. 76 -- 75 -- FCA............................................... 151 18 1 -- HISPANOBRAS....................................... 21 23 22 23 ITABRASCO......................................... 17 22 27 29 NIBRASCO.......................................... 29 38 12 42 KOBRASCO.......................................... 34 7 38 37 Wilsea Shipping Inc. ............................. -- 34 9 -- USIMINAS.......................................... 24 -- 4 -- ALBRAS............................................ 1 24 -- 42 URUCUM............................................ 8 1 2 2 Others............................................ 133 85 129 64 EMPLOYEE FUNDS Fundacao Vale do Rio Doce......................... -- 1 15 8 VALIA............................................. -- 40 -- 6 BRAZILIAN FEDERAL GOVERNMENT Banco do Brasil S.A.(4)........................... 85 3 151 -- Rede Ferroviaria Federal S.A...................... 13 39 14 42 BNDES............................................. 7 158 6 151 ----- --- ----- --- 1,057 579 999 520 ===== === ===== === Current............................................. 337 378 378 360 ===== === ===== === Long-term........................................... 720 201 621 160 ===== === ===== ===
- --------------- (1) Includes on lending outstanding balance of $204 (1999 -- $204), with identical conditions and terms, of a $200 U.S. dollar denominated loan obtained by us from the Nippon Amazon Aluminium Company (NAAC) in January 1997 (bearing interest of 6.41% p.a. and maturing up to 2011). (2) Includes onlending outstanding balance of $117 (1999 -- $146), with identical conditions and terms, of a $200 U.S. dollar denominated loan obtained by us from the Japanese Eximbank in 1996, bearing interest of 6.21% p.a. and maturing up to 2004. (3) Convertible debentures bearing interest of IGPM plus 6.50% p.a., maturing up to 2000. (4) Represents interest bearing deposits and investment funds. F-38 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) These balances are included in the following balance sheet classifications:
AS OF DECEMBER 31 ------------------------------------------- 2000 1999 -------------------- -------------------- ASSETS LIABILITIES ASSETS LIABILITIES ------ ----------- ------ ----------- Current assets Cash and cash equivalents....................... 85 -- 171 -- Accounts receivable............................. 125 -- 107 -- Loans and advances to related parties........... 121 -- 93 -- Others.......................................... 6 -- 7 -- Other assets Loans and advances to related parties........... 704 -- 601 -- Others.......................................... 16 -- 20 -- Current liabilities Suppliers....................................... -- 179 -- 119 Current portion of long-term debt............... -- 30 -- 30 Loans from related parties...................... -- 152 -- 190 Others.......................................... -- 17 -- 21 Long-term liabilities Long-term debt.................................. -- 128 -- 121 Loans from related parties...................... -- 21 -- 4 Others.......................................... -- 52 -- 35 ----- --- --- --- 1,057 579 999 520 ===== === === ===
F-39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) The principal amounts of business and financial operations carried out with major related parties are as follows:
YEAR ENDED DECEMBER 31 ------------------------------------------------------ 2000 1999 1998 ---------------- ---------------- ---------------- INCOME EXPENSE INCOME EXPENSE INCOME EXPENSE ------ ------- ------ ------- ------ ------- AFFILIATED COMPANIES AND JOINT VENTURES CST.............................. 166 -- 135 -- 132 -- NIBRASCO......................... 172 205 44 58 101 108 ALUNORTE......................... 42 93 167 28 76 89 SIDERAR.......................... 18 -- 30 -- 45 -- ITABRASCO........................ 66 24 57 23 40 41 HISPANOBRAS...................... 75 77 26 50 40 45 KOBRASCO......................... 76 18 62 67 9 9 CENIBRA.......................... 33 123 78 99 27 1 USIMINAS......................... 47 -- 18 -- 25 -- ACOMINAS......................... 7 -- 8 -- 12 -- ALBRAS........................... 6 216 14 205 11 222 VALESUL.......................... 4 -- -- 24 2 32 MRN.............................. 1 17 -- 20 -- 20 Others........................... 82 75 80 59 55 73 BRAZILIAN FEDERAL GOVERNMENT Banco do Brasil S.A.............. 46 24 46 14 72 14 Petroleo Brasileiro S.A. -- PETROBRAS..................... 6 11 1 17 1 24 Centrais Eletricas Brasileiras S.A. ......................... -- -- -- -- 1 15 BNDES............................ 1 18 1 12 1 13 --- --- --- --- --- --- 848 901 767 676 650 706 === === === === === ===
These amounts are included in the following statement of income classifications:
YEAR ENDED DECEMBER 31 ------------------------------------------------------ 2000 1999 1998 ---------------- ---------------- ---------------- INCOME EXPENSE INCOME EXPENSE INCOME EXPENSE ------ ------- ------ ------- ------ ------- Sales of iron ore and pellets........... 494 313 288 175 316 183 Revenues from transportation services... 133 -- 89 -- 137 -- Cost of aluminum products............... -- 327 -- 271 -- 357 Financial income/expenses............... 117 79 101 59 162 62 Others.................................. 104 182 289 171 35 104 --- --- --- --- --- --- 848 901 767 676 650 706 === === === === === ===
F-40 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) 18. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of our current financial instruments generally approximates fair market value because of the short-term maturity or frequent repricing of these instruments. The market value of long-term investments, where available, is disclosed in Note 10 to these financial statements. Based on borrowing rates currently available to us for bank loans with similar terms and average maturities, the fair market value of long-term debt at December 31 is estimated as follows:
FAIR MARKET CARRYING VALUE VALUE ------ -------- 2000........................................................ 1,967 1,965 1999........................................................ 1,278 1,290
Fair market value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. Changes in assumptions could significantly affect the estimates. 19. DERIVATIVE FINANCIAL INSTRUMENTS We actively manage our positions in derivative instruments. In view of the policies and practices established for operations with derivatives, management considers the occurrence of non-measurable risk situations as unlikely. Our policy has been to settle all contracts through cash payments or receipts, without physical delivery of product. (A) GOLD In connection with our gold mining activities, we are party to derivative financial instruments designed to manage the risks associated with gold price fluctuations, to provide stable cash flows and gross margins for the gold business. At December 31, 2000, such operations can be summarized as follows:
UNREALIZED TYPE QUANTITY (OZ.) FINAL MATURITY GAIN (LOSS) - ---- -------------- -------------- ----------- Puts........................................ 479,500 December 2004 13 Calls....................................... 999,800 December 2004 (5) Collar conditional.......................... 30,000 November 2002 1 -- 9 ==
The unrealized gain in the amount of $9 represents the amount receivable if all transactions had been settled on December 31, 2000. Realized net gains (losses) were $7, $3 and $14 in 2000, 1999 and 1998, respectively. F-41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) (B) INTEREST RATES (6-MONTH LIBOR) We carry out derivative operations seeking to manage our exposure to the 6-month Libor rate, arising from our trade finance operations. At December 31, 2000 such operations were as follows:
NOTIONAL UNREALIZED TYPE VALUE FINAL MATURITY GAIN (LOSS) - ---- -------- --------------- ----------- Cap........................................................ 1,200 December 2004 3 Floor...................................................... 850 December 2004 (7) Swap....................................................... 125 October 2007 (4) -- (8) ==
The unrealized loss in the amount of $8 represents the amount payable if all transactions had been settled on December 31, 2000. Realized net gains (losses) were $3, $nihil and $(1) in 2000, 1999 and 1998, respectively. (C) CURRENCY We also carry out derivative operations seeking to manage our exposure to currencies, arising from our indebteness in EURO and YEN. At December 31, 2000 such operations were as follows:
NOTIONAL UNREALIZED TYPE VALUE FINAL MATURITY GAIN (LOSS) - ---- -------- -------------- ----------- Yen................................................ 15 April 2005 (2) EURO............................................... 12 April 2005 (2) -- (4) ==
The unrealized loss in the amount of $4 represents the amount payable if all transactions had been settled on December 31, 2000. Realized net gains (losses) were $(7), $54 and $(20) in 2000, 1999 and 1998, respectively. 20. EFFECTS OF CURRENCY DEVALUATION On January 13 and 15, 1999, certain significant changes occurred in the exchange rate policy until then adopted by the Brazilian government, which resulted in the elimination of certain exchange controls, previously carried out by means of a system of trading bands, from the moment the Central Bank decided to no longer intervene in the foreign exchange market. As a result of this decision and the market reaction, our functional currency (Real) devalued to US$1: R$1.7890 on December 31, 1999 from US$1: R$1.2087 at December 31, 1998 (US$1: R$1.9554 at December 31, 2000). 21. ACCOUNTING CHANGES These financial statements have been restated to reflect the following accounting changes: (A) CHANGES WHICH EFFECT NET INCOME AND STOCKHOLDERS' EQUITY (a.1) Impairment provision for equity investments in CST and Usiminas. The Company has concluded that the loss in value in its investment in CST and Usiminas was other than temporary, and that the carrying value should be reduced to the quoted market price of the applicable shares. This methodology has been applied retroactively resulting in a write-down provision of F-42 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) $180 as at December 31, 1997 (with write-down changes of $50, $24 and $106 recorded for the years ended December 31, 1997, 1996 and 1995, respectively). (a.2) Amortization of goodwill related to Samarco and Samitri. The Company has recognized amortization expense of goodwill relating to the acquisition of Samarco and Samitri in May 2000 from the date of the acquisition on a straight line basis at 16.67% per annum. Previously, the Company had not commenced amortization of goodwill. The impact of the above alterations is shown below:
YEAR ENDED DECEMBER 31, ------------------------ 2000 1999 1998 ------ ------ ------ Net income previously reported.............................. 1,100 412 896 Impairment of CST and Usiminas.............................. -- -- (294) Goodwill amortization....................................... (21) -- -- Deferred tax effects........................................ 7 -- 96 ----- ----- ----- RESTATED NET INCOME......................................... 1,086 412 698 ===== ===== ===== Earnings per share previously reported...................... 2.86 1.07 2.31 Restated earnings per share................................. 2.83 1.07 1.80 Shareholders' equity previously reported.................... 4,922 5,032 6,715 Impairment of CST and Usiminas.............................. (400) (417) (474) Goodwill amortization....................................... (21) -- -- Deferred tax effects........................................ 68 76 151 ----- ----- ----- RESTATED SHAREHOLDERS' EQUITY............................... 4,569 4,691 6,392 ===== ===== =====
(B) CHANGE THAT DOES NOT AFFECT NET INCOME AND STOCKHOLDERS' EQUITY -- CONSOLIDATION OF CELMAR S.A. Previously we accounted for our development stage subsidiary, Celmar S.A., under the equity method of accounting. We now consolidate this entity for all periods presented which has not resulted in any change to our net income or stockholders' equity. The effects on our consolidated current assets and current liabilities is less than 1% while consolidated long-term liabilities increased by 1.8%. 22. SUBSEQUENT EVENTS (a) On February 22, 2001 we agreed to sell our 32.00% interest in Bahia Sul Celulose S.A. -- BSC for $318. (b) On March 9, 2001 we transferred our 10.33% interest in Companhia Siderurgica Nacional -- CSN to VALIA as a special pension plan contribution for $249 (fair market valued determined based on the weighted average price of the last 30 (thirty) trading sessions at the Sao Paulo stock exchange in the period ended on March 9, 2001). (c) On March 8, 2002, our wholly-owned subsidiary, Vale Overseas Limited, issued $300,000,000 of 8.625% Enhanced Guaranteed Notes due March 8, 2007. The notes are unconditionally guaranteed by us. F-43 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) 23. INFORMATION ABOUT OUR INDEPENDENT ACCOUNTANTS Our consolidated financial statements are audited by PricewaterhouseCoopers Auditores Independentes. The financial statements of certain of our subsidiaries and affiliates have been audited by independent accountants other than PricewaterhouseCoopers Auditores Independentes and, as mentioned in their report, PricewaterhouseCoopers Auditores Independentes has relied on such audits when expressing their opinion on our consolidated financial statements. The following entities prepare financial statements in US GAAP which are audited in accordance with auditing standards generally accepted in the United States of America:
AUDITORS YEARS AUDITED CITY STATE COUNTRY -------- ---------------- -------- ----- ------- Aluminio Brasileiro S.A. -- ALBRAS.... DTT 2000, 1999, 1998 RJ RJ Brazil Alumina do Norte do Brasil S.A. -- ALUNORTE............................ DTT 2000, 1999, 1998 RJ RJ Brazil Vale do Rio Doce Aluminio S.A. -- ALUVALE............................. DTT 2000, 1999, 1998 RJ RJ Brazil Bahia Sul Celulose S.A................ KPMG 2000, 1999, 1998 SP SP Brazil California Steel Industries, Inc...... KPMG LLP 2000, 1999, 1998 Orange CA USA County Celulose Nipo-Brasileira S.A. -- CENIBRA(1).......................... DTT 2000, 1999 BH MG Brazil Navegacao Vale do Rio Doce S.A. -- DOCENAVE............................ DTT 2000, 1999, 1998 RJ RJ Brazil DOCEPAR S.A.(1)....................... DTT 2000, 1999 RJ RJ Brazil Companhia Hispano-Brasileira de Pelotizacao -- HISPANOBRAS.......... AA 2000, 1999, 1998 Vitoria ES Brazil Companhia Italo-Brasileira de Pelotizacao -- ITABRASCO............ AA 2000, 1999, 1998 Vitoria ES Brazil Companhia Coreano Brasileira de Pelotizacao -- KOBRASCO(2).......... DTT 2000 RJ RJ Brazil Mineracao Rio do Norte S.A............ AA 2000, 1999, 1998 RJ RJ Brazil Companhia Nipo-Brasileira de Pelotizacao -- NIBRASCO............. DTT 2000, 1999, 1998 RJ RJ Brazil Valesul Aluminio S.A.................. KPMG 2000, 1999 RJ RJ Brazil Valesul Aluminio S.A.................. DTT 1998 RJ RJ Brazil Companhia Siderugica Nacional(1)...... AA 2000, 1999 RJ RJ Brazil
F-44 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (CONTINUED) In addition to the above, the following entities prepare financial statements in Brazilian GAAP which are audited in accordance with auditing standards generally accepted in Brazil. PricewaterhouseCoopers Auditores Independentes relies on such audits but is responsible for reviewing the US GAAP translation and, if applicable, US GAAP adjustments.
AUDITORS YEARS AUDITED CITY STATE COUNTRY -------- ---------------- -------- ----- ------- Terminal Vila Velha S.A. .............. DTT 2000, 1999, 1998 RJ RJ Brazil Nova Era Silicon S.A. ................. DTT 2000 BH MG Brazil Nova Era Silicon S.A. ................. Trevisan 1999, 1998 BH MG Brazil Celmar S.A. -- Industria de Celulose e Papel(2)............................. DTT 2000 RJ RJ Brazil SIBRA Eletrosiderurgica Brasileira S.A.(3) ............................. DTT 2000 Salvador BA Brazil
AA -- Arthur Andersen S/C DTT -- Deloitte Touche Tohmatsu RJ -- Rio de Janeiro MG -- Minas Gerais BH -- Belo Horizonte SP -- Sao Paulo BA -- Bahia ES -- Espirito Santo (1) Audited by PricewaterhouseCoopers Auditores Independentes in 1998. (2) Audited by PricewaterhouseCoopers Auditores Independentes in 1999 and 1998. (3) Consolidated as from 2000. F-45 [PRICEWATERHOUSECOOPERS LOGO] - -------------------------------------------------------------------------------- PricewaterhouseCoopers Rua da Candelaria, 65 11(degree)-15(degree) 20091-020 Rio de Janeiro, RJ-Brasil Caixa Postal 949 Telefone (21) 3232-6112 Fax (21) 2516-6319 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF COMPANHIA VALE DO RIO DOCE We have reviewed the accompanying unaudited consolidated balance sheets of Companhia Vale do Rio Doce and its subsidiaries at September 30, 2001 and 2000, and the related unaudited consolidated statements of income, of cash flows and of changes in stockholders' equity for the nine month periods then ended. This financial information is the responsibility of the Company's management. The unaudited financial information of certain affiliates, the investments in which total US$274 million and US$864 million at September 30, 2001 and 2000, respectively, and equity in earnings total US$7 million and US$156 million for the nine month periods then ended, and that of the majority-owned shipping and ferrous alloy subsidiaries, which statements reflect total assets of US$288 million and US$422 million at September 30, 2001 and 2000, respectively, and total revenues of US$197 million and US$223 million for the nine month periods then ended, were reviewed by other independent accountants whose reports thereon have been furnished to us. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews and the reports of the other independent accountants referred to above, we are not aware of any material modification that should be made to the accompanying financial information for it to be in conformity with accounting principles generally accepted in the United States of America. /s/ PRICEWATERHOUSECOOPERS PRICEWATERHOUSECOOPERS Auditores Independentes Rio de Janeiro, Brazil October 22, 2001, except for the accounting changes described in Note 19 and the subsequent event contained in Note 21, which are as of February 22, 2002 and March 8, 2002, respectively. F-46 CONSOLIDATED BALANCE SHEETS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS
AS OF SEPTEMBER 30 --------------- 2001 2000 ------ ------ (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents................................. 1,708 1,055 Accounts receivable Related parties......................................... 102 122 Unrelated parties....................................... 418 391 Loans and advances to related parties..................... 86 192 Inventories............................................... 286 295 Deferred income tax....................................... 197 39 Others.................................................... 198 224 ------ ------ 2,995 2,318 Property, plant and equipment, net.......................... 3,320 4,024 Investments in affiliated companies and joint ventures and other investments......................................... 1,223 2,155 Provision for losses on equity investments.................. (405) (446) Other assets Goodwill on acquisition of consolidated subsidiaries...... 485 181 Loans and advances Related parties......................................... 516 636 Unrelated parties....................................... 97 56 Unrecognized pension obligation........................... 46 136 Prepaid pension cost...................................... 89 -- Deferred income tax....................................... 78 298 Judicial deposits......................................... 147 109 Unrealized gain on derivative instruments................. 6 -- Others.................................................... 67 115 ------ ------ TOTAL....................................................... 8,664 9,582 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Suppliers................................................. 258 280 Payroll and related charges............................... 49 76 Interest attributed to stockholders....................... 667 428 Current portion of long-term debt Related parties......................................... 24 25 Unrelated parties....................................... 236 313 Short-term debt........................................... 649 777 Loans from related parties................................ 119 101 Others.................................................... 173 169 ------ ------ 2,175 2,169 ------ ------ LONG-TERM LIABILITIES Employees postretirement benefits......................... 194 530 Long-term debt Related parties......................................... 101 106 Unrelated parties....................................... 2,010 1,419 Loans from related parties................................ 4 21 Provisions for contingencies (Note 15).................... 373 312 Unrealized loss on derivative instruments................. 44 -- Others.................................................... 142 112 ------ ------ 2,868 2,500 ------ ------ Minority interests.......................................... 8 26 ------ ------ STOCKHOLDERS' EQUITY Preferred class A stock -- 600,000,000 no-par-value shares authorized and 138,575,913 issued....................... 820 709 Common stock -- 300,000,000 no-par-value shares authorized and 249,983,143 issued.................................. 1,479 1,279 Treasury stock -- 4,249,970 (2000 -- 3,659,311) common and 91 preferred shares..................................... (79) (61) Additional paid-in capital................................ 498 498 Other cumulative comprehensive income..................... (3,899) (2,766) Appropriated retained earnings............................ 2,321 3,484 Unappropriated retained earnings.......................... 2,473 1,744 ------ ------ 3,613 4,887 ------ ------ TOTAL....................................................... 8,664 9,582 ====== ======
See Notes to Consolidated Financial Information. F-47 CONSOLIDATED STATEMENTS OF INCOME EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS (EXCEPT NUMBER OF SHARES AND PER-SHARE AMOUNTS)
NINE MONTHS ENDED SEPTEMBER 30 ------------------ 2001 2000 ------- ------- (UNAUDITED) Operating revenues, net of discounts, returns and allowances Sales of ores and metals Iron ore and pellets................................... 1,937 1,635 Gold................................................... 100 113 Others................................................. 291 327 ------- ------- 2,328 2,075 Revenues from transportation services..................... 464 577 Aluminum products......................................... 224 280 Other products and services............................... 83 160 ------- ------- 3,099 3,092 Value-added tax........................................... (102) (96) ------- ------- Net operating revenues.................................... 2,997 2,996 ------- ------- Operating costs and expenses Cost of ores and metals sold.............................. (1,155) (1,107) Cost of transportation services........................... (270) (357) Cost of aluminum products................................. (214) (259) Others.................................................... (76) (142) ------- ------- (1,715) (1,865) Selling, general and administrative expenses.............. (188) (140) Research and development.................................. (31) (34) Employee profit sharing plan.............................. (21) (31) Others.................................................... (335) (231) ------- ------- (2,290) (2,301) ------- ------- Operating income............................................ 707 695 ------- ------- Non-operating income (expenses) Financial income.......................................... 80 136 Financial expenses........................................ (240) (204) Foreign exchange and monetary losses, net................. (700) (10) Gain on sale of investments............................... 784 54 Others.................................................... (43) (11) ------- ------- (119) (35) ------- ------- Income before income taxes, equity results and minority interests................................................. 588 660 ------- ------- Income taxes Current................................................... 41 -- Deferred.................................................. 2 1 ------- ------- 43 1 ------- ------- Equity in results of affiliates and joint ventures.......... (8) 187 Change in provision for losses and write-downs on equity investments............................................... (45) 53 Minority interests.......................................... 7 -- ------- ------- Net income.................................................. 585 901 ======= ======= Basic earnings per Common and Preferred Class A Share....... 1.52 2.34 ------- ------- Weighted average number of shares outstanding (thousands of shares) Common shares............................................. 249,864 249,983 Preferred Class A shares.................................. 135,042 134,917
See Notes to Consolidated Financial Information. F-48 CONSOLIDATED STATEMENTS OF CASH FLOWS EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS
NINE MONTHS ENDED SEPTEMBER 30 --------------- 2001 2000 ----- ------ (UNAUDITED) Cash flows from operating activities: Net income................................................ 585 901 Adjustments to reconcile net income with cash provided by operating activities: Depreciation, depletion and amortization................ 174 130 Equity in results of affiliates and joint ventures, net of dividends received.................................. 120 (91) Change in provision for losses and write-downs on equity investments............................................ 45 (53) Deferred income taxes................................... (2) (1) Provisions for contingencies............................ 87 131 Loss on disposals of property, plant and equipment...... 69 34 Gain on sale of investments............................. (784) (54) Pension plan............................................ 24 21 Foreign exchange and monetary losses.................... 616 57 Net unrealized derivative losses........................ 38 -- Others.................................................. 134 -- Decrease (increase) in assets: Accounts receivable..................................... (78) (61) Inventories............................................. (17) (26) Others.................................................. (5) (100) Increase (decrease) in liabilities: Suppliers............................................... 30 30 Payroll and related charges............................. 12 22 Others.................................................. 42 27 ----- ------ Net cash provided by operating activities................. 1,090 967 ----- ------ Cash flows from investing activities: Loans and advances receivable Related parties Additions............................................. (4) (185) Repayments............................................ 69 20 Others.................................................. 5 6 Guarantees and deposits................................... (15) (61) Additions to investments.................................. (52) (423) Additions to property, plant and equipment................ (444) (214) Proceeds from disposals of property, plant and equipment............................................... 2 1 Proceeds from disposal of investments..................... 989 44 Net cash used to acquire subsidiaries..................... (516) (323) ----- ------ Net cash provided by (used in) investing activities....... 34 (1,135) ----- ------ Cash flows from financing activities: Short-term debt, net issuances............................ 133 20 Loans Related parties Additions............................................. 85 53 Repayments............................................ (9) (81) Perpetual notes........................................... -- 120 Long-term debt Related parties......................................... 3 70 Others.................................................. 320 237 Repayments of long-term debt Related parties......................................... (27) (22) Others.................................................. (326) (331) Interest attributed to stockholders....................... (639) (246) Treasury stock............................................ (18) -- ----- ------ Net cash used in financing activities..................... (478) (180) ----- ------ Increase (decrease) in cash and cash equivalents.......... 646 (348) Effect of exchange rate changes on cash and cash equivalents............................................. (149) (50) Cash and cash equivalents, beginning of period............ 1,211 1,453 ----- ------ Cash and cash equivalents, end of period.................. 1,708 1,055 ===== ====== Cash paid during the period for: Interest on short-term debt............................. (25) (36) Interest on long-term debt, net of interest capitalized of $9 in 2001 and $12 in 2000.......................... (116) (102) Income tax.............................................. (41) -- Non-cash transactions Special pension plan contribution in shares of CSN...... 249 -- Exchange of loans receivable for investments............ 35 4
See Notes to Consolidated Financial Information. F-49 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS (EXCEPT NUMBER OF SHARES AND PER-SHARE AMOUNTS)
NINE MONTHS ENDED SEPTEMBER 30 ----------------------------- SHARES 2001 2000 ----------- ------ ------ (UNAUDITED) Preferred class A stock (including one special share) Balance January 1, 2001 and 2000.......................... 138,575,913 709 709 Transfer from appropriated retained earnings.............. -- 111 -- ----------- ------ ------ Balance September 30, 2001 and 2000....................... 138,575,913 820 709 ----------- ------ ------ Common stock Balance January 1, 2001 and 2000.......................... 249,983,143 1,279 1,279 Transfer from appropriated retained earnings.............. -- 200 -- ----------- ------ ------ Balance September 30, 2001 and 2000....................... 249,983,143 1,479 1,279 ----------- ------ ------ Treasury stock Balance January 1......................................... (3,666,611) (61) (61) Acquisitions in 2001...................................... (583,450) (18) -- ----------- ------ ------ Balance September 30...................................... (4,250,061) (79) (61) ----------- ------ ------ Additional paid-in capital Balance January 1 and September 30........................ 498 498 ------ ------ Other cumulative comprehensive income Amounts not recognized as net periodic pension cost Balance January 1......................................... (100) -- Excess of additional minimum liability.................... 151 (119) Tax effect on above....................................... (51) 40 ------ ------ Balance September 30...................................... -- (79) ------ ------ Cumulative translation adjustments Balance January 1......................................... (2,952) (2,513) Change in the period...................................... (954) (208) ------ ------ Balance September 30...................................... (3,906) (2,721) ------ ------ Unrealized gain on available-for-sale security Balance January 1......................................... 24 54 Change in the period...................................... (24) (19) ------ ------ Balance September 30...................................... -- 35 ------ ------ Adjustments relating to investments in affiliates Balance January 1......................................... 8 (6) Change in the period...................................... (1) 5 ------ ------ Balance September 30...................................... 7 (1) ------ ------ Total other cumulative comprehensive income................. (3,899) (2,766) ------ ------ Appropriated retained earnings Balance January 1......................................... 3,537 3,567 Transfer to retained earnings............................. (905) (83) Transfer to capital stock................................. (311) -- ------ ------ Balance September 30...................................... 2,321 3,484 ------ ------ Retained earnings Balance January 1......................................... 1,647 1,186 Net Income.............................................. 585 901 Interest attributed to stockholders Preferred class A stock ($1.72 and $1.11 per share in 2001 and 2000)....................................... (239) (149) Common stock ($1.72 and $1.11 per share in 2001 and 2000)................................................ (425) (277) Appropriation from reserves............................. 905 83 ------ ------ Balance September 30...................................... 2,473 1,744 ----------- ------ ------ Total stockholders equity................................... 384,308,995 3,613 4,887 =========== ====== ====== Comprehensive income is comprised as follows: Net Income................................................ 585 901 Amounts not recognized as net periodic pension cost....... 100 (79) Cumulative translation adjustments........................ (954) (208) Unrealized gain on available-for-sale security............ (24) (19) Adjustments relating to investments in affiliates......... (1) 5 ------ ------ Total comprehensive income (loss)........................... (294) 600 ====== ======
See Notes to Consolidated Financial Information. F-50 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED 1. THE COMPANY AND ITS OPERATIONS Companhia Vale do Rio Doce (CVRD) is a limited liability company, duly organized and existing under the laws of the Federative Republic of Brazil. Our operations are carried out through CVRD and its subsidiary companies, joint ventures and affiliates, and mainly consist of mining, non-ferrous metal production and logistics, as well as pulp and paper, aluminum and steel activities. Further details of our operations and those of our joint ventures and affiliates are described in Note 16. The main operating subsidiaries we consolidate are as follows:
HEAD OFFICE SUBSIDIARY % OWNERSHIP LOCATION PRINCIPAL ACTIVITY - ---------- ----------- ----------- ------------------ S.A. Mineracao da Trindade -- SAMITRI......... 100 Brazil Iron ore and pellets Ferteco Mineracao S.A. -- FERTECO............. 100 Brazil Iron ore and pellets Para Pigmentos S.A. .......................... 80 Brazil Kaolin SIBRA -- Eletrosiderurgica Brasileira S.A..... 98 Brazil Ferrous alloys Navegacao Vale do Rio Doce S.A. -- DOCENAVE... 100 Brazil Shipping Vale do Rio Doce Aluminio S.A. -- ALUVALE..... 100 Brazil Aluminum Itabira Rio Doce Company Ltd. -- ITACO........ 100 Cayman Island Trading Rio Doce International Finance Ltd. -- RDIF... 100 Bahamas International finance
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Our consolidated interim financial information as of and for the periods of nine months ended September 30, 2001 and 2000 is unaudited. However, in our management's opinion, such consolidated financial information includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation thereof. The results of operations for the nine month period ended September 30, 2001 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2001. In preparing the consolidated financial information, we are required to use estimates to account for certain assets, liabilities, revenues and expenses. Our consolidated financial information therefore includes various estimates concerning the selection of useful lives of property, plant and equipment, provisions necessary for contingent liabilities, fair values assigned to assets and liabilities acquired in business combinations, income tax valuation allowances, employee post-retirement benefits and other similar evaluations; actual results may vary from our estimates. (a) BASIS OF PRESENTATION We have prepared the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("US GAAP"), which differ in certain respects from the Brazilian accounting principles that we use in preparing our statutory financial information. The U.S. dollar amounts for the period presented have been remeasured (translated) from the Brazilian currency amounts in accordance with the criteria set forth in Statement of Financial Accounting Standards 52 -- "Foreign Currency Translation" (SFAS 52). Prior to July 1, 1997, Brazil was considered under SFAS 52 to have a highly inflationary economy, defined as an economy in which the cumulative inflation rate over the latest thirty-six month period has exceeded 100%. Accordingly, up to June 30, 1997, we adopted the U.S. dollar as both our functional currency and reporting currency. F-51 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED As from July 1, 1997, we concluded that the Brazilian economy had ceased to be highly inflationary and changed our functional currency from the reporting currency (U.S. dollars) to the local currency (Brazilian reais). Accordingly, at July 1, 1997, we translated the U.S. dollar amounts of non-monetary assets and liabilities into reais at the current exchange rate, and those amounts became the new accounting bases for such assets and liabilities. The resulting deferred taxes associated with the differences between the new functional currency bases and the tax bases, including those relating to affiliates and joint ventures, net of related valuation allowances, were reflected in the cumulative translation adjustments component of stockholders' equity. We have remeasured all assets and liabilities into U.S. dollars at the current exchange rate at each balance sheet date (R$2.6713 and R$1.8437 to US$1.00 at September 30, 2001 and 2000, respectively), and all accounts in the statements of income (including amounts relative to local currency indexation and exchange variances on assets and liabilities denominated in foreign currency) at the average rates prevailing during the period. The translation gain or loss resulting from this remeasurement process is included in the cumulative translation adjustments account in stockholders' equity. The net transaction loss included in our statement of income was $558 and $2 in the nine months ended September 30, 2001 and 2000, respectively. (b) BASIS OF CONSOLIDATION All majority-owned subsidiaries where we have both share and management control are consolidated with elimination of all significant intercompany accounts and transactions. Investments in unconsolidated affiliates and joint ventures are reported at cost less amortized goodwill plus our equity in undistributed earnings or losses. Included in this category are certain joint ventures in which we have majority ownership but, by force of shareholders' agreements, do not have effective management control. We provide for losses on equity investments with negative stockholders' equity and for other than temporary decreases in market value below carrying value where applicable (see Notes 10 and 19). We evaluate the carrying value of our listed equity investments, as at year end, relative to publicly available quoted market prices. If the quoted market price is below book value and such decline is considered other than temporary, we write-down our equity investments to quoted market value. We define joint ventures as businesses in which we and a small group of other partners each participate actively in the overall management thereof, based on a shareholders agreement. We define affiliates as businesses in which we participate as a minority stockholder but with significant influence over the operating and financial policies of the investee. (c) BUSINESS COMBINATIONS We adopt the procedures determined by Accounting Principles Board Opinion 16 -- "Business Combinations" (APB 16) to recognize acquisitions of interests in other companies. The method of accounting normally used in our business combination transactions is the "purchase method", which requires that acquirers reasonably determine the fair value of the identifiable assets and liabilities of acquired companies, individually, in order to determine the goodwill paid in the purchase to be recognized as an intangible asset. On the acquisition of assets which include the rights to mine reserves of natural resources, the establishment of values for these assets includes the placing of fair values on purchased reserves, which are classified in the balance sheet as property, plant and equipment. Goodwill recorded in our business combination transactions is amortized in a systematic manner over the periods estimated to be benefited. F-52 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (d) INVENTORIES Inventories are stated at the average cost of purchase or production, lower than replacement or realizable values. We record allowances for slow-moving or obsolete inventories when considered appropriate, reflecting our periodic assessment of recoverability. A write-down of inventory utilizing the allowance establishes a new cost basis for the related inventory. Finished goods inventories include all related materials, labor and direct production expenditures, and exclude general and administrative expenses. (e) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost, including interest cost incurred during the construction of major new facilities. We compute depreciation on the straight-line basis at rates which take into consideration the useful lives of the items, principally an average of 80 years for the railroads, 20 years for ships, 25 years for buildings and improvements and between 10 to 20 years for mining and other equipment. Expenditures for maintenance and repairs are charged to operating costs and expenses as incurred. We capitalize the costs of developing major new ore bodies or expanding the capacity of operating mines and amortize these to operations on the unit-of-production method based on the total probable and proven quantity of ore to be recovered. Exploration costs are expensed until viability of mining activities is established; subsequently such costs are capitalized together with further exploration costs. We capitalize mine development costs as from the time we actually begin such development. (f) AVAILABLE-FOR-SALE EQUITY SECURITIES Equity securities classified as "available-for-sale" are recorded in accordance with SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities". Accordingly, we exclude unrealized holding gains and losses, net of taxes, if applicable, from income and recognize them as a separate component of stockholders' equity until realized. (g) REVENUES AND EXPENSES Revenues are recognized when title has transferred to the customer or services are rendered. Expenses and costs are recognized on the accrual basis. Revenue from exported products is recognized when such products are loaded on board the ship. Revenue from products sold in the domestic market is recognized when delivery is made to the customer. Revenue from transportation services, other than shipping operations, is recognized when the service order has been fulfilled. Shipping operations are recorded on the completed voyage basis and net revenue, costs and expenses of voyages not completed at period-end are deferred. Anticipated losses on voyages are provided when probable and can be reasonably estimated. (h) ENVIRONMENTAL AND SITE RECLAMATION AND RESTORATION COSTS Expenditures relating to ongoing compliance with environmental regulations are charged against earnings or capitalized as appropriate. These ongoing programs are designed to minimize the environmental impact of our activities. With respect to our two major iron ore mines at Itabira and Carajas, which have extensive remaining reserves, liabilities for final site reclamation and restoration costs will be recorded when the respective reclamation and restoration strategies can be reasonably determined and the related costs can be reasonably estimated. F-53 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (i) COMPENSATED ABSENCES We fully accrue the liability for future compensation to employees for vacations vested during the year. (j) INCOME TAXES In accordance with SFAS 109 "Accounting for Income Taxes", the deferred tax effects of temporary differences have been recognized in the consolidated financial statements. A valuation allowance is made when we believe that it is more likely than not that tax assets will not be fully recoverable in the future. (k) STATEMENT OF CASH FLOWS Cash flows relating to overnight financing and investment are reported net. Short-term investments that have a ready market and maturity to us, when purchased, of 90 days or less are considered cash equivalents. At September 30, 2001 dividends of $112 received from equity method affiliates and joint ventures have been netted against the equity in results of these entities in the statement of cash flows. For comparative purposes dividends received at September 30, 2000 of $94, have been reclassified from investing activities to reflect the same presentation. (l) EARNINGS PER SHARE Earnings per share are computed by dividing net income by the weighted average number of common and preferred shares outstanding during the period. (m) INTEREST ATTRIBUTED TO STOCKHOLDERS As from January 1, 1996 Brazilian corporations are permitted to attribute interest on stockholders' equity. The calculation is based on the stockholders' equity amounts as stated in the statutory accounting records and the interest rate applied may not exceed the long-term interest rate (TJLP) determined by the Brazilian Central Bank. Also, such interest may not exceed the greater of 50% of net income for the year or 50% of retained earnings plus revenue reserves. The amount of interest attributed to stockholders is deductible for income tax purposes. Accordingly, the benefit to us, as opposed to making a dividend payment, is a reduction in our income tax charge equivalent to the statutory tax rate applied to such amount. Income tax is withheld from the stockholders relative to interest at the rate of 15%, except for interest due to the Brazilian Government which is exempt from tax withholdings. We have opted to pay such tax-deductible interest to our stockholders and have therefore accrued the amounts due as of September 30, 2001 and 2000, with a direct charge to stockholders' equity. Under Brazilian law interest attributable to stockholders is considered as part of the annual minimum dividend (See Note 13). Accordingly such distributions are treated as dividends for accounting purposes. (n) DERIVATIVES AND HEDGING ACTIVITIES As of January 1, 2001 we adopted SFAS 133 "Accounting for Derivative Financial Instruments and Hedging Activities", as amended by SFAS 137 and SFAS 138. Those standards require that we recognize all derivative financial instruments as either assets or liabilities on our balance sheet and measure such instruments at fair value. Changes in the fair value of derivatives are recorded in each period in current earnings or in other comprehensive income, in the later case depending on whether a transaction is designated as an effective hedge. F-54 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED The transition adjustment relating to the fair value of derivatives existing as of December 31, 2000 is recorded as a charge of $3 in our statement of income for the period of nine months ended September 30, 2001. In view of the immateriality of this effect of a change in accounting principle the corresponding amount was included with other non-operating expenses. Certain of our affiliated companies and joint ventures also recorded similar charges, of which our portion of $3 is included in the caption "Equity in results of affiliates and joint ventures" in the statement of income. Further information about our derivatives and hedging activities is included in Note 18. (o) COMPREHENSIVE INCOME We have disclosed comprehensive income as part of the Statement of Changes in Stockholders' Equity, in compliance with SFAS 130 -- "Reporting Comprehensive Income". (p) RECENTLY-ISSUED ACCOUNTING PRONOUNCEMENTS In June 2001 the Financial Accounting Standards Board (FASB) issued SFAS 141 "Business Combinations" and SFAS 142 "Goodwill and Other Intangible Assets". We do not expect that the provisions of SFAS 141 will affect our current accounting practices relative to business combinations. However, the adoption of SFAS 142 on January 1, 2002 (or immediately for goodwill relating to acquisitions after June 30, 2001) is expected to have the following effects: (i) goodwill relative to consolidated subsidiaries will no longer be amortized, but will be aggregated to reporting units and subject at least annually to testing for impairment, considering the reporting unit as a whole. (ii) goodwill relative to affiliates and joint ventures will no longer be amortized but will remain allocated to the respective investment and included in the measurement of the gain or loss on sale, or the loss arising from an other than temporary decline in the value of the investment. Goodwill charged against earnings for the nine months ended September 30, 2001 totaled $53. In June 2001 and August 2001, respectively, the FASB also issued SFAS 143 "Accounting for Asset Retirement Obligations" and SFAS 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 143 is effective for us as from January 1, 2003 and we are still studying the potential effects that adoption may have on our financial statements. SFAS 144 will be effective for us as from January 1, 2002 and the provisions thereof generally are to be applied prospectively. 3. OUR PRIVATIZATION In May 1997, we were privatized by the Brazilian Government, which transferred voting control to Valepar S.A. ("Valepar"). The Brazilian Government has retained certain rights with respect to our future decisions and those of Valepar and has also caused us to enter into agreements which may affect our activities and results of operations in the future. These rights and agreements are: - Preferred Special Share. The Brazilian Government holds a preferred special share of CVRD which confers upon it permanent veto rights over changes in our (i) name, (ii) headquarters location, (iii) corporate purpose with respect to mineral exploration, (iv) continued operation of our integrated iron ore mining systems and (v) certain other matters. - Preferred Class A Share of Valepar. The Brazilian Government holds a preferred class A share of Valepar which confers upon it approval rights for a period of five years in respect of (i) concentration of ownership of Valepar by particular types of investors in excess of prescribed limitations and (ii) changes in the Valepar holding company structure relating to ownership of our common shares. F-55 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED - Shareholder revenue interests. On July 7, 1997, we issued to shareholders of record on April 18, 1997 (including the Brazilian Government) revenue interests providing holders thereof with the right to receive semi-annual payments based on a percentage of our net revenues above threshold production volumes from identified mining resources. These instruments are not secured by the corresponding mineral reserves and deposits. In addition to the preferred special share mentioned above, the National Treasury and the Banco Nacional de Desenvolvimento Economico e Social -- BNDES, the Government -- owned development bank, together currently own 32% of our common shares and 4% of our preferred shares, which in aggregate represents 22% of our total capital. 4. MAJOR ACQUISITIONS AND DISPOSALS DURING THE PERIODS PRESENTED We made the following acquisitions during the periods presented. Pro forma information with respect to results of operations is not presented since the effects are not considered material to an understanding of our consolidated financial statements. (a) On May 11, 2000, we acquired the entire capital of Mineracao SOCOIMEX S.A., a non-public company whose main activity is production and commercialization of iron ore, for the total price of $55, being an initial cash payment of $47 and two further cash payments of $3 and $5, in 2001 and 2002, respectively, plus interest based on 89% of the Brazilian Interbank Rate through the payment date. The increment of the fair value over the book value of SOCOIMEX at the date of purchase was entirely attributable to its mineral reserves, which are included in the property, plant and equipment. In August 2000 SOCOIMEX was merged into CVRD. (b) On May 30, 2000, we acquired 4,026,694,190 common shares and 4,231,324,374 preferred shares of S.A. Mineracao Trindade -- SAMITRI, representing 79.27% of the voting capital and 63.06% of the total capital for $520 in cash, becoming the controlling stockholder. At the date of the purchase, SAMITRI was a publicly listed Brazilian iron ore mining company, which also owned a 51% interest in the voting capital of SAMARCO Mineracao S.A., a large iron ore pellets producer (see Note 10). On June 29, 2000, we sold 1% of the share capital of SAMARCO to BHP Brasil Ltda. (BHP), a subsidiary of The Broken Hill Proprietary Company Limited of Australia, for $8, to equalize our shareholdings in the joint venture. (c) The assets and liabilities acquired as a result of the above transactions and corresponding goodwill were as follows:
UNCONSOLIDATED CONSOLIDATED SUBSIDIARIES JOINT VENTURE -------------------------- SAMARCO SAMITRI SOCOIMEX -------------- ----------- ------------ Fair value of assets............................. 1,006 293 77 Fair value of liabilities........................ (450) (144) (22) ----- ----- ------ Net assets at fair value......................... 556 149 55 ----- ----- ------ Interest acquired................................ 50.00% 63.06% 100.00% Fair value of net assets acquired................ 278 94 55 Attributable to minority stockholders of SAMITRI (36.94%)....................................... (103) -- -- Tax benefits..................................... 31 -- -- ----- ----- ------ Effective interest acquired...................... 206 94 55 Purchase price................................... 252 268 55 ----- ----- ------ Goodwill......................................... 46 174 -- ===== ===== ======
F-56 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED The main assets for which fair values differ from book values are inventories and property, plant and equipment. We determined the fair values of inventories based on the current replacement costs for raw materials and the estimated selling prices for finished goods, net of disposal costs and a selling margin. The fair values of property, plant and equipment were determined based on current replacement costs for similar capacity and the estimated market value of purchased reserves. Deferred taxes were recorded for the differences between fair values and tax bases. For SAMARCO, SAMITRI and SOCOIMEX inventories were valued at $36, $38 and $9, respectively, property, plant and equipment were valued at $830, $161 and $58, respectively, and the deferred tax liability was $60, $49 and $15, respectively. We had adopted a policy to amortize the goodwill on the SAMITRI and SAMARCO purchases on the straight-line basis over a period of 6 years starting on the date of acquisition. However, as explained in note 2(p), upon adoption of SFAS 142 on January 1, 2002 such straight-line amortization will cease. (d) On April 27, 2001 we acquired 100% of Ferteco Mineracao S.A. -- FERTECO, a non-public company whose main activity is production and commercialization of iron ore and pellets, for $523 in cash. The assets and liabilities acquired and corresponding goodwill were as follows: Fair value of assets........................................ 401 Fair value of liabilities................................... (251) ---- Net assets at fair value.................................... 150 Purchase price.............................................. 523 ---- Goodwill.................................................... 373 ====
For FERTECO inventories were valued at $57, property, plant and equipment were valued at $178, and the deferred tax liability was $24. (e) On January 14, 2000 we sold 20.81% of the capital of Alumina do Norte do Brasil S.A. -- ALUNORTE and a beneficial interest in 8% of the capital of Mineracao Rio do Norte S.A. -- MRN owned by us for an aggregate of $164, resulting in a gain of $54. The total consideration of $164 was received in cash; however, $120 was received through the issue and sale of Perpetual Notes with a fair value of $55 and this fair value continues to be reported as a liability and periodically adjusted based on an early termination formula reflecting the underlying profitability of MRN. (f) On March 9, 2001 we transferred our 10.33% interest in Companhia Siderurgica Nacional -- CSN to VALIA, as a special pension plan contribution, for $249 (fair market value determined based on the weighted average price of the last thirty trading sessions at the Sao Paulo stock exchange in the period ended on March 9, 2001). This transfer resulted in a gain of $107. (g) On April 27, 2001 we concluded the sale of our 32.00% interest in Bahia Sul Celulose S.A. -- BSC for $318, received in cash on May 7, 2001. This operation resulted in a gain of $170. (h) On June 6, 2001 we concluded the sale of our 51.48% interest in Celulose Nipo-Brasileira S.A. -- CENIBRA for $671, received in cash on September 14, 2001. This operation resulted in a gain of $507. F-57 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED 5. INCOME TAXES Income taxes in Brazil comprise federal income tax and social contribution, which is an additional federal tax. The statutory enacted tax rates applicable in the periods presented are as follows:
NINE MONTHS ENDED SEPTEMBER 30 - % ---------------------- 2001 2000 ----- -------------- Federal income tax.......................................... 25.00 25.00 Social contribution(*)...................................... 9.00 9.00 to 12.00 ----- -------------- Composite tax rate.......................................... 34.00 34.00 to 37.00 ===== ==============
- --------------- (*) As from May 1, 1999 through January 31, 2000, the social contribution rate has been increased from 8% to 12% (not enacted). Pursuant to a provisional measure, the social contribution rate will be 9% from February 1, 2000 to December 31, 2002 and will be reduced to 8% as from January 1, 2003. The amount reported as income tax benefit in this consolidated financial information is reconciled to the statutory rates as follows:
NINE MONTHS ENDED SEPTEMBER 30 ------------ 2001 2000 ---- ---- Income before income taxes, equity results and minority interests................................................. 588 660 ==== ==== Federal income tax and social contribution expense at statutory enacted rates................................... (200) (224) Adjustments to derive effective tax rate: Tax benefit on interest attributed to stockholders........ 226 144 Exempt foreign income..................................... 185 65 Tax incentives............................................ 22 32 Valuation allowance reversal (provision).................. (27) (5) Other non-taxable gains................................... 4 14 Adjustment to reflect expected annual effective tax rate................................................... (167) (25) ---- ---- Federal income tax and social contribution expense in consolidated statements of income......................... 43 1 ==== ====
In 2000, we obtained approval of certain tax incentives relative to our iron ore and manganese operations in Carajas. The incentives comprise full income tax exemption on defined production levels up to 2005 and partial exemption up to 2013. An amount equal to the tax saving must be appropriated to a reserve account within stockholders' equity (Note 13) and may not be distributed in the form of cash dividends. F-58 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED The major components of the deferred tax accounts in the balance sheet are as follows:
AS OF SEPTEMBER 30 ------------ 2001 2000 ---- ---- NET CURRENT DEFERRED TAX ASSETS Accrued expenses deductible only when disbursed........... 147 64 Interest attributed to stockholders....................... 217 -- Adjustment to reflect expected annual effective tax rate................................................... (167) (25) ---- ---- 197 39 ==== ==== LONG-TERM DEFERRED TAX ASSETS AND LIABILITIES ASSETS Deferred tax relative to temporary differences: Established on the July 1, 1997 change in functional currency, less reversals............................... -- 22 Relative to investments acquired.......................... 9 15 Tax-deductible goodwill in business combinations............ 71 96 Write-downs of investments.................................. 74 75 Additional retirement benefits provision (in 2000 net of unrecognized pension obligation).......................... 49 135 Tax loss carry forwards..................................... 175 218 Other temporary differences................................. 29 3 ---- ---- 407 564 ---- ---- LIABILITIES Inflationary income......................................... (22) (29) Established on the July 1, 1997 change in functional currency, less reversals.................................. (44) -- Prepaid retirement benefit.................................. (30) -- Fair value adjustments in business combinations............. (59) (58) ---- ---- (155) (87) ---- ---- VALUATION ALLOWANCE Beginning balance........................................... (201) (178) Translation adjustments..................................... 54 1 Additions................................................... (27) (2) ---- ---- Ending balance.............................................. (174) (179) ---- ---- Net long-term deferred tax assets........................... 78 298 ==== ====
F-59 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED 6. CASH AND CASH EQUIVALENTS
AS OF SEPTEMBER 30 -------------- 2001 2000 ----- ----- Cash........................................................ 33 28 Deposits in local currency.................................. 451 464 Deposits in United States dollars........................... 1,224 563 ----- ----- 1,708 1,055 ===== =====
7. INVENTORIES
AS OF SEPTEMBER 30 ------------ 2001 2000 ---- ---- Finished products Iron ore.................................................. 116 80 Gold...................................................... 6 11 Manganese................................................. 23 15 Ferrous alloys............................................ 22 30 Others.................................................... 7 14 Spare parts and maintenance supplies........................ 112 145 --- --- 286 295 === ===
F-60 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED 8. OTHER ASSETS -- LOANS AND ADVANCES
AS OF SEPTEMBER 30 ------------ 2001 2000 ---- ---- Alunorte(1)................................................. 294 314 Cenibra..................................................... -- 85 Salobo(2)................................................... 60 79 CFN......................................................... -- 11 FCA......................................................... 83 76 Eletrobras.................................................. 9 13 Sepetiba Tecon.............................................. 9 12 Kobrasco.................................................... 23 21 Wilsea...................................................... -- 4 Usiminas.................................................... 17 12 BNDES....................................................... 6 7 Others...................................................... 15 2 --- --- TOTAL RELATED PARTIES.................................. 516 636 === === Cenibra..................................................... 57 -- Regional development loans.................................. 16 28 Mineracao Morro Velho....................................... 18 18 Estaleiro Verolme........................................... 6 8 Others...................................................... -- 2 --- --- TOTAL UNRELATED PARTIES................................ 97 56 --- ---
- --------------- (1) Includes on-lending outstanding balance of $203 (2000 -- $204), with identical conditions and terms, of a $200 U.S. dollar denominated loan obtained by us from the Nippon Amazon Aluminium Company (NAAC) in January 1997 (bearing interest of 6.41% p.a. and maturing up to 2011). (2) Convertible debentures bearing interest of IGPM plus 6.50% p.a. 9. PROPERTY, PLANT AND EQUIPMENT a) PER BUSINESS AREA:
AS OF SEPTEMBER 30, 2001 AS OF SEPTEMBER 30, 2000 ---------------------------- ---------------------------- ACCUMULATED ACCUMULATED COST DEPRECIATION NET COST DEPRECIATION NET ----- ------------ ----- ----- ------------ ----- Ferrous Ferrous -- Southern System Mining................................. 842 372 470 1,147 550 597 Railroads.............................. 818 396 422 1,087 540 547 Marine terminals....................... 192 79 113 166 107 59 ----- ----- ----- ----- ----- ----- 1,852 847 1,005 2,400 1,197 1,203
F-61 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED
AS OF SEPTEMBER 30, 2001 AS OF SEPTEMBER 30, 2000 ---------------------------- ---------------------------- ACCUMULATED ACCUMULATED COST DEPRECIATION NET COST DEPRECIATION NET ----- ------------ ----- ----- ------------ ----- Ferrous -- Northern System Mining................................. 564 256 308 738 330 408 Railroads.............................. 926 345 581 1,260 459 801 Marine terminals....................... 172 83 89 223 113 110 ----- ----- ----- ----- ----- ----- 1,662 684 978 2,221 902 1,319 Pelletizing............................ 168 92 76 202 132 70 Ferrous-alloys......................... 217 113 104 273 142 131 Energy................................. 131 5 126 85 4 81 Construction in progress............... 380 -- 380 287 -- 287 ----- ----- ----- ----- ----- ----- 4,410 1,741 2,669 5,468 2,377 3,091 ----- ----- ----- ----- ----- ----- NON-FERROUS Potash.................................... 44 15 29 49 16 33 Gold...................................... 225 147 78 321 148 173 Kaolin.................................... 65 10 55 95 12 83 Research and projects..................... 15 7 8 20 10 10 Construction in progress.................. 33 -- 33 39 -- 39 ----- ----- ----- ----- ----- ----- 382 179 203 524 186 338 ----- ----- ----- ----- ----- ----- LOGISTICS General cargo............................. 278 140 138 368 180 188 Maritime transportation................... 303 162 141 357 167 190 Construction in progress.................. 15 -- 15 11 -- 11 ----- ----- ----- ----- ----- ----- 596 302 294 736 347 389 ----- ----- ----- ----- ----- ----- HOLDINGS Pulp and paper............................ 140 10 130 212 41 171 ----- ----- ----- ----- ----- ----- CORPORATE CENTER Corporate................................. 34 14 20 35 15 20 Construction in progress.................. 4 -- 4 15 -- 15 ----- ----- ----- ----- ----- ----- 38 14 24 50 15 35 ----- ----- ----- ----- ----- ----- Total..................................... 5,566 2,246 3,320 6,990 2,966 4,024 ===== ===== ===== ===== ===== =====
F-62 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED b) PER TYPE OF ASSETS:
AS OF SEPTEMBER 30, 2001 AS OF SEPTEMBER 30, 2000 ---------------------------- ---------------------------- ACCUMULATED ACCUMULATED COST DEPRECIATION NET COST DEPRECIATION NET ----- ------------ ----- ----- ------------ ----- Land and buildings..................... 525 205 320 850 296 554 Installations.......................... 1,349 665 684 1,717 928 789 Equipment.............................. 569 246 323 639 316 323 Ships.................................. 301 160 141 354 164 190 Railroads.............................. 1,449 621 828 1,832 809 1,023 Mine development costs................. 284 72 212 318 73 245 Others................................. 657 277 380 928 380 548 ----- ----- ----- ----- ----- ----- 5,134 2,246 2,888 6,638 2,966 3,672 Construction in progress............... 432 -- 432 352 -- 352 ----- ----- ----- ----- ----- ----- Total.................................. 5,566 2,246 3,320 6,990 2,966 4,024 ===== ===== ===== ===== ===== =====
10. INVESTMENTS
AS OF SEPTEMBER 30 --------------------------------------------------------------------- 2001 --------------------------------------- PARTICIPATION NET INCOME EQUITY IN CAPITAL(%) (LOSS) FOR INVESTMENTS ADJUSTMENTS -------------- NET THE ------------- ----------- INVESTMENTS IN AFFILIATED COMPANIES AND JOINT VENTURES VOTING TOTAL EQUITY(1) PERIOD(1) 2001 2000 2001 2000 - ------------------------------------------------------ ------ ----- --------- ---------- ----- ----- ---- ---- STEEL Usinas Siderurgicas de Minas Gerais S.A. -- USIMINAS(2).................................... 22.99 11.46 1,389 60 159 239 7 4 Companhia Siderurgica Nacional -- CSN(3)......... -- 92 -- 137 9 4 Companhia Siderurgica de Tubarao -- CST(4)....... 20.51 22.85 1,138 27 260 250 6 19 California Steel Industries Inc. -- CSI.......... 50.00 50.00 230 (5) 115 121 (3) 17 PAPER AND PULP Celulose Nipo-Brasileira S.A. -- CENIBRA(3)...... -- 17 -- 215 9 50 Bahia-Sul Celulose S.A -- BSC(3)................. -- 6 -- 166 2 34 ALUMINUM AND BAUXITE Mineracao Rio do Norte S.A. -- MRN............... 40.00 40.00 358 53 143 146 21 29 Valesul Aluminio S.A. -- VALESUL................. 54.51 54.51 72 15 39 46 8 8 Alumina do Norte do Brasil S.A. -- ALUNORTE...... 50.30 46.60 42 (79) 41 73 (37) 8 PELLETS Companhia Nipo-Brasileira de Pelotizacao -- NIBRASCO....................................... 51.11 51.00 41 (12) 21 30 6 8 Companhia Hispano-Brasileira de Pelotizacao -- HISPANOBRAS.................................... 51.00 50.89 30 8 16 21 4 6 Companhia Coreano Brasileira de Pelotizacao -- KOBRASCO....................................... 50.00 50.00 3 (17) 1 13 (8) 2 Companhia Italo-Brasileira de Pelotizacao -- ITABRASCO...................................... 51.00 50.90 26 7 13 17 4 5 Gulf Industrial Investment Company -- GIIC....... 50.00 50.00 130 8 65 -- 4 -- SAMARCO Mineracao S.A............................ 50.00 50.00 355 (5) 216 346 (12) --
F-63 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED
AS OF SEPTEMBER 30 --------------------------------------------------------------------- 2001 --------------------------------------- PARTICIPATION NET INCOME EQUITY IN CAPITAL(%) (LOSS) FOR INVESTMENTS ADJUSTMENTS -------------- NET THE ------------- ----------- INVESTMENTS IN AFFILIATED COMPANIES AND JOINT VENTURES VOTING TOTAL EQUITY(1) PERIOD(1) 2001 2000 2001 2000 - ------------------------------------------------------ ------ ----- --------- ---------- ----- ----- ---- ---- OTHERS Fertilizantes Fosfatados S.A. -- FOSFERTIL(5).... 10.96 10.96 205 23 22 30 3 3 Salobo Metais S.A. (6)........................... 50.00 50.00 37 -- 18 27 -- -- Ferrovia Centro-Atlantica S.A. -- FCA............ 20.00 45.65 68 (61) -- 54 (28) (14) Others........................................... 54 112 (3) 4 ----- ----- --- --- 1,183 2,043 (8) 187 INVESTMENTS AT COST ACOMINAS......................................... -- 27 -- -- SIDERAR (market value $18 in 2001 -- $50 in 2000)... 4.85 4.85 15 15 -- -- Unrealized holding gains on equity security...... 3 35 -- -- MRS Logistica S.A................................ 17.19 9.76 19 -- -- -- Others........................................... 3 35 -- -- ----- ----- --- --- 1,223 2,155 (8) 187 ===== ===== === === CHANGE IN PROVISION FOR LOSSES ON EQUITY INVESTMENTS: Aluminio Brasileiro S.A. -- ALBRAS............... (37) 55 Cia Ferroviaria do Nordeste...................... (8) (2) --- --- (45) 53 === ===
- --------------- (1) Based on US GAAP financial statements (2) Value based on quoted market price at September 30, 2001 is $36 compared to net book value of $33 (3) Investments sold in 2001 (4) Value based on quoted market price at September 30, 2001 is $81 compared to net book value of $28 (5) Value based on quoted market price at September 30, 2001 is $31 (6) Development stage enterprise Goodwill included in the above investments is as follows:
AS OF ORIGINAL TERM OF REMAINING SEPTEMBER 30 AMORTIZATION AMORTIZATION ------------- INVESTEE (YEARS) (YEARS) 2001 2000 - -------- ---------------- ------------ ----- ----- Alumina do Norte do Brasil S.A. -- ALUNORTE... 35 34 21 30 SAMARCO Mineracao S.A......................... 6 5 42 69 --- --- 63 99 === ===
Based on our revised expectation for profitability and other economic facts, we fully amortized the remaining goodwill relative to FCA and GIIC in the quarter ended September 30, 2001. F-64 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED The combined financial position and results of operations of our affiliates in the steel sector is as follows:
STEEL SECTOR AFFILIATES (COMBINED) AS OF SEPTEMBER 30 ------------------------ 2001 2000 --------- --------- Balance sheet Current assets............................................ 1,099 2,873 Noncurrent assets......................................... 5,843 10,420 Current liabilities....................................... (973) (2,929) Noncurrent liabilities.................................... (2,505) (4,825) Purchase accounting adjustments........................... (707) (1,612) ------ ------ Stockholders' equity...................................... 2,757 3,927 ====== ====== Investments............................................... 534 747 ====== ======
STEEL SECTOR AFFILIATES (COMBINED) NINE MONTHS ENDED SEPTEMBER 30 ------------------------ 2001 2000 --------- --------- Statement of operations Net sales................................................. 2,320 3,277 Costs and expenses........................................ (2,195) (2,958) Purchase accounting adjustments........................... 4 24 ------ ------ Income before income taxes................................ 129 343 Income taxes.............................................. 45 (146) ------ ------ Net income................................................ 174 197 ====== ====== Equity adjustments........................................ 19 44 ====== ======
Information with respect to other major affiliates' financial position and results of operations is as follows:
AS OF SEPTEMBER 30 --------------------------------------------- ALUNORTE ALBRAS MRN ------------- ------------- ------------- 2001 2000 2001 2000 2001 2000 ----- ----- ----- ----- ----- ----- Balance Sheet Current assets........................ 120 74 100 123 51 72 Noncurrent assets..................... 408 513 483 636 371 347 Current liabilities................... (76) (78) (163) (235) (26) (17) Noncurrent liabilities................ (410) (423) (507) (577) (38) (38) ----- ----- ----- ----- ----- ----- Stockholders' equity.................. 42 86 (87) (53) 358 364 ===== ===== ===== ===== ===== ===== Our participation....................... 46.60% 50.27% 51.00% 51.00% 40.00% 40.00% ----- ----- ----- ----- ----- ----- Investments............................. 20 43 (44) (27) 143 146 ===== ===== ===== ===== ===== =====
F-65 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED
NINE MONTHS ENDED SEPTEMBER 30 --------------------------------------------- ALUNORTE ALBRAS MRN ------------- ------------- ------------- 2001 2000 2001 2000 2001 2000 ----- ----- ----- ----- ----- ----- Statement of Operations Net sales....... 227 237 382 417 148 164 Costs and expenses.................... (306) (236) (454) (326) (80) (84) Income (loss) before income taxes..... (79) 1 (72) 91 68 80 Income taxes.......................... -- 14 -- 18 (6) (15) Equity in results of affiliates....... -- -- -- -- (9) 7 ----- ----- ----- ----- ----- ----- Net income (loss)..................... (79) 15 (72) 109 53 72 ===== ===== ===== ===== ===== ===== Our participation....................... 46.60% 50.27% 51.00% 51.00% 40.00% 40.00% Participation in results................ (37) 8 (37) 55 21 29 Change in provision for losses.......... -- -- 37 (55) -- -- ----- ----- ----- ----- ----- ----- Equity adjustments...................... (37) 8 -- -- 21 29 ===== ===== ===== ===== ===== =====
The provision for losses and write-downs on equity investments of $405 and $446 at September 30, 2001 and 2000, respectively, relates to other than temporary declines in the publicly quoted market price below carrying value of our affiliates equity securities and to our investments in affiliates which have reported negative stockholders' equity in their financial statements prepared in accordance with US GAAP and in circumstances where we have assumed commitments to fund our share of the accumulated losses, if necessary, through additional capital contributions or other means. Accordingly we (a) first reduce the value of the investment to zero and (b) subsequently provide for our portion of negative equity. The provision is comprised as follows:
CIA FERROVIARIA CST USIMINAS DO NORDESTE ALBRAS TOTAL ---- -------- ----------- ------ ----- PROVISION AT JANUARY 1, 2000......... (223) (194) (4) (83) (504) Change in provision -- results....... -- -- (2) 55 53 ---- ---- -- --- ---- (223) (194) (6) (28) (451) Payment of capital................... -- -- 1 -- 1 Translation adjustment............... 2 1 -- 1 4 ---- ---- -- --- ---- PROVISION AT SEPTEMBER 30, 2000...... (221) (193) (5) (27) (446) ==== ==== == === ==== PROVISION AT JANUARY 1, 2001......... (215) (185) -- (15) (415) Change in provision -- results....... -- -- (8) (37) (45) ---- ---- -- --- ---- (215) (185) (8) (52) (460) Translation adjustment............... (17) 59 5 8 55 ---- ---- -- --- ---- PROVISION AT SEPTEMBER 30, 2001...... (232) (126) (3) (44) (405) ==== ==== == === ====
Dividends received from investees aggregated $112 and $94 in nine month periods ended September 30, 2001 and 2000, respectively. F-66 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED 11. SHORT-TERM DEBT Our short-term borrowings are principally from commercial banks and include import and export financing denominated in United States dollars, as follows:
AS OF SEPTEMBER 30 ------------- 2001 2000 ----- ----- Export...................................................... 638 761 Import...................................................... 2 9 Working Capital............................................. 9 7 --- --- 649 777 === ===
Average annual interest rates on short-term borrowings were 7.43% and 8.67% in 2001 and 2000, respectively. 12. LONG-TERM DEBT
AS OF SEPTEMBER 30 --------------------------- CURRENT LONG-TERM LIABILITIES LIABILITIES ----------- ------------- 2001 2000 2001 2000 ---- ---- ----- ----- Foreign debt Loans and financing contracted in the following currencies, maturing up to 2011: United States dollars............................... 199 235 1,072 743 Japanese Yen........................................ 9 10 30 4 Others.............................................. 2 3 3 3 Fixed Rate Notes -- US$ denominated.................... -- -- 500 500 Export Securitization -- US$ denominated............... -- -- 300 -- Perpetual notes........................................ -- -- 56 55 Accrued charges........................................ 21 23 -- -- --- --- ----- ----- 231 271 1,961 1,305 --- --- ----- ----- Local debt Indexed by Long-Term Interest Rate -- TJLP maturing up to 2002............................................. 3 7 29 42 Indexed by General Price Index-Market (IGPM) maturing up to 2005.......................................... 2 21 51 50 Basket of currencies................................... 15 16 44 61 Capital Lease.......................................... -- 1 -- -- Shareholders revenue interests (Note 3)................ -- -- 3 3 Indexed by U.S. dollars................................ 5 21 23 64 Accrued charges........................................ 4 1 -- -- --- --- ----- ----- 29 67 150 220 --- --- ----- ----- Total.................................................. 260 338 2,111 1,525 === === ===== =====
F-67 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED The long-term portion at September 30, 2001 becomes due in the following years: 2002 (after September 30)................................... 55 2003........................................................ 689 2004........................................................ 713 2005........................................................ 192 2006........................................................ 129 2007 and thereafter......................................... 277 No due date (Perpetual notes)............................... 56 ----- 2,111 =====
At September 30, 2001 annual interest rates on long-term debt were as follows: Up to 7%.................................................... 1,172 7.1% to 9%.................................................. 481 9.1% to 11%................................................. 562 Over 11%.................................................... 100 Variable (Perpetual notes).................................. 56 ----- 2,371 =====
Long-term debt at September 30, 2001 is guaranteed or secured as follows:
AMOUNT OF GUARANTEE --------- Federal Government guarantee(*)............................. 308 Export receivables (securitization)......................... 125 Ships....................................................... 62
- --------------- (*) For this guarantee, counter-guarantees were constituted by us with receivables of a subsidiary and an affiliate. 13. STOCKHOLDERS' EQUITY Each holder of common and preferred class A stock is entitled to one vote for each share on all matters that come before a stockholders' meeting, except for the election of the Board of Directors, which is restricted to the holders of common stock. As described in Note 3, the Brazilian Government holds a preferred special share which confers on it permanent veto rights over certain matters. The Board of Directors authorized the acquisition of up to 9,832,691 of our own preferred class A shares, to remain in treasury for subsequent disposal or cancellation. As of September 30, 2001, 3,519,288 shares had been acquired, at an average weighted unit cost of R$20.03 (minimum cost of R$14.02 and maximum of R$24.19). Both common and preferred stockholders are entitled to receive a dividend of at least 25% of annual net income, upon approval at the annual stockholders' meeting. In the case of preferred stockholders, this dividend cannot be less than 6% of the preferred capital as stated in the statutory accounting records. With respect to each of 2001 and 2000 we distributed dividends to preferred stockholders in excess of this limit. Interest attributed to stockholders as from January 1, 1996 is considered part of the minimum dividend. Brazilian law permits the payment of cash dividends only from retained earnings as stated in the statutory accounting records and such payments are made in Reais. At September 30, 2001, we had $239 F-68 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED in undistributed retained earnings. In addition, appropriated retained earnings at September 30, 2001 includes $1,532, related to the unrealized income and expansion reserves, which could be freely transferred to retained earnings and paid as dividends, if approved by the stockholders. No withholding tax is payable on distribution of profits earned as from January 1, 1996, except for distributions in the form of interest attributed to stockholders as explained in Note 2 (m). Brazilian laws and our By-laws require that certain appropriations be made from retained earnings to reserve accounts on an annual basis, all determined in accordance with amounts stated in the statutory accounting records, as detailed below:
NINE MONTHS ENDED SEPTEMBER 30 -------------- 2001 2000 ----- ----- Appropriated retained earnings Unrealized income reserve Balance January 1...................................... 874 1,062 Transfer to retained earnings.......................... (234) (34) ----- ----- Balance September 30................................... 640 1,028 Expansion reserve Balance January 1...................................... 1,546 1,367 Transfer to capital stock.............................. (278) -- Transfer to retained earnings.......................... (376) (43) ----- ----- Balance September 30................................... 892 1,324 Legal reserve Balance January 1...................................... 307 284 Transfer to retained earnings.......................... (82) (10) ----- ----- Balance September 30................................... 225 274 Fiscal incentive depletion reserve Balance January 1...................................... 771 842 Transfer to retained earnings.......................... (207) (27) ----- ----- Balance September 30................................... 564 815 Fiscal incentive investment reserve Balance January 1...................................... 39 12 Transfer to capital stock.............................. (33) -- Transfer (to) from retained earnings................... (6) 31 ----- ----- Balance September 30................................... -- 43 ----- ----- Total appropriated retained earnings........................ 2,321 3,484 ===== =====
The purpose and basis of appropriation to such reserves is described below: - Unrealized income reserve -- this represents principally our share of the earnings of affiliates and joint ventures, not yet received in the form of cash dividends. - Expansion reserve -- this is a general reserve for expansion of our activities. F-69 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED - Legal reserve -- this reserve is a requirement for all Brazilian corporations and represents the appropriation of 5% of annual net income under Brazilian GAAP up to a limit of 20% of capital stock under Brazilian GAAP. - Fiscal incentive depletion reserve -- this represents an additional amount relative to mineral reserve depletion equivalent to 20% of the sales price of mining production, which is deductible for tax purposes providing an equivalent amount is transferred from retained earnings to the reserve account. This fiscal incentive expired in 1996. - Fiscal incentive investment reserve -- this reserve results from an option to designate a portion of income tax otherwise payable for investment in government approved projects and is recorded in the year following that in which the taxable income was earned. As from 2000, this reserve also contemplates the tax incentives described in Note 5. 14. PENSION PLANS Since 1973 we have sponsored a defined benefit pension plan (the "Old Plan") covering substantially all employees, with benefits based on years of service, salary and social security benefits. This plan is administered by Fundacao Vale do Rio Doce de Seguridade Social -- VALIA and was funded by monthly contributions made by us and our employees, calculated based on periodic actuarial appraisals. In May 2000, we implemented a new pension plan, which is primarily a defined contribution plan with a defined benefit feature relative to service prior to May 2000 (the "New Plan"), and offered our active employees the opportunity of transferring to the New Plan. Over 98% of our active employees opted to transfer to the New Plan. The Old Plan will continue in existence, covering almost exclusively retired participants and their beneficiaries. The following information details the status of the defined benefit elements of our plans in accordance with SFAS 132 "Employers' Disclosure about Pensions and Other Post-retirement Benefits": (a) CHANGE IN BENEFIT OBLIGATION
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30 ----------------- 2001 2000 ------ ------ Benefit obligation at beginning of period................... 1,596 1,440 Service cost................................................ 3 9 Interest cost............................................... 60 69 Benefits paid............................................... (68) (84) Plan amendments............................................. -- (13) Effect of exchange rate changes............................. (427) (51) Actuarial loss.............................................. -- 242 ----- ----- Benefit obligation at end of period......................... 1,164 1,612 ===== =====
The actuarial loss of $242 in the period of nine months ended September 30, 2000 is mainly due to the adoption of a new mortality table which is considered to better reflect the current life expectancy of the plan participants. F-70 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (b) CHANGE IN PLAN ASSETS
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30 ----------------- 2001 2000 ------ ------ Fair value of plan assets at beginning of period............ 1,189 1,231 Actual return on plan assets................................ 114 82 Special employer contributions (Note 4(f)).................. 249 -- Employer contributions...................................... 14 25 Employee contributions...................................... -- 4 Benefits paid............................................... (68) (84) Effect of exchange rate changes............................. (380) (39) ----- ----- Fair value of plan assets at end of period.................. 1,118 1,219 ===== =====
Plan assets at September 30, 2001 include $92 of portfolio investments in our own shares ($92 at September 30, 2000) and $6 of shares of related parties ($9 at September 30, 2000), as well as $469 of Federal Government Securities ($426 at September 30, 2000). (c) ACCRUED PENSION COST LIABILITY
AS OF SEPTEMBER 30 ------------ 2001 2000 ---- ---- Funded status, excess of benefit obligation over plan assets.................................................... 46 393 Unrecognized net transitory obligation...................... (84) (136) Unrecognized net actuarial loss............................. (51) (120) --- ---- Accrued pension cost liability (prepaid pension cost)....... (89) 137 === ====
(d) RECOGNITION OF ADDITIONAL MINIMUM LIABILITY
AS OF SEPTEMBER 30 ------------ 2001 2000 ---- ---- Accrued pension cost liability.............................. -- 137 Unrecognized pension obligation, limited to unrecognized net transitory obligation..................................... 46 136 Additional amount recognized in stockholders' equity........ -- 119 -- --- Minimum liability........................................... 46 392 == ===
(e) ASSUMPTIONS USED IN EACH PERIOD
2001 2000 ---------- ---------- Discount rate............................................... 6% p.a. 6% p.a. Expected return on plan assets.............................. 6% p.a. 6% p.a. Rate of compensation increase............................... 1.82% p.a. 1.82% p.a.
F-71 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED Net pension cost includes the following components:
NINE MONTHS ENDED SEPTEMBER 30 ------------ 2001 2000 ---- ---- Service cost -- benefits earned during the period........... 3 9 Interest cost on projected benefit obligation............... 60 69 Actual return on assets..................................... (114) (82) Amortization of initial transitory obligation............... 9 12 Net deferral................................................ 66 30 ---- --- 24 38 Employee contributions...................................... -- (4) ---- --- Net periodic pension cost................................... 24 34 ==== ===
In addition to benefits provided under our pension plan accruals have been made relative to supplementary benefits extended in previous periods as part of early-retirement programs. Such accruals included in long-term liabilities totaled $148 and $138, at September 30, 2001 and 2000, respectively, plus $23 and $22 in current liabilities. The cost recognized in the period of nine months ended September 30, 2001 relative to the defined contribution element of the New Plan was $3. 15. COMMITMENTS AND CONTINGENCIES (a) At September 30, 2001, we had extended guarantees for borrowings obtained by affiliates and joint ventures in the amount of $801, of which $614 is denominated in United States dollars and the remaining $187 in local currency. These guarantees include $372 relative to ALBRAS and $78 relative to ALUNORTE (see Note 10). (b) CVRD and its subsidiaries are defendants in numerous legal actions in the normal course of business. Based on the advice of our legal counsel, management believes that the provision made against contingent losses is sufficient to cover probable losses in connection with such actions. The provision for contingencies and the related judicial deposits are composed as follows:
AS OF SEPTEMBER 30 --------------------------------------------------- 2001 2000 ------------------------ ------------------------ PROVISION FOR JUDICIAL PROVISION FOR JUDICIAL CONTINGENCIES DEPOSITS CONTINGENCIES DEPOSITS ------------- -------- ------------- -------- Labor claims.............................. 97 45 98 60 Civil claims.............................. 102 42 139 15 Tax -- related actions.................... 122 58 69 32 Others.................................... 52 2 6 2 --- --- --- --- 373 147 312 109 === === === === Current................................... -- -- -- -- Long-term................................. 373 147 312 109 --- --- --- --- 373 147 312 109 === === === ===
F-72 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED Labor-related actions principally comprise employee claims for (i) payment of time spent travelling from their residences to the work-place, (ii) additional payments for alleged dangerous or unhealthy working conditions and (iii) various other matters, often in connection with disputes about the amount of indemnities paid upon dismissal. Civil actions principally relate to claims made against us by contractors in connection with losses alleged to have been incurred by them as a result of various past government economic plans during which full indexation of contracts for inflation was not permitted. Tax-related actions principally comprise our challenges of changes in basis of calculation and rates of certain revenue taxes and of the tax on financial movements -- CPMF. We continue to vigorously pursue our interests in all the above actions but recognize that probably we will incur some losses in the final instance, for which we have made provisions. Our judicial deposits are made as required by the courts for us to be able to enter or continue a legal action. When judgment is favorable to us, we receive the deposits back; when unfavorable, the deposits are delivered to the prevailing party. Contingencies settled in the nine months ended September 30, 2001 and 2000 aggregated $19 and $15, respectively, and additional provisions aggregated $125 and $131 in these periods, respectively. (c) We are defendants in two actions seeking substantial compensatory damages brought by the Municipality of Itabira, State of Minas Gerais, which we believe are without merit. Due to the remote likelihood that any loss will arise therefrom no provision has been made in the financial statements with respect to these two actions. (d) We are committed under a take-or-pay agreement to take delivery of approximately 175,950 metric tons per year of aluminum from ALBRAS at market prices. This estimate is based on 51% of ALBRAS expected production and, at a market price of $1,368.15 per metric ton at September 30, 2001, represents an annual commitment of $241. We are also committed to take-or-pay 459,214 metric tons per year of alumina produced by ALUNORTE which at a market price of $183.21 per metric ton at September 30, 2001, represents an annual commitment of $84. Actual take from ALBRAS was $176 and $196 during the nine month periods ended September 30, 2001 and 2000, respectively, and direct from ALUNORTE (net of take ceded to ALBRAS) was $22 and $35 during the nine month periods ended September 30, 2001 and 2000, respectively. (e) We and BNDES entered into a contract, known as the Mineral Risk Contract, in March 1997, relating to prospecting authorizations for mining regions where drilling and exploration are still in their early stages. The Mineral Risk Contract provides for the joint development of certain unexplored mineral deposits in approximately two million identified hectares of land in the Carajas region, as well as proportional participation in any financial benefits earned from the development of such resources. Iron ore and manganese deposits already identified and subject to development are specifically excluded from the Mineral Risk Contract. Pursuant to the Mineral Risk Contract, we and BNDES each agreed to provide $205, which represents half of the $410 in expenditures estimated as necessary to complete geological exploration and mineral resource development projects in the region over a period of five years. Under certain circumstances, this period may be extended for an additional two years. We oversee these projects and BNDES advances us half of our costs on a quarterly basis. Under the Mineral Risk Contract, as of September 30, 2001, each of us and BNDES had remaining commitments to contribute an additional $89 toward exploration and development activities. We both expect to fund a portion of these contributions through the end of 2001. In the event that either of us wishes to conduct further exploration and development after having spent such $205, the contract provides that each party may either choose to F-73 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED match the other party's contributions, or may choose to have its financial interest proportionally diluted. If a party's participation in the project is diluted to an amount lower than 40% of the amount invested in connection with exploration and development projects, then the Mineral Risk Contract provides that the diluted party will lose (1) all the rights and benefits provided for in the Mineral Risk Contract and (2) any amount previously contributed to the project. Under the Mineral Risk Contract, BNDES has agreed to compensate us for our contribution of existing development and ownership rights in the Carajas region through a finder's fee production royalty on mineral resources that are discovered and placed into production. This finder's fee is equal to 3.5% of the revenues derived from the sale of gold, silver and platinum group metals and 1.5% of the revenues derived from the sale of other minerals, including copper, except for gold and other minerals discovered at Serra Leste, for which the finder's fee is equal to 6.5% of revenues. (f) At the time of our privatization in 1997, we issued shareholder revenue interests known in Brazil as "debentures" to our then-existing shareholders, including the Brazilian Government. The terms of the "debentures", which are described below, were set to ensure that our pre-privatization shareholders, including the Brazilian Government, would participate alongside us in potential future financial benefits that we are able to derive from exploiting our mineral resources. In preparation for the issuance of the debentures, we issued series B preferred shares on a one-for-one basis to all holders of our common shares and series A preferred shares. We then exchanged all of the series B shares for the debentures at par value. The debentures are not redeemable or convertible, and do not trade on a stapled basis or otherwise with our common or preferred shares. At present the debentures cannot be traded. Holders will be able to trade the debentures only after a three-month period that will commence upon completion of the sale by the Brazilian Government of its 32% stake in our common shares, which will constitute the final step of our privatization. We will be required to register the debentures with the CVM in order to permit trading at this time. We cannot be sure when the final step of our privatization will take place. Under Brazilian Central Bank regulations, pre-privatization shareholders that held their shares through our American Depositary Receipt, or ADR, program were not permitted to receive the debentures or any financial benefits relating to the debentures. We sought approval from the Central Bank to distribute the debentures to the ADR holders, but the Central Bank rejected our request. We intend to renew our request to the Central Bank, but we cannot be sure that we will succeed. If the Central Bank does not approve our request, the ADR depositary will not be able to distribute the debentures to the ADR holders and will not be able to sell the debentures. Therefore, unless the Central Bank approves our request, the debentures will not have any value for ADR holders. Under the terms of the debentures, holders will have the right to receive semi-annual payments equal to an agreed percentage of our net revenues (revenues less value added tax) from certain identified mineral resources that we owned as of May 1997, to the extent that we exceed defined threshold production volumes of these resources, and from the sale of mineral rights that we owned as of May 1997. Our obligation to make payments to the holders will cease when the relevant mineral resources are exhausted. Based on current production levels, and on the estimates of production of our new projects, we would begin making payments related to iron ore resources in approximately 2012, and payments related to other mineral resources in later years. F-74 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED The table below summarizes the amounts we will be required to pay under the debentures based on the net revenues we earn from the identified mineral resources and the sale of mineral rights.
AREA MINERAL REQUIRED PAYMENTS BY CVRD ---- ------- ------------------------- Southern System Iron ore 1.8% of net revenue, after total production from May 1997 exceeds 1.7 billion tons. Northern System Iron ore 1.8% of net revenue, after total production from May 1997 exceeds 1.2 billion tons. Pojuca, Andorinhas, Gold and copper 2.5% of net revenue from the beginning of Liberdade and Sossego commercial production. Igarape Bahia and Alemao Gold and copper 2.5% of net revenue, after total production from the beginning of commercial production exceeds 70 tons of gold. Fazenda Brasileiro Gold 2.5% of net revenue after total production from the beginning of commercial production exceeds 26 tons. Other areas, excluding Gold 2.5% of net revenue. Carajas/Serra Leste Other areas owned as of Other minerals 1% of net revenue, 4 years after the beginning of May 1997 commercial production. All areas Sale of mineral 1% of the sales price. rights owned as of May 1997
(g) At September 30, 2001 we have provided $29 for environmental liabilities. Such provisions relate to site restoration at mines already closed or which are expected to be closed in the next two years. We use various judgments and assumptions when measuring our environmental liabilities. Changes in circumstances, law or technology may affect our estimates and we periodically review the amounts accrued and adjust them as necessary. Our accruals do not reflect unasserted claims because we are currently not aware of any such issues. Also the amounts provided are not reduced by any potential recoveries under cost sharing, insurance or indemnification arrangements because such recoveries are considered uncertain. 16. SEGMENT AND GEOGRAPHICAL INFORMATION In 1999 we adopted SFAS 131 "Disclosures about Segments of an Enterprise and Related Information" with respect to the information we present about our operating segments. SFAS 131 introduced a "management approach" concept for reporting segment information, whereby financial information is required to be reported on the basis that the top decision-maker uses such information internally for evaluating segment performance and deciding how to allocate resources to segments. Our business segments are currently organized as follows: Ferrous products -- comprises iron ore mining and pellet production, as well as the Northern and Southern transportation systems, including railroads, ports and terminals, as they pertain to mining operations. Manganese mining and ferrous alloys are also classified in this segment. Non-ferrous products -- comprises the production of gold and other non-ferrous minerals. Logistics -- comprises our transportation systems as they pertain to external commercial operations, and the operations of our ships. Holdings -- divided into the following sub-groups: - Pulp and paper -- comprises our forestation activities and investments in joint ventures and affiliates engaged in the manufacture of pulp and paper products. F-75 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED - Aluminum -- comprises aluminum trading activities and investments in joint ventures and affiliates engaged in bauxite mining, alumina refining and aluminum metal smelting. - Steel -- comprises our investments in joint ventures and affiliates operating in the steel industry. - Others -- comprises our investments in joint ventures and affiliates engaged in other businesses. Corporate Center -- the Corporate Center is responsible for accounting and control, finance, legal matters, human resources and administration, investor and external relations and internal auditing. Information presented to top management with respect to the performance of each segment is generally derived directly from the accounting records maintained in accordance with Brazilian corporate law together with certain minor inter-segment allocations, and is focused primarily on return on capital employed (ROCE), net operating profit less taxes (NOPLT) as well as net income. F-76 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED Consolidated net income and principal assets are reconciled as follows:
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 ----------------------------------------------------------------- HOLDINGS --------------------------------- PULP NON AND FERROUS FERROUS LOGISTICS PAPER ALUMINUM STEEL OTHERS ------- ------- --------- ----- -------- ----- ------ RESULTS Revenues -- Export................. 2,570 133 125 49 225 -- -- Revenues -- Domestic............... 805 58 269 7 1 -- -- Cost and expenses.................. (2,292) (141) (446)(1) 611(2) (209) 107(3) -- Interest revenue................... 22 1 6 7 5 -- -- Interest expense................... (76) (9) (7) -- (1) (3) -- Depreciation....................... (128) (23) (17) (2) -- -- -- Pension plan....................... (19) (3) (2) -- -- -- -- Equity and provision for losses and write-downs...................... 2 -- (43) 11 (45) 19 3 Income taxes....................... 2 -- (1) (3) -- -- -- ------ ---- ---- --- ---- --- -- Net income......................... 886 16 (116) 680 (24) 123 3 ====== ==== ==== === ==== === == Sales classified by geographic destination: Export market Latin America.................... 194 4 52 -- 8 -- -- United States...................... 154 100 15 42 33 -- -- Europe............................. 1,015 27 43 7 161 -- -- Middle East........................ 149 -- 3 -- -- -- -- Japan.............................. 395 -- 9 -- 12 -- -- Asia, other than Japan............. 663 2 3 -- 11 -- -- ------ ---- ---- --- ---- --- -- 2,570 133 125 49 225 -- -- Domestic market.................... 805 58 269 7 1 -- -- ------ ---- ---- --- ---- --- -- 3,375 191 394 56 226 -- -- ====== ==== ==== === ==== === == Assets: Property, plant and equipment, net.............................. 2,669 203 294 130 -- -- -- Capital expenditures............... 382 36 17 -- -- -- -- Investments in affiliated companies and joint ventures and other investments...................... 372 20 35 -- 179 194 18 ====== ==== ==== === ==== === == Capital employed................... 2,819 194 302 127 (2) 10 1 NOPLT.............................. 1,104 62 55 (30) 17 (1) -- ROCE............................... 39% 32% 18% (24)% -- (10)% -- AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 # --------------------------------------- CORPORATE CENTER ELIMINATIONS CONSOLIDATED --------- ------------ ------------ RESULTS Revenues -- Export................. -- (986) 2,116 Revenues -- Domestic............... -- (157) 983 Cost and expenses.................. (919) 1,143 (2,146) Interest revenue................... 75 (36) 80 Interest expense................... (180) 36 (240) Depreciation....................... (4) -- (174) Pension plan....................... -- -- (24) Equity and provision for losses and write-downs...................... -- -- (53) Income taxes....................... 45 -- 43 ---- ------ ------ Net income......................... (983) -- 585 ==== ====== ====== Sales classified by geographic destination: Export market Latin America.................... -- (69) 189 United States...................... -- (57) 287 Europe............................. -- (450) 803 Middle East........................ -- (57) 95 Japan.............................. -- (114) 302 Asia, other than Japan............. -- (239) 440 ---- ------ ------ -- (986) 2,116 Domestic market.................... -- (157) 983 ---- ------ ------ -- (1,143) 3,099 ==== ====== ====== Assets: Property, plant and equipment, net.............................. 24 -- 3,320 Capital expenditures............... 9 -- 444 Investments in affiliated companies and joint ventures and other investments...................... -- -- 818 ==== ====== ====== Capital employed................... (15) (50) 3,386 NOPLT.............................. (160) (42) 1,005 ROCE............................... -- -- 30%
- --------------- (1) -- Includes provisions $101 to reflect realizable value of assets (2) -- Includes $170 profit on sale of Bahia Sul Celulose S.A. -- BSC and $507 profit on sale of Celulose Nipo-Brasileira S.A. -- CENIBRA (3) -- Includes $107 profit on sale of Companhia Siderurgica Nacional -- CSN F-77 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 ----------------------------------------------------------------------------------------------------------- HOLDINGS --------------------------------- PULP NON AND CORPORATE FERROUS FERROUS LOGISTICS PAPER ALUMINUM STEEL OTHERS CENTER ELIMINATIONS CONSOLIDATED ------- ------- --------- ----- -------- ----- ------ --------- ------------ ------------ RESULTS Revenues -- Export.... 1,980 143 143 114 274 -- -- -- (649) 2,005 Revenues -- Domestic... 748 70 295 9 11 1 -- -- (47) 1,087 Cost and expenses..... (1,784) (154) (307) (114) (193) (3) -- (366) 696 (2,225) Interest revenue...... 32 1 1 5 21 -- -- 114 (38) 136 Interest expense...... (46) (9) (6) -- (3) (4) -- (174) 38 (204) Depreciation.......... (87) (18) (18) (2) -- -- -- (5) -- (130) Pension plan.......... (7) (2) -- -- -- -- -- -- -- (9) Equity and provision for losses and write-downs......... 27 -- (18) 84 100 44 3 -- -- 240 Income taxes.......... 2 -- 6 (4) (4) -- -- 1 -- 1 ------ ---- ---- ---- ---- --- -- ---- ---- ------ Net income............ 865 31 96 92 206 38 3 (430) -- 901 ====== ==== ==== ==== ==== === == ==== ==== ====== Sales classified by geographic destination: Export market Latin America....... 161 -- 16 -- 17 -- -- -- (51) 143 United States......... 169 113 53 114 34 -- -- -- (70) 413 Europe................ 660 28 56 -- 172 -- -- -- (120) 796 Middle East........... 135 -- 3 -- 16 -- -- -- (11) 143 Japan................. 409 2 8 -- 34 -- -- -- (191) 262 Asia, other than Japan............... 446 -- 7 -- 1 -- -- -- (206) 248 ------ ---- ---- ---- ---- --- -- ---- ---- ------ 1,980 143 143 114 274 -- -- -- (649) 2,005 Domestic market....... 748 70 295 9 11 1 -- -- (47) 1,087 ------ ---- ---- ---- ---- --- -- ---- ---- ------ 2,728 213 438 123 285 1 -- -- (696) 3,092 ====== ==== ==== ==== ==== === == ==== ==== ====== Assets: Property, plant and equipment, net...... 3,091 338 389 171 -- -- -- 35 -- 4,024 Capital expenditures........ 168 29 12 -- -- -- -- 5 -- 214 Investments in affiliated companies and joint ventures and other investments......... 457 32 111 381 238 410 80 -- -- 1,709 ====== ==== ==== ==== ==== === == ==== ==== ====== Capital employed...... 3,174 343 434 44 2 12 4 (28) 31 4,016 NOPLT................. 850 44 119 3 22 1 -- (135) -- 904 ROCE.................. 27% 13% 27% 7% -- 8% -- -- -- 23%
17. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of our current financial instruments generally approximates fair market value because of the short-term maturity or frequent repricing of these instruments. The market value of long-term investments, where available, is disclosed in Note 10 to these financial statements. F-78 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED Based on borrowing rates currently available to us for bank loans with similar terms and average maturities, the fair market value of long-term debt at September 30, 2001 is not substantially different from that as of December 31, 2000. Fair market value estimates are made at a specific point in time, based on relevant market information and information about the financial instruments. Changes in assumptions could significantly affect the estimates. 18. DERIVATIVE FINANCIAL INSTRUMENTS Volatility of interest rates, exchange rates and commodity prices are the main market risks to which we are exposed -- all three are managed through derivative operations. These have the exclusive aim of reducing exposure to risk. We do not use derivatives for speculation purposes. We monitor and evaluate our derivative positions on a regular basis and adjust our strategy in response to market conditions. We also periodically review the credit limits and credit worthiness of our counter-parties in these transactions. In view of the policies and practices established for operations with derivatives, management considers the occurrence of non-measurable risk situations as unlikely. As from January 1, 2001 we adopted SFAS 133 "Accounting for Derivative Financial Instruments and Hedging Activities", as amended by SFAS 137 and SFAS 138, and began to recognize all derivatives on our balance sheet at fair value. Accordingly we recognized an initial transition adjustment of $3 as a charge in our statement of income relative to net unrealized losses on contracts open as of December 31, 2000. Subsequently to January 1, 2001 all derivatives have been adjusted to fair market value at each balance sheet date and the change included in current earnings. For the nine month period ended September 30, 2001 the movement of unrealized and realized gains or losses on derivative financial instruments is as follows:
NET GAINS (LOSSES)} ------------------------------------ INTEREST RATES GOLD (LIBOR) CURRENCIES TOTAL ---- -------- ---------- ----- Initial unrealized gains and losses at January 1, 2001............................................... 9 (8) (4) (3) Change in the period............................... 2 (39) (1) (38) (Gains) and losses realized in the period.......... (5) 6 2 3 -- --- -- --- UNREALIZED GAINS AND (LOSSES) AT SEPTEMBER 30, 2001.............................. 6 (41) (3) (38) == === == ===
Realized and unrealized gains and losses are included in our income statement under the following captions: Gold -- other operating costs and expenses; Interest rates -- financial expenses; Currencies -- foreign exchange and monetary losses, net. Final maturity dates for the above instruments are as follows: Gold........................................................ December 2005 Interest rates (libor)...................................... October 2007 Currencies.................................................. April 2005
F-79 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED (a) INTEREST RATE AND EXCHANGE RATE RISK Interest rate risks mainly relate to that part of the debt borrowed at floating rates. The foreign currency debt is largely subject to fluctuations in the London Interbank Offered Rate -- LIBOR. That portion of local currency denominated debt that is subject to floating rates is linked to the Long Term Interest Rate -- TJLP, fixed quarterly by the Brazilian Central Bank. Since May 1998, we have used derivative instruments to protect overselves against fluctuations in the LIBOR rate. There is an exchange rate risk associated with our foreign currency denominated debt. On the other hand, a substantial proportion of our revenues are denominated in, or automatically indexed to, the U.S. dollar, while the majority of costs are expressed in reais. This provides a natural hedge against any devaluation of the Brazilian real against the U.S. dollar. When events of this nature occur, the immediate negative impact on foreign currency denominated debt is offset over time by the positive effect of devaluation on future cash flows. With the advent of a floating exchange rate regime in Brazil in January 1999, we adopted a strategy of monitoring market fluctuations, using derivatives to protect against specific risks from exchange rate variation. From time to time we enter into foreign exchange derivative swap transactions seeking to change the characteristics of our real-denominated cash investments to US dollar-indexed instruments. The extent of such transactions depends on our perception of market and currency risk, but is never speculative in nature. All such operations are marked-to-market at each balance sheet date and the effect included in financial income or expense. During the nine months ended September 30, 2001 our use of such instruments was not significant. (b) COMMODITY PRICE RISK We also use derivative instruments to manage exposure to changing gold prices. Derivatives allow the fixing of an average minimum profit level for future gold production. However, they may also have the effect of eliminating potential gains on certain price increases in the spot market for gold. We manage our contract positions actively, and the results are reviewed at least monthly, allowing adjustments to targets and strategy to be made in response to changing market conditions. In the case of gold derivatives, our policy has been to settle all contracts through cash payments or receipts, without physical delivery of product. Our affiliates Albras and Alunorte manage the risk of fluctuating aluminum prices using derivatives, allowing an average minimum profit level for future production and ensuring stable cash generation. However, they may also have the effect of eliminating potential gains on certain price increases in the spot market for aluminum. We account for both affiliates using the equity method. In December 2000, we introduced a new risk management system to evaluate, measure and manage the market risk associated with our financial activities, using the value-at-risk -- VAR method. VAR incorporates a variety of risk factors which affect our results, including commodity prices, interest and exchange rate volatilities, as well as the correlation between all these variables. This tool will permit more efficient monitoring of market risk exposure. F-80 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED 19. ACCOUNTING CHANGES These financial statements have been restated to reflect the following accounting changes: (a) CHANGES WHICH EFFECT NET INCOME AND STOCKHOLDERS' EQUITY (a.1) Impairment provision for equity investments in CST and Usiminas. The Company has concluded that the loss in value in its investment in CST and Usiminas was other than temporary, and that the carrying value should be reduced to the quoted market price of the applicable shares. This methodology has been applied retroactively resulting in a write-down provision of $180 as at December 31, 1997 (with write-down changes of $50, $24 and $106 recorded for the years ended December 31, 1997, 1996 and 1995, respectively). (a.2) Amortization of goodwill related to Samarco and Samitri. The Company has recognized amortization expense of goodwill relating to the acquisition of Samarco and Samitri in May 2000 from the date of the acquisition on a straight line basis at 16.67% per annum. Previously, the Company had not commenced amortization of goodwill. The impact of the above alterations is shown below:
AS OF SEPTEMBER 30, ------------- 2001 2000 ----- ----- Net income previously reported.............................. 597 909 Goodwill amortization....................................... (18) (12) Deferred tax effects........................................ 6 4 ----- ----- RESTATED NET INCOME......................................... 585 901 ===== ===== Earnings per share previously reported...................... 1.55 2.36 Restated earnings per share................................. 1.52 2.34 Shareholders' equity previously reported.................... 3,928 5,238 Write-off of Usiminas goodwill.............................. Impairment of CST and Usiminas.............................. (358) (414) Goodwill amortization....................................... (31) (12) Deferred tax effects........................................ 74 75 ----- ----- RESTATED SHAREHOLDERS' EQUITY............................... 3,613 4,887 ===== =====
(b) CHANGE THAT DOES NOT AFFECT NET INCOME AND STOCKHOLDERS' EQUITY -- CONSOLIDATION OF CELMAR S.A. Previously we accounted for our development stage subsidiary, Celmar S.A., under the equity method of accounting. We now consolidate this entity for all periods presented which has not resulted in any change to our net income or stockholders' equity. The effects on our consolidated current assets and current liabilities is less than 1% while consolidated long-term liabilities increased by 1.8%. 20. INFORMATION ABOUT OUR INDEPENDENT ACCOUNTANTS Our consolidated financial statements are reviewed by PricewaterhouseCoopers Auditores Independentes. The financial statements of certain of our subsidiaries and affiliates have been reviewed by independent accountants other than PricewaterhouseCoopers Auditores Independentes and, as mentioned F-81 NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) EXPRESSED IN MILLIONS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED in their report, PricewaterhouseCoopers Auditores Independentes has relied on such reviews when issuing their report on our consolidated financial statements. The following entities prepare interim financial statements in US GAAP which are reviewed in accordance with auditing standards generally accepted in the United States of America:
INDEPENDENT ACCOUNTANTS PERIODS REVIEWED CITY STATE COUNTRY ----------- ---------------- ------- ----- ------- Aluminio Brasileiro S.A.-ALBRAS............ DTT 2001, 2000 RJ RJ Brazil Alumina do Norte do Brasil S.A.-ALUNORTE... DTT 2001, 2000 RJ RJ Brazil Bahia Sul Celulose S.A.(1)................. KPMG 2000 SP SP Brazil Celulose Nipo-Brasileira S.A.-CENIBRA(1)... DTT 2001, 2000 BH MG Brazil Navegacao Vale do Rio Doce S.A.-DOCENAVE... DTT 2001, 2000 RJ RJ Brazil DOCEPAR S.A. .............................. DTT 2001, 2000 RJ RJ Brazil Companhia Hispano-Brasileira de Pelotizacao-HISPANOBRAS.................. AA 2001, 2000 Vitoria ES Brazil Companhia Italo-Brasileira de Pelotizacao- ITABRASCO................................ AA 2001, 2000 Vitoria ES Brazil Companhia Coreano Brasileira de Pelotizacao-KOBRASCO..................... DTT 2001, 2000 RJ RJ Brazil Minaracao Rio do Norte S.A. ............... AA 2001, 2000 RJ RJ Brazil Companhia Nipo-Brasileira de Pelotizacao- NIBRASCO................................. DTT 2001, 2000 RJ RJ Brazil Valesul Aluminio S.A. ..................... KPMG 2001, 2000 RJ RJ Brazil Companhia Siderurgica Nacional(1).......... AA 2000 RJ RJ Brazil
- --------------- (1) Investments sold in 2001. AA -- Arthur Andersen S/C DTT -- Deloitte Touche Tohmatsu RJ -- Rio de Janeiro MG -- Minas Gerais BH -- Belo Horizonte SP -- Sao Paulo ES -- Espirito Santo
21. SUBSEQUENT EVENT On March 8, 2002, our wholly-owned subsidiary, Vale Overseas Limited, issued US$300,000,000 of 8.625% Enhanced Guaranteed Notes due March 8, 2007. The notes are unconditionally guaranteed by us. F-82 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders Vale Overseas Limited In our opinion, the accompanying balance sheet presents fairly, in all material respects, the financial position of Vale Overseas Limited at September 30, 2001 in conformity with accounting principles generally accepted in the United States of America. This financial statement is the responsibility of the Company's management; our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit of this statement in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet, assessing the accounting principles used and significant estimates made by management, and evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion. October 22, 2001, except for the subsequent event described in Note 4 which is as of March 8, 2002. /s/ PricewaterhouseCoopers - --------------------------------- PRICEWATERHOUSECOOPERS Auditores Independentes F-83 VALE OVERSEAS LIMITED BALANCE SHEET AS AT SEPTEMBER 30 EXPRESSED IN U.S. DOLLARS
2001 ----- ASSETS CURRENT ASSETS Cash and cash equivalents................................. 1,000 ----- 1,000 ===== LIABILITIES STOCKHOLDERS' EQUITY Common stock (1,000 common shares of a par value of US$1.00 each).......................................... 1,000 ----- 1,000 =====
The accompanying notes are an integral part of these financial statements. F-84 VALE OVERSEAS LIMITED NOTES TO THE FINANCIAL STATEMENTS AT SEPTEMBER 30, 2001 EXPRESSED IN U.S. DOLLARS 1 OPERATIONS Vale Overseas Limited (the "Company"), located in the Cayman Islands, was constituted in April, 2001 as a wholly-owned subsidiary of Companhia Vale do Rio Doce and operates principally as a finance company. 2 PRESENTATION OF FINANCIAL STATEMENTS The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The transactions are accounted for in United States dollars and are tax exempt. 3 CASH AND CASH EQUIVALENTS Cash and cash equivalents are denominated in U.S. dollars and represented, by short-term bank deposits. 4 SUBSEQUENT EVENT On March 8, 2002, the Company issued US$300,000,000 of 8.625% Enhanced Guaranteed Notes due March 8, 2007 Unconditionally Guaranteed by Companhia Vale do Rio Doce. * * * F-85 INDEX TO AUDIT REPORTS FROM INDEPENDENT ACCOUNTANTS LISTED IN NOTE 23 TO OUR CONSOLIDATED FINANCIAL STATEMENTS Report of Deloitte Touche Tohmatsu dated January 19, 2001 with respect to the financial statements of Albras for the three years ended December 31, 2000, 1999 and 1998........ B-2 Report of Deloitte Touche Tohmatsu dated January 17, 2001 with respect to the financial statements of Alunorte for the three years ended December 31, 2000, 1999 and 1998.... B-3 Report of Deloitte Touche Tohmatsu dated January 19, 2001 with respect to the financial statements of Aluvale for the three years ended December 31, 2000, 1999 and 1998.... B-4 Report of KPMG Auditores Independentes dated February 6, 2001 with respect to the consolidated financial statements of Bahia Sul Celulose S.A. and subsidiaries for the three years ended December 31, 2000, 1999 and 1998.............. B-5 Report of KPMG LLP dated January 19, 2001 with respect to the financial statements of CSI for the three years ended December 31, 2000, 1999 and 1998.......................... B-6 Report of Deloitte Touche Tohmatsu dated January 19, 2001 with respect to the financial statements of Cenibra for the two years ended December 31, 2000 and 1999............ B-7 Reports of Deloitte Touche Tohmatsu dated February 8, 2001 and February 12, 1999 with respect to the financial statements of Docenave for the three years ended December 31, 2000, 1999 and 1998................................... B-8 Report of Deloitte Touche Tohmatsu dated January 19, 2001 with respect to the financial statements of Docepar for the two years ended December 31, 2000 and 1999............ B-11 Report of Arthur Andersen S/C dated January 15, 2001 with respect to the financial statements of Hispanobras for the three years ended December 31, 2000, 1999 and 1998........ B-12 Report of Arthur Andersen S/C dated January 15, 2001 with respect to the financial statements of Itabrasco for the three years ended December 31, 2000, 1999 and 1998........ B-13 Report of Deloitte Touche Tohmatsu dated January 29, 2001 with respect to the financial statements of Kobrasco for the year ended December 31, 2000.......................... B-14 Reports of Arthur Andersen S/C dated January 18, 2001 and January 17, 2000 with respect to the financial statements of MRN for the three years ended December 31, 2000, 1999 and 1998.................................................. B-15 Report of Deloitte Touche Tohmatsu dated January 29, 2001 with respect to the financial statements of Nibrasco for the three years ended December 31, 2000, 1999 and 1998.... B-17 Report of KPMG Auditores Independentes dated January 19, 2001 with respect to the financial statements of Valesul for the two years ended December 31, 2000 and 1999........ B-18 Report of Deloitte Touche Tohmatsu dated January 20, 1999 with respect to the financial statements of Valesul for the two years ended December 31, 1998 and 1997............ B-19 Report from Arthur Andersen S/C dated February 19, 2001 with respect to their consolidated financial statements of CSN for the two years ended December 31, 2000 and 1999........ B-20 Reports of Deloitte Touche Tohmatsu dated February 2, 2001 and April 28, 2000 with respect to financial statements of Terminal Vila Velha S.A. for the three years ended December 31, 2000, 1999, and 1998 (English Version)....... B-21 Report of Deloitte Touche Tohmatsu dated January 19, 2001 with respect to financial statements of Nova Era Silicon S.A. for the year ended December 31, 2000 (English Version).................................................. B-23 Report of Trevisan dated January 18, 2000 with respect to financial statements of Nova Era Silicon S.A. for the two years ended December 31, 1999 and 1998 (English Version).................................................. B-25 Report of Deloitte Touche Tohmatsu dated January 19, 2001 with respect to financial statements of Celmar S.A.-Industria de Celulose e Papel for the year ended December 31, 2000 (English Version)....................... B-27 Report of Deloitte Touche Tohmatsu dated January 22, 2001 with respect to financial statements of SIBRA Eletrosiderurgica Brasileira S.A. for the year ended December 31, 2000 (English Version)....................... B-28
B-1 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT ACCOUNTANTS' REPORT To the Directors and Stockholders of ALBRAS -- Aluminio Brasileiro S.A. Barcarena -- PA We have audited the accompanying balance sheets of ALBRAS -- Aluminio Brasileiro S.A. as of December 31, 2000 and 1999, and the related statements of operations, changes in stockholders' deficiency and cash flows for the three-year period ended December 31, 2000 (all expressed in United States dollars). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of ALBRAS -- Aluminio Brasileiro S.A. at December 31, 2000 and 1999, and the results of its operations and its cash flows for the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. January 19, 2001 /s/ DELOITTE TOUCHE TOHMATSU B-2 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT ACCOUNTANTS' REPORT To the Directors and Stockholders ALUNORTE -- Alumina do Norte do Brasil S.A. Barcarena -- PA We have audited the accompanying balance sheets of ALUNORTE -- Alumina do Norte do Brasil S.A. as of December 31, 2000 and 1999, and the related statement of operations, changes in stockholders' equity and cash flows for the three-year period ended December 31, 2000 (all expressed in United States Dollars). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of ALUNORTE -- Alumina do Norte do Brasil S.A. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. January 17, 2001 /s/ DELOITTE TOUCHE TOHMATSU B-3 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors and Stockholders of Vale do Rio Doce Aluminio S.A. -- ALUVALE We have audited the accompanying balance sheets of Vale do Rio Doce Aluminio S.A. -- ALUVALE as of December 31, 2000 and 1999, and the related statements of operations, cash flows and changes in stockholders' equity for each of the three-years in the period ended December 31, 2000 (all expressed in United States dollars). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of the Mineracao Rio do Norte S.A. (2000, 1999 and 1998) and Valesul Aluminio S.A. (2000 and 1999), the Company's investment in which are accounted for by use of the equity method. The Company's equity in the aforementioned affiliates companies' net assets at December 31, 2000 and 1999, totaling US$197,104,000 and US$186,296,000, respectively, and the Company's net equity in the aforementioned affiliated companies' net income for the years ended December 31, 2000, 1999 and 1998, totaling US$47,861,000, US$10,538,000 and US$27,688,000, respectively, are included in the accompanying financial statements. The financial statements of the above mentioned affiliated companies were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for such companies is based solely on the reports of such other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of Vale do Rio Doce Aluminio S.A. -- ALUVALE as of December 31, 2000 and 1999 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with the accounting principles generally accepted in the United States of America. /s/ DELOITTE TOUCHE TOHMATSU January 19, 2001 B-4 [KPMG LOGO] KPMG AUDITORES INDEPENDENTES Mail address Office address Caixa Postal 2467 R.Dr. Renato Paes de Barros, 33 Central Tel 55 (11) 3067 3000 01060-970 Sao Paulo SP 04530-904 Sao Paulo SP Fax National (11) 3079 3752 Brasil Brasil International 55 (11) 3079 2916
INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders of Bahia Sul Celulose S.A. We have audited the accompanying consolidated balance sheets of Bahia Sul Celulose S.A. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, shareholders' equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bahia Sul Celulose S.A. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Sao Paulo, Brazil February 6, 2001 /s/ KPMG Auditores Independentes B-5 [KPMG LOGO] 600 Anton Boulevard Suite 700 Costa Mesa, CA 92626-7651 INDEPENDENT AUDITORS' REPORT The Board of Directors California Steel Industries, Inc.: We have audited the accompanying consolidated balance sheets of California Steel Industries, Inc. and subsidiary as of December 31, 2000 and 1999 and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of California Steel Industries, Inc. and subsidiary as of December 31, 2000 and 1999 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principals generally accepted in the United States of America. /s/ KPMG LLP Orange County, California January 19, 2001 B-6 Deloitte Touche Tohmatsu Rua Paralba, 1 122-20 degrees 30130-141 -- Belo Horizonte -- MG Brasil Telefone: (31) 262-0445 Fac-simile: (31) 262-0446 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT AUDITORS' OPINION To the Shareholders and Directors of Celulose Nipo-Brasileira S.A. -- CENIBRA Belo Oriente/MG We have audited the accompanying consolidated balance sheets of Celulose Nipo-Brasileira S.A. -- CENIBRA as of December 31, 2000 and 1999 and the related statements of operations, changes in stockholders' equity and of cash flows for the years then ended (all expressed in United States dollars). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of the Company for the year ended December 31, 1998 were audited by other auditors, whose report dated January 21, 1999 expressed a qualified opinion in relation to the same matter mentioned in the fourth paragraph. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Celulose Nipo-Brasileira S.A. -- CENIBRA and its subsidiaries as of December 31, 2000 and 1999 the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles in United States of America. As mentioned in note 4, at December 31, 1999 the Company had not provided for a contingency in the amount of US$2,993 thousand related to the tax effects (income tax and social contribution) for the use of the deductibility of the effects of the restatement determined by Law n degrees 7.730/89, which established the "Plano Verao". In 2000 the Company conservatively decided to provide for the referred amount and, consequently, to restatement the financial statements of 1999 and 1998. /s/ DELOITTE TOUCHE TOHMATSU January 19, 2001 B-7 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors and Stockholders Navegacao Vale do Rio Doce S.A. -- DOCENAVE We have audited the accompanying consolidated balance sheets of Navegacao Vale do Rio Doce S.A. -- DOCENAVE and subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of operations, cash flows and changes in stockholders' equity for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of the affiliated company, Wilsea Shipping, Inc., the Company's investment in which is accounted for by use of the equity method. The Company's equity of US$36,257,000 and US$22,273,000 in the aforementioned affiliated company's net assets at December 31, 2000 and 1999, respectively, and of US$13,984,000 and US$783,000 in that company's net income for the respective years then ended are included in the accompanying financial statements. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the accompanying financial statements referred to above presented fairly, in all material respects, the financial position of Navegacao Vale do Rio Doce S.A. -- DOCENAVE and subsidiaries as of December 31, 2000 and 1999, and the results of its operations and its cash flows the years then ended in conformity with accounting principles generally accepted in the United States of America. February 8, 2001 /s/ DELOITTE TOUCHE TOHMATSU B-8 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors and Stockholders of Vale do Rio Doce Navegacao S.A. - DOCENAVE We have audited the accompanying consolidated balance sheet of Vale do Rio Doce Navegacao S.A. - DOCENAVE and subsidiaries as of December 31, 1998 (restated as note 9) and the related consolidated statements of operations, cash flows and changes in stockholders' equity for the year ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of the affiliated companies, Companhia Siderurgica Nacional and Wilsea Shipping Inc., the Company's investments in which are accounted for by use of the equity method. The Company's equity and net income for the year in the aforementioned affiliated companies totals US$246,136,000 and US$42,309,000 at December 31, 1998. The financial statements of the above mentioned affiliated companies were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for such companies, is based solely on the reports of such other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the reports of other auditors, the accompanying restated financial statements referred to above present fairly, in all material respects, the financial position of Vale do Rio Doce Navegacao S.A. and subsidiaries as of December 31, 1998 and the result of its operations, its cash flows and the changes in its stockholders' equity for the year then ended, in conformity with accounting principles generally accepted in the United States of America. B-9 Vale do Rio Doce Navegacao S.A. -- DOCENAVE 2 Subsequent to the issuance of the Company's 1998 financial statements, the management determined to change the method used to account for the investment in a certain affiliated company, as discussed in note 9. As a result, the previously-issued financial statements for the year ended December 31, 1998 have been restated in order to reflect such changing in the accounting method. The consolidated financial statements of Vale do Rio Doce Navegacao S.A. and subsidiaries for the year ended in December 31, 1997 and the consolidated statements of operations, cash flows and changes in stockholders' equity for the year ended December 31, 1996 were audited by other accountants whose issued unqualified opinion thereon dated February 6, 1998. These financial statements have also been restated due to the same reason described in the previous paragraph. February 12, 1999 /s/ DELOITTE TOUCHE TOHMATSU B-10 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT ACCOUNTANTS' REPORT To The Board of Directors and Stockholders of DOCEPAR S.A. Rio de Janeiro - RJ Brazil We have audited the accompanying balance sheets of DOCEPAR S.A. as of December 31, 2000 and 1999, and the related statements of operations, cash flows and changes in stockholders' equity (deficiency) for the years then ended (all expressed in United States Dollars). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of the affiliated company, Companhia Siderurgica Nacional, the Company's investments in which is accounted for by use of the equity method. The Company's equity related to the aforementioned affiliated company totals US$133,569,000 at December 31, 1999 and a gain of US$4,189,000 and US$3,328,000 for the years ended December 31, 2000 and 1999, respectively. The financial statements of the above mentioned affiliated company were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for such company, is based solely on the reports of such other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of DOCEPAR S.A. as of December 31, 2000 and 1999 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. January 19, 2001 /s/ DELOITTE TOUCHE TOHMATSU B-11 [ARTHUR ANDERSEN LOGO] REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Companhia Hispano-Brasileira de Pelotizacao -- HISPANOBRAS: (1) We have audited the accompanying balance sheets of COMPANHIA HISPANO-BRASILEIRA DE PELOTIZACAO -- HISPANOBRAS (a Brazilian corporation and a subsidiary of Companhia Vale do Rio Doce), translated into U.S. dollars, as of December 31, 2000 and 1999, and the related translated statements of income, changes in stockholders' equity and cash flows for the years ended December 31, 2000, 1999 and 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. (2) We conducted our audits in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. (3) These translated financial statements have been prepared as the basis for application of the equity method by its stockholders and, accordingly, they translate the assets, liabilities, stockholders' equity and revenues and expenses of Companhia Hispano-Brasileira de Pelotizacao -- Hispanobras for that purpose, as explained in Note 2. (4) In our opinion, the financial statements referred to in paragraph 1 present fairly, in all material respects, and for the purpose described in the preceding paragraph, the financial position of Companhia Hispano-Brasileira de Pelotizacao -- Hispanobras as of December 31, 2000 and 1999, and the results of its operations, the changes in its stockholders' equity and its cash flows for the years ended December 31, 2000, 1999 and 1998, in conformity with generally accepted accounting principles in the United States. /s/ Arthur Andersen S/C Vitoria, Brazil, January 15, 2001. B-12 [ARTHUR ANDERSEN LOGO] REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Companhia Italo-Brasileira de Pelotizacao -- ITABRASCO: (1) We have audited the accompanying balance sheets of COMPANHIA ITALO-BRASILEIRA DE PELOTIZACAO-ITABRASCO (a Brazilian corporation and a subsidiary of Companhia Vale do Rio Doce), translated into U.S. dollars, as of December 31, 2000 and 1999, and the related translated statements of income, changes in stockholders' equity and cash flows for the years ended December 31, 2000, 1999 and 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. (2) We conducted our audits in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. (3) These translated financial statements have been prepared as the basis for application of the equity method by its stockholders and, accordingly, they translate the assets, liabilities, stockholders' equity and revenues and expenses of Companhia Italo-Brasileira de Pelotizacao -- Itabrasco for that purpose, as explained in Note 2. (4) In our opinion, the financial statements referred to in paragraph 1 present fairly, in all material respects, and for the purpose described in the preceding paragraph, the financial position of Companhia Italo-Brasileira de Pelotizacao -- Itabrasco as of December 31, 2000 and 1999, and the results of its operations, the changes in its stockholders' equity and its cash flows for the years ended December 31, 2000, 1999 and 1998, in conformity with generally accepted accounting principles in the United States. /s/ Arthur Andersen S/C Vitoria, Brazil January 15, 2001 B-13 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Companhia Coreano-Brasileira de Pelotizacao -- KOBRASCO Vitoria, Brazil We have audited the accompanying consolidated balance sheet of Companhia Coreano-Brasileira de Pelotizacao -- KOBRASCO as of December 31, 2000, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year then ended (all expressed in United States dollars). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the Company for the years ended December 31, 1999 and 1998 were audited by other accountants whose reports thereon, dated January 14, 2000 and January 15, 1999, respectively, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the accompanying consolidated financial statements referred to above present fairly, in all material respects, the financial position of Companhia Coreano-Brasileira de Pelotizacao -- KOBRASCO as of December 31, 2000, and the consolidated results of its operations, the changes in its stockholders' equity and its cash flow for the year then ended, in conformity with accounting principles generally accepted in United States of America. January 29, 2001 /s/ DELOITTE TOUCHE TOHMATSU B-14 [ARTHUR ANDERSEN LOGO] REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Mineracao Rio do Norte S.A.: (1) We have audited the accompanying balance sheets of MINERACAO RIO DO NORTE S.A. (a Brazilian corporation), translated into U.S. dollars, as of December 31, 2000 and 1999, and the related translated statements of income, changes in stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. (2) We conducted our audits in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. (3) The financial statements of the associated company Alunorte -- Alumina do Norte do Brasil S.A. as of December 31, 2000 and 1999 were audited by other auditors. This investment represents 3% of the total assets (1% in 1999) and 7% of the net income (19% in 1999). Our opinion on such investment is based solely on the report of the other auditors. (4) These translated financial statements have been prepared as the basis for application of the equity method by the Company's stockholders and, accordingly, they translate the assets, liabilities, stockholders' equity and revenues and expenses of Mineracao Rio do Norte S.A. for that purpose, as explained in Note 2. (5) In our opinion, based on our audits and on the report of other auditors, as mentioned in paragraph (3), the financial statements referred to in paragraph (1) present fairly, in all material respects, and for the purpose described in the preceding paragraph, the financial position of Mineracao Rio do Norte S.A. as of December 31, 2000 and 1999, and the results of its operations, the changes in its stockholders' equity and its cash flows for the years then ended, in conformity with generally accepted accounting principles in the United States. /s/ ARTHUR ANDERSEN S/C Rio de Janiero, Brazil, January 18, 2001. B-15 [ARTHUR ANDERSEN LOGO] REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Mineracao Rio do Norte S.A.: (1) We have audited the accompanying balance sheets of MINERACAO RIO DO NORTE S.A. (a Brazilian corporation), translated into U.S. dollars, as of December 31, 1999 and 1998, and the related translated statements of income, changes in stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. (2) We conducted our audits in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide reasonable basis for our opinion. (3) The financial statements of the associate Alunorte -- Alumina do Norte do Brasil S.A. as of December 31, 1999 were audited by other auditors. This investment represents 1% of the total assets and 100% of the equity adjustment. Our opinion on such investments is based solely on the report of the other auditors. (4) These translated financial statements have been prepared as the basis for application of the equity method by the Company's stockholders and, accordingly, they translate the assets, liabilities, stockholders' equity and revenues and expenses of Mineracao Rio do Norte S.A. for that purpose, as explained in Note 2. (5) In our opinion, based on our audits and on the report of other auditors, as mentioned in paragraph (3), the financial statements referred to in paragraph (1) present fairly, in all material respects, and for the purpose described in the preceding paragraph, the financial position of Mineracao Rio do Norte S.A. as of December 31, 1999 and 1998, and the results of its operations, the changes in its stockholders' equity and its cash flows for the years then ended, in conformity with generally accepted accounting principles in the United States. (6) The report of other auditors, mentioned in paragraph (3), indicates the Alunorte -- Alumina do Norte do Brasil S.A. and its stockholders are implementing measures designed to alleviate the Company's financial condition (Note 7). /s/ ARTHUR ANDERSEN S/C Rio de Janeiro, Brazil, January 17, 2000. B-16 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Companhia Nipo-Brasileira de Pelotizacao - NIBRASCO Vitoria, Brazil We have audited the accompanying balance sheets of Companhia Nipo-Brasileira de Pelotizacao - NIBRASCO as of December 31, 2000 and 1999, and the related statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000 (all expressed in United States dollars). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of Companhia Nipo-Brasileira de Pelotizacao - NIBRASCO at December 31, 2000 and 1999, and the results of its operations, the changes in its stockholders' equity and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. January 29, 2001 /s/ DELOITTE TOUCHE TOHMATSU B-17 [KPMG LOGO] KPMG AUDITORES INDEPENDENTES Mail address Office address Caixa Postal 2888 Av. Almivarte Barroso 52-17 degrees Central Tel 55 (21) 272 2700 20001-970 Rio de Janeiro, RJ 200031-000 Rio de Janeiro, RJ Fax 55 (21) 544-1338 Brasil Brasil
The Board of Directors of Valesul Aluminio S.A. We have audited the accompanying balance sheet of Valesul Aluminio S.A. as of December 31, 2000 and 1999, and the related statements of income, changes in stockholders' equity and comprehensive income and cash flows for each of the years in the two-year period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The accompanying statements of income, changes in stockholders' equity and comprehensive income and cash flows for the year ended December 31, 1998 were audited by other independent auditors, who issued an unqualified report, dated January 20, 1999. We conducted our audit in accordance with auditing standards generally accepted in Brazil and in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosure in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Valesul Aluminio S.A. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. As more fully described in Notes 4 and 8 to the financial statements, the company has adjusted its property, plant and equipment and deferred income taxes accounting balances as a result of correcting of errors. Consequently, the Company's financial statements for 2000, 1999 and 1998 referred to above have been restated to conform with these adjustments. January 19, 2001, except for notes 4 and 8, which date is January 17, 2002 Rio de Janeiro, Brazil /s/ KPMG Auditores Independentes B-18 DELOITTE TOUCHE TOHMATSU AV. PRESIDENTE WILSON 231-22 degrees 20030-021 -- RIO DE JANEIRO -- RJ BRASIL TELEFONE: (21) 524-1281 FAC-SIMILE: (21) 220-3876 WWW.DELOITTE.COM.BR [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT AUDITORS' REPORT To the Directors and Stockholders Valesul Aluminio S.A. Rio de Janeiro, Brazil We have audited the accompanying balance sheets of Valesul Aluminio S.A. as of December 31, 1998 and 1997, and the related statements of operations, changes in stockholders' equity and cash flows for the years then ended (all expressed in United States dollars). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of Valesul Aluminio S.A. at December 31, 1998 and 1997, and the results of its operations, the changes in its stockholders' equity and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. January 20, 1999 /s/ DELOITTE TOUCHE TOHMATSU B-19 ANDERSEN REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Companhia Siderurgica Nacional (1) We have audited the accompanying consolidated balance sheets of COMPANHIA SIDERURGICA NACIONAL (a Brazilian corporation) and its subsidiaries (the "Company") as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. (2) The financial statements of the affiliate CVRD -- Companhia Vale do Rio Doce as of December 31, 2000 and 1999 were audited by other auditors. As of December 31, 2000 this asset represents 14% of the total assets and 28% of the net income (15% and 21% respectively as of December 31, 1999). Our opinion on such asset is based solely on the report of other auditors. (3) We conducted our audits in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. (4) In our opinion, based on our audits and the report of other auditors for the years ended December 31, 2000 and 1999 as mentioned in paragraph (2) above, the consolidated financial statements referred to in paragraph (1) present fairly, in all material respects, the financial position of Companhia Siderurgica Nacional and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and cash flows for the years then ended in conformity with generally accepted accounting principles in the United States. /s/ Arthur Andersen S/C Rio de Janeiro, Brazil, February 19, 2001 (except for Notes 7, 9 and 21, as to which the date is June 19, 2001). B-20 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT AUDITORS' OPINION To The Stockholders and Board of Directors TVV - Terminal de Vila Velha S.A. Vitoria - ES 1. We have audited the balance sheets of TVV - Terminal de Vila Velha S.A. as of December 31, 2000 and 1999, and the related statements of operations, changes in stockholders' equity and changes in financial position for the years then ended (all expressed in Brazilian Reais). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. 2. We conducted our audits in accordance with auditing standards generally accepted in Brazil, and included: (a) planning the audit, considering the materiality of the amounts presented, the number of transactions and the Company's accounting and internal control systems; (b) examining, on a test basis, the evidence supporting the amounts and disclosures in the financial statements; and (c) the assessment of the accounting principles used and of the significant estimates made by management, as well as the presentation of the financial statements taken as a whole. 3. In our opinion, the financial statements referred to the first paragraph present fairly, in all material respects, the financial position of as of December 31, 2000 and 1999, and the results of its operations, changes in its stockholders' equity and changes in its financial position for the years then ended, in conformity with the Brazilian corporate law. 4. The translation of the financial statements into English have been made solely for the convenience of readers outside of Brazil. Vitoria, February 2, 2001 /s/ DELOITTE TOUCHE TOHMATSU /s/ MARCELO C. ALMEIDA DELOITTE TOUCHE TOHMATSU MARCELO C. ALMEIDA Independent Auditors Certified Accountant CRC-SP 11.609 S/RJ CRC-RJ 36.206-3 S/ES
B-21 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT AUDITORS' OPINION To The Stockholders and Board of Directors TVV - Terminal de Vila Velha S.A. Vila Velha - ES 1. We have audited the balance sheets of TVV - Terminal de Vila Velha S.A. as of December 31, 1999 and 1998, and the related statements of operations, changes in stockholders' equity and changes in financial position for the years then ended and for the period between July 2 (date of Company's organization) and December 31, 1998 (all expressed in Brazilian Reais). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. 2. We conducted our audits in accordance with auditing standards generally accepted in Brazil, and included: (a) planning the audit, considering the materiality of the amounts presented, the number of transactions and the Company's accounting and internal control systems; (b) examining, on a test basis, the evidence supporting the amounts and disclosures in the financial statements; and (c) the assessment of the accounting principles used and of the significant estimates made by management, as well as the presentation of the financial statements taken as a whole. 3. In our opinion, the financial statements referred to the first paragraph present fairly, in all material respects, the financial position of as of December 31, 1999 and 1998 and the results of its operations, changes in its stockholders' equity and changes in its financial position for the years then ended and for the period between July 2 (date of Company's organization) and December 31, 1998, in conformity with the Brazilian corporate law. 4. The translation of the financial statements into English have been made solely for the convenience of readers outside of Brazil. Rio de Janeiro, April 28, 2000
/s/ DELOITTE TOUCHE TOHMATSU /s/ MARCELLO C. ALMEIDA DELOITTE TOUCHE TOHMATSU MARCELLO C. ALMEIDA Independent Auditors Certified Accountant CRC-SP 11.609 S/RJ CRC-RJ 36.206-3 S/ES
B-22 Deloitte Touche Tohmatsu Rue Fariba, 1.122-20 degrees 30130-141 Bela Horizonte -- MG Brasil Telefone: (31) 3202-0440 Fac-simile: (31) 3262-0445 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT AUDITORS' REPORT To the Management and Stockholders of Nova Era Silicon S.A. Belo Horizonte/MG 1. We have audited the accompanying balance sheet of Nova Era Silicon S.A. as of December 31, 2000 and the related statements of income, changes in stockholders' equity and changes in financial position for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. Except for the mentioned on the third paragraph, we conducted our audit in accordance with generally accepted auditing standards in Brazil, which included: (a) planning of the engagement, considering the materiality of the balances, the volume of transactions and the accounting and internal control system of the Company; (b) examination, on a test basis, of the evidence and records supporting the amounts and disclosures in the financial statements; and (c) evaluation of the accounting principles used and significant used adopted by management of the company, as well as the overall financial statement presentation. 3. The Company has calculated the depletion of its forests, with a net balance of R$3,761 at December 31, 2000, at a 10% annual (straight line) rate. As required by accounting policies, depletion of forests should be calculated based on the volume of timber that has been extracted in proportion to total potential volume, applied to total building cost. We were unable to measure the effects arising from the adoption of such procedure as of December 31, 2000. 4. As of December 31, 1999, the Company elected to follow Resolution 294, issued by the Brazilian Securities and Exchange Commission -- CVM, and recorded in its deferred assets the net loss on exchange variation for the three-month period ended March 31, 1999. As required by accounting principles, exchange variation should be recorded as expenses in the period in which they were incurred. Consequently, permanent assets and stockholders' equity as of December 31, 2000 were overstated by R$4,128 thousand, and net income for the year then ended was understated by R$2,061 related to respective amortization. 5. In our opinion, except for the effects, if any, of the matter mentioned in the third paragraph and for the effects of the matter mentioned in the fourth paragraph, the financial statements referred in the first paragraph present fairly, in all material respects, the financial position of Nova Era Silicon S.A. as of December 31, 2000, and the results of its operations, the changes in its stockholders' equity and the changes in its financial position for the year then ended, in conformity with accounting principles established by the Brazilian Corporate Law. 6. The financial statements for the year ended December 31, 1999, presented for comparison purposes, were examined by other auditors who issued a report on January 18, 2000 containing the same qualification as stated in Paragraph 4, in the amount of R$6,190 thousand. B-23 7. The translation of the financial statements into English have been made solely for the convenience of readers outside of Brazil. /s/ Deloitte Touche Tohmatsu January 19, 2001 B-24 TREVISAN THE GLOBAL SOLUTION A FREE TRANSLATION OF THE ORIGINAL IN PORTUGUESE, ISSUED IN JANUARY 18, 2000, ON FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH BRAZILIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. INDEPENDENT AUDITORS' REPORT The Shareholders and Management Nova Era Silicon S.A. 1. We have examined the balance sheets of Nova Era Silicon S.A. as of December 31st, 1999 and 1998, and the related statements of income, of changes in shareholders' equity and of changes in financial position for the years then ended, all prepared under the responsibility of the management. Our responsibility is to issue an opinion on these financial statements, based on our audit. 2. Except for the subject on paragraph 3, we conducted our audit in accordance with Brazilian generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test-basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used, internal control systems and significant estimates made by the management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. 3. The Company has calculated the depletion on the forests, which net amount at December 31st, 1999 is R$3,859 (R$3,998 at 1998), considering the straight-line method and the rate of 10% per annum. Brazilian generally accepted accounting principles require that depletion on the forest should be calculated considering the amount of wood extracted in relation to the total potential of extraction of the referred forests. The possible effects related to the deviation of accounting principles has not been measured at the balance sheet dates. 4. Exercising the permission contained in the Deliberation 294 of the Brazilian Securities Exchange Commission -- CVM (the Comissao de Valores Mobiliarios), as of March 26, 1999, the company recorded the negative net effect from exchange variation for the 3 months period ended on March 31, 1999 as a deferred asset. Brazilian generally accepted accounting principles request that exchange variations to be registered as expense on the period of their occurrence. Consequently, the permanent assets (deferred assets) and the shareholders' equity as of December 31, 1999 and the net income for the year then ended are overstated in an amount of R$6,190 thousand. B-25 TREVISAN THE GLOBAL SOLUTION A FREE TRANSLATION OF THE ORIGINAL IN PORTUGUESE, ISSUED IN JANUARY 18, 2000, ON FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH BRAZILIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. INDEPENDENT AUDITORS' REPORT The Shareholders and Management Nova Era Silicon S.A. 5. In our opinion, except for the possible effects regarding the subject mentioned in the paragraph 3, and the effects of the exchange variation deferred, mentioned in the paragraph 4, the financial statements referred to in paragraph 1 present fairly, in all material respects, the financial position of Nova Era Silicon S.A. as of December 31, 1999 and 1998, the results of its operations, the changes in its shareholders' equity and in financial position for the years then ended, in accordance to accounting practices prescribed by the Brazilian Corporate law. Belo Horizonte, Brazil January 18th, 2000 (except for the subject mentioned on the paragraph 3 that is dated on January 31st, 2002) /s/ LUIZ CLAUDIO FONTES Luiz Claudio Fontes Socio-contador CRC 1RJ032470/O-9 "I" PR "S" MG Trevisian Auditores Independentes CRC 2SP013439/O-5 "S" MG B-26 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT AUDITORS' OPINION To The Stockholders and Board of Directors CELMAR S.A. -- Industria de Celulose e Papel Imperatriz - Maranhao 1. We have audited the balance sheets of CELMAR S.A. -- Industria de Celulose e Papel as of December 31, 2000, and the related statements of operations, changes in stockholders' equity and changes in financial position for the years then ended (all expressed in Brazilian Reais). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. 2. We conducted our audits in accordance with auditing standards generally accepted in Brazil, and included: (a) planning the audit, considering the materiality of the amounts presented, the number of transactions and the Company's accounting and internal control systems; (b) examining, on a test basis, the evidence supporting the amounts and disclosures in the financial statements; and (c) the assessment of the accounting principles used and of the significant estimates made by management, as well as the presentation of the financial statements taken as a whole. 3. In our opinion, the financial statements referred to the first paragraph present fairly, in all material respects, the financial position of CELMAR S.A. -- Industria de Celulose e Papel as of December 31, 2000, and the results of its operations, changes in its stockholders' equity and changes in its financial position for the years then ended, in conformity with the Brazilian corporate law. 4. The Company is in the pre-operating phase. In order to take advantage of new technology that would allow the optimization of industrial production capacity, the production activities start-up was postponed. As described in the first paragraph to the financial statements, the Company's management is endeavoring, primarily, to obtain financial resources that will enable the Company to increase the forestry capacity of the project. The continuity as well as the recovery of the costs already invested in the project depends on the obtaining of these resources. 5. The financial statements of CELMAR S.A. -- Industria de Celulose e Papel for the year ended December 31, 1999 were audited by other auditors, whose report, dated January 14, 2000, expressed an unqualified opinion included the same emphasis as that described in the previous paragraph. 6. The translation of the financial statements into English have been made solely for the convenience of readers outside of Brazil. Rio De Janeiro, January 19, 2001 /s/ DELOITTE TOUCHE TOHMATSU /s/ MARCELO C. ALMEIDA DELOITTE TOUCHE TOHMATSU MARCELO C. ALMEIDA Independent Auditors Certified Accountant CRC-SP 11.609 S/RJ CRC/RJ 36.206-3
B-27 DELOITTE TOUCHE TOHMATSU AVENIDA TANCREDO NEVES 1.283-SI. 401/402 EDIFICIO EMPRESARIAL OMEGA 41820-021 SALVADOR - BA BRASIL TEL: (71) 341-4454 FAX: (71 341-0541 WWW.DELOITTE.COM.BR [DELOITTE TOUCHE TOHMATSU LOGO] (Convenience Translation into English from the Original Previously Issued in Portuguese) INDEPENDENT AUDITORS' REPORT To the Shareholders, Administrative Council and Directors of SIBRA -- ELETROSIDERURGICA BRASILEIRA S.A. Simoes Filho - BA 1. We have audited the accompanying balance sheet of SIBRA -- ELETROSIDERURGICA BRASILEIRA S.A., Parent Company and Consolidated, as of December 31, 2000, and the related statements of income, changes in shareholders' equity (Parent Company) and changes in financial position for the year then ended (all expressed in thousands of Brazilian Reais) which were prepared under the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. 2. We conducted our audit in accordance with auditing standards generally accepted in Brazil. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. The accompanying financial statements have been translated into the English language from those issued in Portuguese and in all respects follow Brazilian generally accepted accounting principles and reporting practices. The effects of the differences between generally accepted accounting principles as established by Brazilian Corporate Law and the accounting principles generally accepted in the countries in which the accompanying financial statements are to be used have not been quantified. Accordingly, the accompanying financial statements are not intended to present financial position, results of operations and changes in financial position in accordance with accounting principles generally accepted in the countries of users of the financial statements other than Brazil. 4. In our opinion, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of SIBRA -- ELETROSIDERURGICA BRASILEIRA S.A. as of December 31, 2000, Parent Company and Consolidated, the results of its operations, changes in its shareholder's equity and changes in its financial position for the year then ended in conformity with accounting principles established by Brazilian Corporate Law. 5. As mentioned in notes 15 and 17, the Company and its subsidiary Companhia Paulista de Ferro-Ligas, have received a Public Civil Environment Suit and a Notice of Violation questioning certain procedures for federal taxes and several legal actions, which currently are in process. Based on the opinion of its lawyers that the Company will be successful in these processes, no provisions were made. B-28 6.The financial statements corresponding to the period ending on December 31, 1999, presented for comparative reasons, were audited by us, and our opinion, dated February 24, 2000, contained an emphasis paragraph concerning the matters below: - - The Company's administration introduced a series of operational and financial restructuring measures, with the objective of reestablishing the economic and financial equilibrium of the Company and its subsidiaries, and the financial statements were prepared based on the presumed success of these measures. In 2000, these measures were concluded; - - the Company and its subsidiary, Companhia Paulista de Ferro-Ligas, hold loans with subsidiary companies and shareholders in the amount of R$ 10,537 thousand, parent company and R$ 35,975 thousand, consolidated, R$ 4,054 thousand and R$ 4,500 thousand, consolidated, respectively, registered under long term liabilities. In 2000, R$ 12,056 thousand, in loans with shareholders were capitalized and the other loans with shareholders and subsidiaries, ICMS and IPI, are being used in the operations; - - on December 31, 1999 the subsidiary, Companhia Paulista de Ferro-Ligas had overdue loans for which the parent company recognized a provision equivalent to its stock participation. On March 31, 2000, the subsidiary reverted the situation of deficiency in Shareholder's equity. Salvador, January 22, 2001 /s/ DELOITTE TOUCHE TOHMATSU /s/ JOSE OTHON TAVARES DE ALMEIDA Auditores Independentes Accountant CRC -- SP 011.609/O-8-F "BA" CRC -- BA 013.212/O
B-29 INDEX TO REVIEW REPORTS FROM INDEPENDENT ACCOUNTANTS LISTED IN NOTE 20 TO OUR CONSOLIDATED INTERIM FINANCIAL STATEMENTS Report of Deloitte Touche Tohmatsu dated October 23, 2001 with respect to the financial statements of Albras for the nine-month periods ended September 30, 2001 and 2000...... C-2 Report of Deloitte Touche Tohmatsu dated October 23, 2001 with respect to the financial statements of Alunorte for the nine-month periods ended September 30, 2001 and 2000...................................................... C-3 Report of KPMG Auditores Independentes dated October 18, 2000 with respect to the financial statements of Bahia Sul for the nine-month periods ended September 30, 2000 and 1999...................................................... C-4 Report of Deloitte Touche Tohmatsu dated November 1, 2001 with respect to the financial statements of Cenibra for the nine-month periods ended September 30, 2001 and 2000...................................................... C-5 Report of Deloitte Touche Tohmatsu dated October 22, 2001 with respect to the financial statements of Docenave for the nine-month periods ended September 30, 2001 and 2000...................................................... C-6 Report of Deloitte Touche Tohmatsu dated October 22, 2001 with respect to the financial statements of Docepar for the nine-month periods ended September 30, 2001 and 2000...................................................... C-7 Report of Arthur Andersen S/C dated October 19, 2001 with respect to the financial statements of Hispanobras for the nine-month periods ended September 30, 2001 and 2000...... C-8 Report of Arthur Andersen S/C dated October 19, 2001 with respect to the financial statements of Itabrasco for the nine-month periods ended September 30, 2001 and 2000...... C-9 Report of Deloitte Touche Tohmatsu dated October 19, 2001 with respect to the financial statements of Kobrasco for the nine-month periods ended September 30, 2001 and 2000...................................................... C-10 Report of Arthur Andersen S/C dated October 22, 2001 with respect to the financial statements of MRN for the nine-month periods ended September 30, 2001 and 2000...... C-11 Report of Deloitte Touche Tohmatsu dated October 19, 2001 with respect to the financial statements of Nibrasco for the nine-month periods ended September 30, 2001 and 2000...................................................... C-12 Report of KPMG Auditores Independentes dated October 19, 2001 with respect to the financial statements of Valesul for the nine-month periods ended September 30, 2001 and 2000...................................................... C-13 Report of Arthur Andersen S/C dated October 20, 2000 with respect to the financial statements of CSN for the nine-month period ended September 30, 2000................ C-14
C-1 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT ACCOUNTANTS' REPORT To the Directors and Stockholders of ALBRAS -- Aluminio Brasileiro S.A. Barcarena -- PA We have reviewed the accompanying balance sheets of ALBRAS - Aluminio Brasileiro S.A. as of September 30, 2001 and 2000, and the related statements of operations, changes in stockholders' deficiency and cash flows for the nine-month periods then ended (all expressed in United States dollars). These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to such financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE TOUCHE TOHMATSU October 23, 2001 C-2 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT ACCOUNTANTS' REPORT To the Directors and Stockholders ALUNORTE -- Alumina do Norte do Brasil S.A. Barcarena -- PA We have reviewed the accompanying balance sheets of ALUNORTE -- Alumina do Norte do Brasil S.A. as of September 30, 2001 and 2000, and the related statements of operations, changes in stockholders' equity and cash flows for the nine-month periods then ended (all expressed in United States dollars). These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquires of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to such financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE TOUCHE TOHMATSU October 23, 2001 C-3 [KPMG LOGO] KPMG AUDITORES INDEPENDENTES Mail address Office address Caixa Postal 2467 R.Dr. Renato Paes de Barros, 33 Central Tel 44 (11) 3067 3000 01060-970 Sao Paulo SP 04530-904 Sao Paulo SP Fax National (11) 3079 3752 Brasil Brasil International 55 (11) 3079 2916
INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors and Shareholders of Bahia Sul Celulose S.A. We have reviewed the accompanying consolidated balance sheet of Bahia Sul Celulose S.A. and subsidiaries as of September 30, 2000 and the related consolidated statements of operations, shareholders' equity and comprehensive income (loss) and cash flows for the nine-month periods ended September 30, 2000 and 1999. These consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with United States generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Bahia Sul Celulose S.A. and its subsidiaries as of December 31, 1999. We also have audited the consolidated statements of operations, changes in shareholders' equity and comprehensive income, and cash flows for the year then ended not presented herein. In our report dated January 20, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the selected information set forth in the accompanying consolidated balance sheet as of December 31, 1999 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Sao Paulo, Brazil /s/ KPMG Auditores Independentes October 18, 2000 C-4 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT ACCOUNTANTS' REVIEW REPORT To the Shareholders and Directors of Celulose Nipo-Brasileira S/A -- CENIBRA Belo Oriente/MG We have reviewed the accompanying consolidated balance sheets of Celulose Nipo-Brasileira S/A -- CENIBRA as of September 30, 2001 and 2000, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the nine-month periods then ended (all expressed in United States dollars). These consolidated financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE TOUCHE TOHMATSU November 1, 2001 C-5 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT ACCOUNTANTS' REVIEW REPORT To the Board of Directors and Stockholders Navegacao Vale do Rio Doce S.A. -- DOCENAVE Rio de Janeiro -- RJ We have reviewed the accompanying consolidated balance sheets of Navegacao Vale do Rio Doce S.A. -- DOCENAVE and subsidiaries as of September 30, 2001 and 2000 and the related consolidated statements of operations, cash flows and changes in stockholders' equity for the nine-month periods then ended (all expressed in United States dollars). These consolidated financial statements are the responsibility of the Company's management. Except as discussed in the following paragraph, we conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. The financial statements of the affiliated company, Wilsea Shipping, Inc., in which the Company's investment is accounted for by use of the equity method, were not reviewed by us or other accountants. The Company's equity and accounts receivable from the aforementioned affiliated company total US$946,000 and US$26,391,000 as of September 30, 2001 and 2000, respectively, and the net loss for the nine-month periods ended September 30, 2001 and 2000 totals US$314,000 and US$1,577,000, respectively. Based on our reviews, excepted for the effects of adjustments, if any, as might have been determined to be necessary had the affiliated company's financial statements referred to above been reviewed by independent accountants, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE TOUCHE TOHMATSU October 22, 2001 C-6 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT ACCOUNTANTS' REPORT To The Board of Directors and Stockholders of DOCEPAR S.A. Rio de Janeiro -- RJ Brazil We have reviewed the accompanying balance sheets of DOCEPAR S.A. as of September 30, 2001 and 2000 and the related statements of operations, cash flows and changes in stockholders' equity (deficiency) for the nine-month periods then ended (all expressed in United States dollars). These financial statements are the responsibility of the Company's management. We were furnished with the report of other accountants on their review of the interim financial information of the affiliated company, Companhia Siderurgica Nacional-CSN for the nine-month period ended September 30, 2000, in which the Company's investment was accounted for by use of equity method. The Company's gain related to the aforementioned affiliated company totals US$4,189,000 for the nine-month period ended September 30, 2000. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews and the report of the other accountants, we are not aware of any material modifications that should be made to such financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE TOUCHE TOHMATSU October 22, 2001 C-7 [ARTHUR ANDERSEN LOGO] REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Companhia Hispano-Brasileira de Pelotizacao -- Hispanobras: (1) We have reviewed the accompanying balance sheets of COMPANHIA HISPANO-BRASILEIRA DE PELOTIZACAO -- HISPANOBRAS (a Brazilian corporation and a subsidiary of Companhia Vale do Rio Doce), translated into U.S. dollars, as of September 30, 2001 and 2000, and the related translated statements of income, changes in stockholders' equity and cash flows for the nine-month periods then ended. These financial statements are the responsibility of the Company's management. (2) We conducted our audits in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. (3) These translated financial statements have been prepared as the basis for application of the equity method by its stockholders and, accordingly, they translate the assets, liabilities, stockholders' equity and revenues and expenses of Companhia Hispano-Brasileira de Pelotizacao -- Hispanobras for that purpose, as explained in Note 2. (4) Based on our review, we are not aware of any material modification that should be made to the accompanying financial statements referred to above for them to be in conformity with generally accepted accounting principles in the United States of America. /s/ Arthur Andersen S/C Vitoria, Brazil, October 19, 2001 C-8 [ARTHUR ANDERSEN LOGO] REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Companhia Italo-Brasileira de Pelotizacao -- ITABRASCO: (1) We have reviewed the accompanying balance sheets of COMPANHIA ITALO-BRASILEIRA DE PELOTIZACAO-ITABRASCO (a Brazilian corporation and a subsidiary of Companhia Vale do Rio Doce), translated into U.S. dollars, as of September 30, 2001 and 2000, and the related translated statements of income, changes in stockholders' equity and cash flows for the nine-month periods then ended. These financial statements are the responsibility of the Company's management. (2) We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. (3) These translated financial statements have been prepared as the basis for application of the equity method by its stockholders and, accordingly, they translate the assets, liabilities, stockholders' equity and revenues and expenses of Companhia Italo-Brasileira de Pelotizacao -- Itabrasco for that purpose, as explained in Note 2. (4) Based on our review, we are not aware of any material modification that should be made to the accompanying financial statements referred to above for them to be in conformity with generally accepted accounting principles in the United States of America. Vitoria, Brazil /s/ Arthur Andersen S/C October 19, 2001 C-9 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT ACCOUNTANTS' REVIEW REPORT To the Board of Directors and Stockholders of Companhia Coreano -- Brasileira de Pelotizacao -- KOBRASCO Vitoria, Brazil We have reviewed the accompanying consolidated balance sheets of Companhia Coreano-Brasileira de Pelotizacao -- KOBRASCO as of September 30, 2001 and 2000, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the nine-month periods then ended (all expressed in United States dollars). These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to such financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE TOUCHE TOHMATSU October 19, 2001 C-10 [ARTHUR ANDERSEN LOGO] REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Mineracao Rio do Norte S.A.: (1) We have reviewed the accompanying balance sheets of MINERACAO RIO DO NORTE S.A. (a Brazilian corporation), translated into U.S. dollars, as of September 30, 2001 and 2000, and the related translated statements of income, changes in stockholders' equity and cash flows for the nine-month periods then ended. These financial statements are the responsibility of the Company's management. (2) The interim financial statements of the associated company Alunorte -- Alumina do Norte do Brasil S.A. as of September 30, 2001 and 2000 were reviewed by other auditors. This investment represents 2.10% (3.28% in 2000) of the total assets and 100% of the equity adjustment (100% in 2000). Our review of such investment is based solely on the report of the other auditors. (2) We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. (4) These translated financial statements have been prepared as the basis for application of the equity method by the Company's stockholders and, accordingly, they translate the assets, liabilities, stockholders' equity and revenues and expenses of Mineracao Rio do Norte S.A. for that purpose, as explained in Note 2. (5) Based on our review and on the report of other auditors, as mentioned in paragraph (2), we are not aware of any material modifications that should be made to the financial statements referred to in paragraph (1) for them to be in conformity with generally accepted accounting principles in the United States. Rio de Janeiro, Brazil, October 22, 2001. /s/ ARTHUR ANDERSEN S/C C-11 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22 degrees 20030-021 -- Rio de Janeiro -- RJ Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br [DELOITTE TOUCHE TOHMATSU LOGO] INDEPENDENT ACCOUNTANTS' REVIEW REPORT To the Board of Directors and Stockholders of Companhia Nipo-Brasileira de Pelotizacao -- NIBRASCO Vitoria, Brazil We have reviewed the accompanying balance sheets of Companhia Nipo-Brasileira de Pelotizacao - NIBRASCO as of September 30, 2001 and 2000, and the related statements of operations, changes in stockholders' equity and cash flows for the nine-month periods then ended (all expressed in United States dollars). These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to such financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE TOUCHE TOHMATSU October 19, 2001 C-12 INDEPENDENT ACCOUNTANTS' REVIEW REPORT The Board of Directors of Valesul Aluminio S.A. We have reviewed the accompanying balance sheets of Valesul Aluminio S.A. as of September 30, 2001 and 2000 and the related income statements, changes in stockholders' equity and comprehensive income/losses and cash flows for the nine-month periods then ended. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with auditing standards generally accepted in Brazil and in the United States of America. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles in the United States of America. As more fully described in Notes 4 and 8 to the financial statements, the company has adjusted its property, plant and equipment and deferred income taxes accounting balances as a result of corrections of errors. Consequently, the Company's financial statements for 2001 and 2000 referred to above have been restated to conform with these adjustments. /s/ KPMG Auditores Independentes Rio de Janeiro, October 19, 2001, except for notes 4 and 8, which date is January 17, 2002 C-13 [ARTHUR ANDERSEN LOGO] REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Companhia Siderurgica Nacional 1. We have reviewed the accompanying condensed consolidated balance sheet of Companhia Siderurgica Nacional (a Brazilian corporation) and subsidiaries, translated into U.S. dollars, as of September 30, 2000, and the related translated condensed consolidated statements of operations, cash flows and changes in stockholders' equity for the nine-month period then ended. These financial statements are the responsibility of the Company's management. 2. The financial statements of the affiliate CVRD -- Companhia Vale do Rio Doce as of September 30, 2000 and 1999 were reviewed by other accountants. This investment represents 14% of the total assets (15% in 1999) and 38% of net income (28% of net loss in 1999). Our report on such investment is based solely on the report of other auditors. 3. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. 4. Based on our review and the report of other auditors, as mentioned in paragraph (2), we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles in the United States. 5. The balance sheet as of December 31, 1999, presented for comparison purposes only, was audited by us, and our report dated February 15, 2000 was unqualified. The condensed consolidated statements of operations, cash flows and changes in stockholders' equity for the nine-month period ended September 30, 1999, also presented for comparison purposes, was reviewed by us and our report dated October 22, 1999 was unqualified. /s/ Arthur Andersen S/C Rio de Janeiro, Brazil, October 20, 2000 (except for Note 11, as to which the date is January 11, 2001) C-14 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS The laws of the Cayman Islands do not provide for indemnification of directors and officers. Article 131 of Vale Overseas' Memorandum and Articles of Association provide that Vale Overseas shall indemnify officers and directors and their personal representatives against all actions, proceedings costs, charges, expenses, losses, damages or liabilities incurred or sustained in or about the conduct of Vale Overseas' business or affairs or in the execution or discharge of their duties, powers, authorities or discretions, including any costs, expenses, losses or liabilities incurred in defending any civil proceedings concerning Vale Overseas in the Cayman Islands or elsewhere. Article 132 of Vale Overseas' Memorandum and Articles of Association provides that no officer or director shall be liable for acts, omissions, losses, damages or other misfortune arising from their execution or discharge of duties, powers, authorities, discretions of office or in relation thereto, unless resulting from the officer's or director's dishonesty. Neither the laws of Brazil nor the CVRD's by-laws or other constitutive documents provide for indemnification of directors and officers. CVRD maintains standard policies of insurance under which coverage is provided (a) to its directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act, and (b) to the Registrant with respect to payments which may be made by the Registrant to such officers and directors pursuant to the above indemnification provision or otherwise as a matter of law. ITEM 21. EXHIBITS The following documents are filed as part of this Registration Statement:
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1 Registration Rights Agreement dated as of March 8, 2002 among Vale Overseas Limited, Companhia Vale do Rio Doce and J.P. Morgan Securities Inc., Banco Bilbao Vizcaya Argentoria, S.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith Barney Inc., as Initial Purchasers. 3.1 Memorandum and Articles of Association of Vale Overseas Limited. 3.2 Instrument corresponding to Articles of Incorporation and By-laws, as revised on April 25, 2001 (English translation)(incorporated by reference to CVRD's Annual Report on Form 20-F, as amended, for the fiscal year ended December 31, 2000 (File No. 000-26030)). 4.1 Indenture, dated as of March 8, 2002 among Vale Overseas Limited, Companhia Vale do Rio Doce and JPMorgan Chase Bank, as Trustee. 4.2 First Supplemental Indenture, dated as of March 8, 2003, among Vale Overseas Limited, Companhia Vale do Rio Doce and JPMorgan Chase Bank, as Trustee. 5.1 Opinion of Davis Polk & Wardwell with respect to the new securities. 5.2 Opinion of Paulo Francisco de Almeida Lopes, general counsel of CVRD, with respect to authorization of the new notes and the enforcement of civil liabilities in Brazil. 5.3 Opinion of Walkers with respect to authorization of the new notes and the enforcement of civil liabilities in the Cayman Islands. 10.1 Account Control Agreement dated as of March 8, 2002 among Vale Overseas Limited, as Pledgor, JPMorgan Chase Bank, as Secured Party, and JPMorgan Chase Bank, as Bank and Securities Intermediary. 12 Computation of Ratio of Earnings to Fixed Charges. 15.1 Awareness Letter of PricewaterhouseCoopers Auditores Independentes for the nine months periods ended September 30, 2001 and 2000 (CVRD).
II-1
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 15.2 Awareness Letter of Deloitte Touche Tohmatsu for the nine-month periods ended September 30, 2001 and 2000 (Albras). 15.3 Awareness Letter of Deloitte Touche Tohmatsu for the nine-month period ended September 30, 2001 and 2000 (Alunorte). 15.4 Awareness Letter of KPMG Auditores Independentes for the nine-month periods ended September 30, 2000 and 1999 (Bahia Sul). 15.5 Awareness Letter of Deloitte Touche Tohmatsu for the nine-month periods ended September 30, 2001 and 2000 (Cenibra). 15.6 Awareness Letter of Deloitte Touche Tohmatsu for the nine-month periods ended September 30, 2001 and 2000 (Docenave). 15.7 Awareness Letter of Deloitte Touche Tohmatsu for the nine-month periods ended September 30, 2001 and 2000 (Docepar). 15.8 Awareness Letter of Arthur Andersen S/C for the nine-month periods ended September 30, 2001 and 2000 (Hispanobras). 15.9 Awareness Letter of Arthur Andersen S/C for the nine-month periods ended September 30, 2001 and 2000 (Itabrasco). 15.10 Awareness Letter of Deloitte Touche Tohmatsu for the nine-month periods ended September 30, 2001 and 2000 (Kobrasco). 15.11 Awareness Letter of Arthur Andersen S/C for the nine-month periods ended September 30, 2001 and 2000 (MRN). 15.12 Awareness Letter of Deloitte Touche Tohmatsu for the nine-month periods ended September 30, 2001 and 2000 (Nibrasco). 15.13 Awareness Letter of KPMG Auditores Independentes for the nine-month periods ended September 30, 2001 and 2000 (Valesul). 15.14 Awareness Letter of Arthur Andersen S/C for the nine-month period ended September 30, 2000 (CSN). 23.1 Consent of PricewaterhouseCoopers Auditores Independentes for the three years ended December 31, 2000, 1999 and 1998 (CVRD). 23.2 Consents of Deloitte Touche Tohmatsu for the three years ended December 31, 2000, 1999 and 1998 (Albras). 23.3 Consents of Deloitte Touche Tohmatsu for the three years ended December 31, 2000, 1999 and 1998 (Alunorte). 23.4 Consents of Deloitte Touche Tohmatsu for the three years ended December 31, 2000, 1999 and 1998 (Aluvale). 23.5 Consent of KPMG Auditores Independentes for the three years ended December 31, 2000, 1999 and 1998 (Bahia Sul). 23.6 Consent of KPMG LLP for the three years ended December 31, 2000, 1999 and 1998 (CSI). 23.7 Consents of Deloitte Touche Tohmatsu for the two years ended December 31, 2000 and 1999 (Cenibra). 23.8 Consents of Deloitte Touche Tohmatsu for the three years ended December 31, 2000, 1999 and 1998 (Docenave). 23.9 Consent of Deloitte Touche Tohmatsu for the two years ended December 31, 2000 and 1999 (Docepar). 23.10 Consent of Arthur Andersen S/C for the three years ended December 31, 2000, 1999 and 1998 (Hispanobras). 23.11 Consent of Arthur Andersen S/C for the three years ended December 31, 2000, 1999 and 1998 (Itabrasco). 23.12 Consent of Deloitte Touche Tohmatsu for the year ended December 31, 2000 (Kobrasco).
II-2
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 23.13 Consents of Arthur Andersen S/C for the three years ended December 31, 2000, 1999 and 1998 (MRN). 23.14 Consents of Deloitte Touche Tohmatsu for the three years ended December 31, 2000, 1999 and 1998 (Nibrasco). 23.15 Consent of KPMG Auditores Independentes for the two years ended December 31, 2000 and 1999 (Valesul). 23.16 Consent of Deloitte Touche Tohmatsu for the year ended December 31, 1998 and 1997 (Valesul). 23.17 Consent of Arthur Andersen S/C for the years ended December 31, 2000 and 1999 (CSN). 23.18 Consents of Deloitte Touche Tohmatsu for the three years ended December 31, 2000, 1999, and 1998. (Terminal Vila Velha S.A.). 23.19 Consent of Deloitte Touche Tohmatsu for the year ended December 31, 2000. (Nova Era Silicon S.A.). 23.20 Consent of Trevisan for the two years ended December 31, 1999 and 1998. (Nova Era Silicon S.A.). 23.21 Consent of Deloitte Touche Tohmatsu for the year ended December 31, 2000. (Celmar S.A.-Industria de Celulose e Papel). 23.22 Consent of Deloitte Touche Tohmatsu for the year ended December 31, 2000. (SIBRA Eletrosiderurgica Brasileira S.A.). 23.23 Consent of Mineral Resources Development, Inc. 23.24 Consent of PricewaterhouseCoopers (Vale Overseas Limited). 23.25 Consent of Davis Polk & Wardwell (included in Exhibit 5.1). 23.26 Consent of Paulo Francisco de Almeida Lopes (included in Exhibit 5.2). 23.27 Consent of Walkers (included in Exhibit 5.3). 24.1 Power of Attorney (included in page II-5). 25.1 Statement of Eligibility under the Trust Indenture Act of 1939 on Form T-1 of JPMorgan Chase Bank, at Trustee. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Letter to Clients. 99.4 Form of Letter to Nominees. 99.5 Form of Instructions to Registered Holder and/or Book-Entry Transfer Participant from Owner. 99.6 Form of Exchange Agent Agreement.
- --------------- ITEM 22. UNDERTAKINGS (a) Each co-registrant hereby undertakes: (1) For purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such II-3 indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by one of our directors, officers or controlling persons in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (c) Each co-registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b) or 11 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (d) Each co-registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction that was not the subject of and included in the registration statement when it became effective. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Vale Overseas Limited has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Georgetown, Cayman Islands, on March 21, 2002. VALE OVERSEAS LIMITED By: /s/ TITO BOTELHO MARTINS ------------------------------------ Name:Tito Botelho Martins Title:Director By: /s/ FRANCISCO ROHAN DE LIMA ------------------------------------ Name:Francisco Rohan de Lima Title:Director KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gabriel Stoliar, Tito Botelho Martins and Francisco Rohan de Lima, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in capacities, to sign any and all amendments (including post-effective amendments) to this registration statement and all additional registration statements pursuant to Rule 462(b) of the Securities Act of 1933, as amended, the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agents full power and authority to do and perform each and every act in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ GABRIEL STOLIAR Director March 21, 2002 ------------------------------------------------ (Principal Executive Officer) Gabriel Stoliar /s/ TITO BOTELHO MARTINS Director March 21, 2002 ------------------------------------------------ (Principal Financial and Tito Botelho Martins Accounting Officer) /s/ FRANCISCO ROHAN DE LIMA Director March 21, 2002 ------------------------------------------------ Francisco Rohan de Lima /s/ ARMANDO DE OLIVEIRA SANTOS NETO Authorized Representative in the March 21, 2002 ------------------------------------------------ United States Armando de Oliveira Santos Neto
II-5 Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Rio de Janeiro, Brazil, on the 21st day of March, 2002. COMPANHIA VALE DO RIO DOCE By: /s/ ROGER AGNELLI ------------------------------------ Name: Roger Agnelli Title: Chief Executive Officer By: /s/ GABRIEL STOLIAR ------------------------------------ Name: Gabriel Stoliar Title: Executive Officer II-6 KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Roger Agnelli, Tito Botelho Martins, Francisco Rohan de Lima and Paulo Francisco de Almeida Lopes, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement and any and all additional registration statements pursuant to Rule 462(b) of the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agents full power and authority to do and perform each and every act in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ ROGER AGNELLI Director and Chief Executive March 21, 2002 ------------------------------------------------ Officer Roger Agnelli /s/ LUIZ TARQUiNIO SARDINHA FERRO Board Member March 21, 2002 ------------------------------------------------ Luiz Tarquinio Sardinha Ferro Board Member March 21, 2002 ------------------------------------------------ Octavio Lopes Castello Branco Neto Board Member March 21, 2002 ------------------------------------------------ Octavio Mauro Muniz Freire Alves Board Member March 21, 2002 ------------------------------------------------ Romeu do Nascimento Teixeira /s/ RENATO DA CRUZ GOMES Board Member March 21, 2002 ------------------------------------------------ Renato da Cruz Gomes /s/ JOAO MOISES DE OLIVEIRA Board Member March 21, 2002 ------------------------------------------------ Joao Moises de Oliveira /s/ FABIO DE OLIVEIRA BARBOSA Board Member March 21, 2002 ------------------------------------------------ Fabio de Oliveira Barbosa /s/ FRANCISCO VALADARES POVOA Board Member March 21, 2002 ------------------------------------------------ Francisco Valadares Povoa /s/ GABRIEL STOLIAR Executive Officer (Chief Financial March 21, 2002 ------------------------------------------------ and Accounting Officer) Gabriel Stoliar /s/ ARMANDO DE OLIVEIRA SANTOS NETO Authorized Representative in the March 21, 2002 ------------------------------------------------ United States Armando de Oliveira Santos Neto
II-7 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1 Registration Rights Agreement dated as of March 8, 2002 among Vale Overseas Limited, Companhia Vale do Rio Doce and J.P. Morgan Securities Inc., Banco Bilbao Vizcaya Argentoria, S.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith Barney Inc., as Initial Purchasers. 3.1 Memorandum and Articles of Association of Vale Overseas Limited. 3.2 Instrument corresponding to Articles of Incorporation and By-laws, as revised on April 25, 2001 (English translation)(incorporated by reference to CVRD's Annual Report on Form 20-F, as amended, for the fiscal year ended December 31, 2000 (File No. 000-26030)). 4.1 Indenture, dated as of March 8, 2002, among Vale Overseas Limited, Companhia Vale do Rio Doce and JP Morgan Chase Bank, as Trustee. 4.2 First Supplemental Indenture, dated as of March 8, 2002, among Vale Overseas Limited, Companhia Vale do Rio Doce and JP Morgan Chase Bank, as Trustee. 5.1 Opinion of Davis Polk & Wardwell with respect to the new securities. 5.2 Opinion of Paulo Francisco de Almeida Lopes, general counsel of CVRD, with respect to authorization of the new notes and the enforcement of civil liabilities in Brazil. 5.3 Opinion of Walkers with respect to authorization of the new notes and the enforcement of civil liabilities in the Cayman Islands. 10.1 Account Control Agreement dated as of March 8, 2002 among Vale Overseas Limited, as Pledgor, JPMorgan Chase Bank, as Secured Party, and JPMorgan Chase Bank, as Bank and Securities Intermediary. 12 Computation of Ratio of Earnings to Fixed Charges. 15.1 Awareness Letter of PricewaterhouseCoopers for the nine-month periods ended September 30, 2001 and 2000 Auditores Independentes (CVRD). 15.2 Awareness Letter of Deloitte Touche Tohmatsu for the nine-month periods ended September 30, 2001 and 2000 (Albras). 15.3 Awareness Letter of Deloitte Touche Tohmatsu for the nine-month periods ended September 30, 2001 and 2000 (Alunorte). 15.4 Awareness Letter of KPMG Auditores Independentes for the nine-month periods ended September 30, 2000 and 1999 (Bahia Sul). 15.5 Awareness Letter of Deloitte Touche Tohmatsu for the nine-month periods ended September 30, 2001 and 2000 (Cenibra). 15.6 Awareness Letter of Deloitte Touche Tohmatsu for the nine-month periods ended September 30, 2001 and 2000 (Docenave). 15.7 Awareness Letter of Deloitte Touche Tohmatsu for the nine-month periods ended September 30, 2001 and 2000 (Docepar). 15.8 Awareness Letter of Arthur Andersen S/C for the nine-month periods ended September 30, 2001 and 2000 (Hispanobras). 15.9 Awareness Letter of Arthur Andersen S/C for the nine-month periods ended September 30, 2001 and 2000 (Itabrasco). 15.10 Awareness Letter of Deloitte Touche Tohmatsu for the nine-month periods ended September 30, 2001 and 2000 (Kobrasco). 15.11 Awareness Letter of Arthur Andersen S/C for the nine-month periods ended September 30, 2001 and 2000 (MRN). 15.12 Awareness Letter of Deloitte Touche Tohmatsu for the nine-month periods ended September 30, 2001 and 2000 (Nibrasco). 15.13 Awareness Letter of KPMG Auditores Independentes for the nine-month periods ended September 30, 2001 and 2000 (Valesul). 15.14 Awareness Letter of Arthur Andersen S/C for the nine-month period ended September 30, 2000 (CSN). 23.1 Consent of PricewaterhouseCoopers Auditores Independentes for the three years ended December 31, 2000, 1999 and 1998 (CVRD) 23.2 Consents of Deloitte Touche Tohmatsu for the three years ended December 31, 2000, 1999 and 1998 (Albras).
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 23.3 Consents of Deloitte Touche Tohmatsu for the three years ended December 31, 2000, 1999 and 1998 (Alunorte). 23.4 Consents of Deloitte Touche Tohmatsu for the three years ended December 31, 2000, 1999 and 1998 (Aluvale). 23.5 Consent of KPMG Auditores Independentes for the three years ended December 31, 2000, 1999 and 1998 (Bahia Sul). 23.6 Consent of KPMG LLP for the three years ended December 31, 2000, 1999 and 1998 (CSI). 23.7 Consents of Deloitte Touche Tohmatsu for the two years ended December 31, 2000 and 1999 (Cenibra). 23.8 Consents of Deloitte Touche Tohmatsu for the three years ended December 31, 2000, 1999 and 1998 (Docenave). 23.9 Consent of Deloitte Touche Tohmatsu for the two years ended December 31, 2000 and 1999 (Docepar). 23.10 Consent of Arthur Andersen S/C for the three years ended December 31, 2000, 1999 and 1998 (Hispanobras). 23.11 Consent of Arthur Andersen S/C for the three years ended December 31, 2000, 1999 and 1998 (Itabrasco). 23.12 Consent of Deloitte Touche Tohmatsu for the year ended December 31, 2000 (Kobrasco). 23.13 Consents of Arthur Andersen S/C for the three years ended December 31, 2000, 1999 and 1998 (MRN). 23.14 Consents of Deloitte Touche Tohmatsu for the three years ended December 31, 2000, 1999 and 1998 (Nibrasco). 23.15 Consent of KPMG Auditores Independentes for the two years ended December 31, 2000 and 1999 (Valesul). 23.16 Consent of Deloitte Touche Tohmatsu for the year ended December 31, 1998 and 1997 (Valesul). 23.17 Consent of Arthur Andersen S/C for the years ended December 31, 2000 and 1999 (CSN). 23.18 Consents of Deloitte Touche Tohmatsu for the three years ended December 31, 2000, 1999, and 1998. (Terminal Vila Velha S.A.). 23.19 Consent of Deloitte Touche Tohmatsu for the year ended December 31, 2000. (Nova Era Silicon S.A.). 23.20 Consent of Trevisan for the two years ended December 31, 1999 and 1998. (Nova Era Silicon S.A.). 23.21 Consent of Deloitte Touche Tohmatsu for the year ended December 31, 2000. (Celmar S.A.-Industria de Celulose e Papel). 23.22 Consent of Deloitte Touche Tohmatsu for the year ended December 31, 2000. (SIBRA Eletrosiderurgica Brasileira S.A.). 23.23 Consent of Mineral Resources Development, Inc. 23.24 Consent of PricewaterhouseCoopers (Vale Overseas Limited). 23.25 Consent of Davis Polk & Wardwell (included in Exhibit 5.1). 23.26 Consent of Paulo Francisco de Almeida Lopes (included in Exhibit 5.2). 23.27 Consent of Walkers (included in Exhibit 5.3). 24.1 Power of Attorney (included in page II-5). 25.1 Statement of Eligibility under the Trust Indenture Act of 1939 on Form T-1 of JPMorgan Chase Bank, as Trustee. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Letter to Clients. 99.4 Form of Letter to Nominees. 99.5 Form of Instructions to Registered Holder and/or Book-Entry Transfer Participant from Owner. 99.6 Form of Exchange Agent Agreement.
EX-1 3 y58436ex1.txt REGISTRATION RIGHTS AGREEMENT Exhibit 1 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT dated March 8, 2002 (the "AGREEMENT") is entered into by and among Vale Overseas Limited, a Cayman Islands corporation (the "COMPANY"), Companhia Vale do Rio Doce, a Brazilian corporation (the "GUARANTOR"), and J.P. Morgan Securities Inc., Banco Bilbao Vizcaya Argentaria, S.A. Merrill, Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith Barney, Inc. (collectively, the "INITIAL Purchasers"). The Company, the Guarantor and the Initial Purchasers are parties to the Purchase Agreement dated March 8, 2002 (the "PURCHASE AGREEMENT"), which provides for the sale by the Company to the Initial Purchasers of U.S.$300,000,000 aggregate principal amount of the Company's Series A 8.625% Enhanced Guaranteed Notes due 2007 (the "SECURITIES") which will be irrevocably and unconditionally guaranteed by the Guarantor. As an inducement to the Initial Purchasers to enter into the Purchase Agreement, the Company and the Guarantor have agreed to provide to the Initial Purchasers and their direct and indirect transferees the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the closing of the transactions contemplated by the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1 DEFINITIONS As used in this Agreement, the following terms shall have the following meanings: "AFFILIATE" shall have the meaning set forth in Rule 405 of the Securities Act. "BUSINESS DAY" shall mean any day that is not a Saturday, Sunday or other day on which commercial banks in New York City, Rio de Janeiro and Grand Cayman are authorized or required by law to remain closed. "CLOSING DATE" shall mean the Closing Date as defined in the Purchase Agreement. "COMPANY" shall have the meaning set forth in the preamble and shall also include the Company's successors. "EXCHANGE ACT" shall mean the U.S. Securities Exchange Act of 1934 and any successor statute thereto. "EXCHANGE DATES" shall have the meaning set forth in Section 2.1.2 hereof. "EXCHANGE OFFER" shall mean the exchange offer by the Company and the Guarantor of Exchange Securities for Registrable Securities pursuant to Section 2.1 hereof. "EXCHANGE OFFER REGISTRATION" shall mean a registration under the Securities Act effected pursuant to Section 2.1 hereof. "EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange offer registration statement on Form F-4 (or, if applicable, on another appropriate form) and all amendments and supplements to such registration statement, in each case including the Prospectus contained therein, all exhibits thereto and any document incorporated by reference therein. "EXCHANGE SECURITIES" shall mean senior enhanced notes issued by the Company under the Indenture, guaranteed by the Guarantor and secured by the collateral described in the Indenture, containing terms identical to the Securities (except that the Exchange Securities will not be subject to restrictions on transfer or to any increase in annual interest rate for failure to comply with this Agreement) and to be offered to Holders of Securities in exchange for Securities pursuant to the Exchange Offer. "GUARANTOR" shall have the meaning set forth in the preamble and shall also include the Guarantor's successors. "HOLDERS" shall mean the Initial Purchasers, for so long as they own any Registrable Securities, and each of their successors, assigns and direct and indirect transferees who become owners of Registrable Securities under the Indenture; provided that for purposes of Sections 4 and 5 of this Agreement, the term "Holders" shall include Participating Broker-Dealers. "INDEMNIFIED PERSON" shall have the meaning set forth in Section 5.3 hereof. "INDEMNIFYING PERSON" shall have the meaning set forth in Section 5.3 hereof. "INITIAL PURCHASERS" shall have the meaning set forth in the preamble. "INDENTURE" shall mean the Indenture relating to the Securities dated as of March 8, 2002 among the Company, the Guarantor and JPMorgan Chase Bank, as trustee, as supplemented by the First Supplemental Indenture, dated as of March 8, 2002, thereto and as the same may be amended or supplemented from time to time in accordance with the terms thereof. "INSPECTOR" shall have the meaning set forth in Section 3.13 hereof. "MAJORITY HOLDERS" shall mean the Holders of a majority of the aggregate principal amount of outstanding Registrable Securities; provided that whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities owned directly or indirectly by the Company or any of its Affiliates shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage or amount. "PARTICIPATING BROKER-DEALERS" shall have the meaning set forth in Section 4.1 hereof. "PERSON" shall mean an individual, partnership, limited liability company, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. "PURCHASE AGREEMENT" shall have the meaning set forth in the preamble. "PROSPECTUS" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to such prospectus, and in each case including any document incorporated by reference therein. - 2 - "REGISTRABLE SECURITIES" shall mean the Securities; provided that the Securities shall cease to be Registrable Securities (i) when a Registration Statement with respect to such Securities has been declared effective under the Securities Act and such Securities have been exchanged or disposed of pursuant to such Registration Statement, (ii) when such Securities are eligible to be sold pursuant to Rule 144(k) (or any similar provision then in force, but not Rule 144A) under the Securities Act or (iii) when such Securities cease to be outstanding. "REGISTRATION EXPENSES" shall mean any and all expenses incident to performance of or compliance by the Company and the Guarantor with this Agreement, including without limitation: (i) all SEC, stock exchange or National Association of Securities Dealers, Inc. registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of counsel for any Underwriters or Holders in connection with blue sky qualification of any Exchange Securities or Registrable Securities), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus and any amendments or supplements thereto, any underwriting agreements, securities sales agreements or other similar agreements and any other documents relating to the performance of and compliance with this Agreement, (iv) all rating agency fees, (v) all fees and disbursements relating to the qualification of the Indenture under applicable securities laws, (vi) the fees and disbursements of the Trustee, agents of the Trustee, and any exchange agent their respective counsel and the Luxembourg listing agent, if any, (vii) the fees and disbursements of counsel for the Company and the Guarantor and, in the case of a Shelf Registration Statement, the fees and disbursements of one counsel for the Holders (which counsel shall be Linklaters or such other counsel as shall be selected by the Majority Holders and which counsel may also be counsel for the Initial Purchasers) and (viii) the fees and disbursements of the independent public accountants of the Company and the Guarantor, including the expenses of any special audits or "comfort" letters required by or incident to the performance of and compliance with this Agreement, but excluding fees and expenses of counsel to the Underwriters (other than fees and expenses set forth in clause (ii) above) or the Holders and underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder. "REGISTRATION STATEMENT" shall mean any registration statement of the Company and the Guarantor that covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and any document incorporated by reference therein. "SEC" shall mean the U.S. Securities and Exchange Commission. "SECURITIES" shall have the meaning set forth in the preamble. "SECURITIES ACT" shall mean the U.S. Securities Act of 1933 and any successor statute thereto. - 3 - "SHELF REGISTRATION" shall mean a registration effected pursuant to Section 2.2 hereof. "SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration statement of the Company and the Guarantor that covers all the Registrable Securities (but no other securities unless approved by the Holders whose Registrable Securities are to be covered by such Shelf Registration Statement) on an appropriate form under Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and any document incorporated by reference therein. "TRUST INDENTURE ACT" shall mean the U.S. Trust Indenture Act of 1939 and any successor statute thereto. "TRUSTEE" shall mean the trustee with respect to the Securities under the Indenture. "UNDERWRITER" shall have the meaning set forth in Section 3 hereof. "UNDERWRITTEN OFFERING" shall mean an offering in which Registrable Securities are sold to an Underwriter for reoffering to the public pursuant to an effective Registration Statement. 2 REGISTRATION UNDER THE SECURITIES ACT 2.1 To the extent not prohibited by any applicable law or applicable interpretations of the staff of the SEC, the Company and the Guarantor shall use their reasonable best efforts to (i) cause to be filed an Exchange Offer Registration Statement covering an offer to the Holders to exchange all the Registrable Securities for Exchange Securities and (ii) have such Registration Statement remain effective until the closing of the Exchange Offer. The Company and the Guarantor shall commence the Exchange Offer promptly after the Exchange Offer Registration Statement is declared effective by the SEC and use their reasonable best efforts to complete the Exchange Offer not later than 60 days after such effective date. To the extent not conflicting with the Securities Act or the rules and regulations of the SEC, the Exchange Offer shall be conducted in accordance with the requirements of the Luxembourg Stock Exchange. The Company and the Guarantor shall commence the Exchange Offer by mailing the related Prospectus, appropriate letters of transmittal and other accompanying documents to each Holder stating, in addition to such other disclosures as are required by applicable law: 2.1.1 that the Exchange Offer is being made pursuant to this Agreement and that all Registrable Securities validly tendered and not properly withdrawn will be accepted for exchange; 2.1.2 the dates of acceptance for exchange (which shall be a period of at least 20 Business Days from the date such notice is mailed) (the "EXCHANGE DATES"); 2.1.3 that any Registrable Security not tendered will remain outstanding and continue to accrue interest but may not retain any rights under this Agreement; - 4 - 2.1.4 that any Holder electing to have a Registrable Security exchanged pursuant to the Exchange Offer will be required to surrender such Registrable Security, together with the appropriate letters of transmittal, to the institution and at the address (located in the Borough of Manhattan, The City of New York) and in the manner specified in the notice, prior to the close of business on the last Exchange Date; and 2.1.5 that any Holder will be entitled to withdraw its election, not later than the close of business on the last Exchange Date, by sending to the institution and at the address (located in the Borough of Manhattan, The City of New York) specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable Securities delivered for exchange and a statement that such Holder is withdrawing its election to have such Securities exchanged. As a condition to participating in the Exchange Offer, a Holder will be required to represent to the Company and the Guarantor that (i) any Exchange Securities to be received by it will be acquired in the ordinary course of its business, (ii) at the time of the commencement of the Exchange Offer it has no arrangement or understanding with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Securities in violation of the provisions of the Securities Act, (iii) it is not an Affiliate of the Company or the Guarantor and (iv) if such Holder is a Participating Broker-Dealer, then such Holder will deliver a Prospectus in connection with any resale of such Exchange Securities. As soon as practicable after the last Exchange Date, the Company and the Guarantor shall: (i) accept for exchange Registrable Securities or portions thereof validly tendered and not properly withdrawn pursuant to the Exchange Offer; and (ii) deliver, or cause to be delivered, to the Trustee for cancellation all Registrable Securities or portions thereof so accepted for exchange by the Company and issue, and cause the Trustee to promptly authenticate and deliver to each Holder, Exchange Securities equal in principal amount to the principal amount of the Registrable Securities surrendered by such Holder. The Company and the Guarantor shall use their reasonable best efforts to complete the Exchange Offer as provided above and shall comply with the applicable requirements of the Securities Act, the Exchange Act and other applicable laws and regulations in connection with the Exchange Offer. The Exchange Offer shall not be subject to any conditions, other than that the Exchange Offer does not violate any applicable law or regulation or applicable interpretations of the staff of the SEC. 2.2 In the event that (i) the Company and the Guarantor determine that the Exchange Offer Registration provided for in Section 2.1 above is not available or may not be completed as soon as practicable after the last Exchange Date because it would violate any applicable law or regulation or applicable interpretations of the staff of the SEC, (ii) the Exchange Offer is not for any other reason completed by September 8, 2002 or (iii) the - 5 - Exchange Offer has been completed and in the opinion of counsel for the Initial Purchasers a Registration Statement must be filed and a Prospectus must be delivered by the Initial Purchasers in connection with any offering or sale of Registrable Securities, the Company and the Guarantor shall use their reasonable best efforts to cause to be filed as soon as practicable after such determination, date or notice of such opinion of counsel is given to the Company, as the case may be, a Shelf Registration Statement providing for the sale of all the Registrable Securities by the Holders thereof and to have such Shelf Registration Statement declared effective by the SEC. In the event that the Company and the Guarantor are required to file a Shelf Registration Statement solely as a result of the matters referred to in clause (iii) of the preceding sentence, the Company and the Guarantor shall use their reasonable best efforts to file and have declared effective by the SEC both an Exchange Offer Registration Statement pursuant to Section 2.1 with respect to all Registrable Securities and a Shelf Registration Statement (which may be a combined Registration Statement with the Exchange Offer Registration Statement) with respect to offers and sales of Registrable Securities held by the Initial Purchasers after completion of the Exchange Offer. The Company and the Guarantor agree to use their reasonable best efforts to keep the Shelf Registration Statement continuously effective until the expiration of the period referred to in Rule 144(k) under the Securities Act with respect to the Registrable Securities or such shorter period that will terminate when all the Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement, provided that the Company and the Guarantor shall have the right to suspend the disposition of Registrable Securities pursuant thereto in accordance with the penultimate paragraph of Section 3.15. The Company and the Guarantor further agree to supplement or amend the Shelf Registration Statement and the related Prospectus if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder for shelf registration or if reasonably requested by a Holder of Registrable Securities with respect to information relating to such Holder, and to use their reasonable best efforts to cause any such amendment to become effective and such Shelf Registration Statement and Prospectus to become usable as soon as thereafter practicable. The Company and the Guarantor agree to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the SEC. 2.3 The Company and the Guarantor shall pay all Registration Expenses in connection with the registration pursuant to Section 2.1 and Section 2.2 hereof. Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Shelf Registration Statement. 2.4 An Exchange Offer Registration Statement pursuant to Section 2.1 hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will not be deemed to have become effective unless it has been declared effective by the SEC; PROVIDED that if, after it has been declared effective, the offering of Registrable Securities pursuant to a Shelf - 6 - Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any court or other governmental or regulatory agency or body, such Registration Statement will be deemed not to have become effective during the period of such interference until the offering of Registrable Securities pursuant to such Registration Statement may legally resume. In the event that either the Exchange Offer is not completed or the Shelf Registration Statement, if required hereby, is not declared effective (1) on or prior to September 8, 2002, the interest rate on the Registrable Securities will be increased by 0.25% per annum and (2) on or prior to December 8, 2002, the interest rate on the Registrable Securities will be increased by a further 0.25% per annum, in each instance until the earlier of the dates on which the Exchange Offer is completed (regardless of how many Registrable Securities are therein exchanged), the Shelf Registration Statement, if required hereby, is declared effective by the SEC or the Securities become freely tradable under the Securities Act. 2.5 Without limiting the remedies available to the Initial Purchasers and the Holders, the Company and the Guarantor acknowledge that any failure by the Company or the Guarantor to comply with their obligations under Section 2.1 and Section 2.2 hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Company's and the Guarantor's obligations under Section 2.1 and Section 2.2 hereof. Notwithstanding the foregoing sentence, the Initial Purchasers acknowledge that the monetary damages for failure to complete the Exchange Offer or have the Shelf Registration Statement declared effective are limited to the increase in interest provided for in Section 2.4 above. 3 REGISTRATION PROCEDURES In connection with their obligations pursuant to Section 2.1 and Section 2.2 hereof, the Company and the Guarantor shall as expeditiously as possible: 3.1 prepare and file with the SEC a Registration Statement on the appropriate form under the Securities Act, which form (x) shall be selected by the Company and the Guarantor, (y) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the selling Holders thereof and (z) shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith; and use their reasonable best efforts to cause such Registration Statement to become effective and remain effective for the applicable period in accordance with Section 2 hereof; 3.2 prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period in accordance with Section 2 hereof and cause each Prospectus to be supplemented by any required prospectus supplement and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and keep each - 7 - Prospectus current during the period described in Section 4(3) of and Rule 174 under the Securities Act that is applicable to transactions by brokers or dealers with respect to the Registrable Securities or Exchange Securities; 3.3 in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, to counsel for the Initial Purchasers, to counsel for such Holders and to each Underwriter of an Underwritten Offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto, in order to facilitate the sale or other disposition of the Registrable Securities thereunder; and the Company and the Guarantor consent to the use of such Prospectus and any amendment or supplement thereto in accordance with applicable law by each of the selling Holders of Registrable Securities and any such Underwriters in connection with the offering and sale of the Registrable Securities covered by and in the manner described in such Prospectus or any amendment or supplement thereto in accordance with applicable law; 3.4 use their reasonable best efforts to register or qualify the Registrable Securities under all applicable state securities or blue sky laws of such jurisdictions as any Holder of Registrable Securities covered by a Registration Statement shall reasonably request in writing by the time the applicable Registration Statement is declared effective by the SEC; cooperate with the Holders in connection with any filings required to be made with the National Association of Securities Dealers, Inc.; and do any and all other acts and things that may be reasonably necessary or advisable to enable each Holder to complete the disposition in each such jurisdiction of the Registrable Securities owned by such Holder; PROVIDED that neither the Company nor the Guarantor shall be required to (i) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (ii) file any general consent to service of process in any such jurisdiction or (iii) subject itself to taxation in any such jurisdiction if it is not so subject; 3.5 in the case of a Shelf Registration, notify each Holder of Registrable Securities, counsel for such Holders and counsel for the Initial Purchasers promptly and, if requested by any such Holder or counsel, confirm such advice in writing (i) when a Registration Statement has become effective and when any post-effective amendment thereto has been filed and becomes effective, (ii) of any request by the SEC or any state securities authority for amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company or the Guarantor contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to an offering of such Registrable Securities cease to be true and correct in all material respects or if the Company or the Guarantor receives any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, (v) of the happening of any event during the period - 8 - a Shelf Registration Statement is effective that makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or that requires the making of any changes in such Registration Statement or Prospectus in order to make the statements therein not misleading and (vi) of any determination by the Company or the Guarantor that a post-effective amendment to a Registration Statement would be appropriate; 3.6 use their reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment and provide immediate notice to each Holder of the withdrawal of any such order; 3.7 in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto (without any documents incorporated therein by reference or exhibits thereto, unless requested); 3.8 in the case of a Shelf Registration, cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends and enable such Registrable Securities to be issued in such denominations and registered in such names (consistent with the provisions of the Indenture) as the selling Holders may reasonably request at least one Business Day prior to the closing of any sale of Registrable Securities; 3.9 in the case of a Shelf Registration, upon the occurrence of any event contemplated by Section 3.5(v) hereof, use their reasonable best efforts to prepare and file with the SEC a supplement or post-effective amendment to a Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to purchasers of the Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and the Company and the Guarantor shall notify the Holders of Registrable Securities to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event, and such Holders hereby agree to suspend use of the Prospectus until the Company and the Guarantor have amended or supplemented the Prospectus to correct such misstatement or omission; 3.10 a reasonable time prior to the filing of any Registration Statement, any Prospectus, any amendment to a Registration Statement or amendment or supplement to a Prospectus or of any document that is to be incorporated by reference into a Registration Statement or a Prospectus after initial filing of a Registration Statement, provide copies of such document to the Initial Purchasers and their counsel (and, in the case of a Shelf Registration Statement, to the Holders of Registrable Securities and their counsel) and make such of the representatives of the Company and the Guarantor as shall be reasonably requested by the Initial Purchasers or their counsel (and, in the case of a Shelf Registration Statement, the Holders of Registrable Securities or their counsel) available for discussion of such document; and the Company and the Guarantor shall - 9 - not, at any time after initial filing of a Registration Statement, file any Prospectus, any amendment of or supplement to a Registration Statement or a Prospectus, or any document that is to be incorporated by reference into a Registration Statement or a Prospectus, of which the Initial Purchasers and their counsel (and, in the case of a Shelf Registration Statement, the Holders of Registrable Securities and their counsel) shall not have previously been advised and furnished a copy or to which the Initial Purchasers or their counsel (and, in the case of a Shelf Registration Statement, the Holders or their counsel) shall object; 3.11 obtain a CUSIP number for all Exchange Securities or Registrable Securities, as the case may be, not later than the effective date of a Registration Statement; 3.12 cause the Indenture to be qualified under the Trust Indenture Act in connection with the registration of the Exchange Securities or Registrable Securities, as the case may be; cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the Trust Indenture Act; and execute, and use their reasonable best efforts to cause the Trustee to execute, all documents as may be required to effect such changes and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner; 3.13 in the case of a Shelf Registration, make available for inspection by a representative of the Holders of the Registrable Securities (an "INSPECTOR"), a representative of any Underwriters participating in any disposition pursuant to such Shelf Registration Statement, and one firm of attorneys designated by the Holders, at reasonable times and in a reasonable manner, all pertinent financial and other records, documents and properties of the Company and the Guarantor, and cause the respective officers, directors and employees of the Company and the Guarantor to supply all information reasonably requested by any such Inspector, Underwriter or attorney in connection with a Shelf Registration Statement; PROVIDED that if any such information is identified by the Company or the Guarantor as being confidential or proprietary, each Person receiving such information shall as a precondition thereto be required to agree with the Company in writing to protect the confidentiality thereof; 3.14 in the case of a Shelf Registration, use their reasonable best efforts to cause all Registrable Securities to be listed on the Luxembourg Stock Exchange to the extent such Registrable Securities satisfy the listing requirements thereof; 3.15 in the case of a Shelf Registration, if reasonably requested by any Holder of Registrable Securities covered by a Registration Statement, promptly incorporate in a Prospectus supplement or post-effective amendment such information with respect to such Holder as such Holder reasonably requests to be included therein and make all required filings of such Prospectus supplement or such post-effective amendment as soon as the Company has received notification of the matters to be incorporated in such filing; and 3.16 in the case of a Shelf Registration, enter into such customary agreements and take all such other actions in connection therewith (including those requested by the Holders of a majority in principal amount of the Registrable Securities being sold) in order to expedite or facilitate the disposition of such Registrable Securities including, but not - 10 - limited to, an Underwritten Offering and in such connection, (i) to the extent possible, make such representations and warranties to the Holders and any Underwriters of such Registrable Securities with respect to the business of the Company and its subsidiaries, the Registration Statement, Prospectus and documents incorporated by reference or deemed incorporated by reference, if any, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings and confirm the same if and when requested, (ii) obtain opinions of counsel to the Company and the Guarantor (which counsel and opinions, in form, scope and substance, shall be reasonably satisfactory to the Holders and such Underwriters and their respective counsel) addressed to each selling Holder and Underwriter of Registrable Securities, covering the matters customarily covered in opinions requested in underwritten offerings, (iii) obtain "comfort" letters from the independent certified public accountants of the Company and the Guarantor (and, if necessary, any other certified public accountant of any subsidiary of the Company or the Guarantor, or of any business acquired by the Company or the Guarantor for which financial statements and financial data are or are required to be included in the Registration Statement) addressed to each selling Holder and Underwriter of Registrable Securities, such letters to be in customary form and covering matters of the type customarily covered in "comfort" letters in connection with underwritten offerings and (iv) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in principal amount of the Registrable Securities being sold or the Underwriters, and which are customarily delivered in underwritten offerings, to evidence the continued validity of the representations and warranties of the Company and the Guarantor made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in an underwriting agreement. In the case of a Shelf Registration Statement, the Company may require each Holder of Registrable Securities to furnish to the Company such information regarding such Holder and the proposed disposition by such Holder of such Registrable Securities as the Company and the Guarantor may from time to time reasonably request in writing. The Company may exclude from such Shelf Registration Statement the Registrable Securities of any Holder who fails to furnish such information within a reasonable time after receiving such request. In the case of a Shelf Registration Statement, each Holder of Registrable Securities agrees that, upon receipt of any notice from the Company and the Guarantor of the happening of any event of the kind described in Section 3.5(iii) or 3.5(v) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to a Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3.9 hereof and, if so directed by the Company and the Guarantor, such Holder will deliver to the Company and the Guarantor all copies in its possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities that is current at the time of receipt of such notice. If the Company and the Guarantor shall give any such notice to suspend the disposition of Registrable Securities pursuant to a Registration Statement, the Company and the - 11 - Guarantor shall extend the period during which the Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice to and including the date when the Holders shall have received copies of the supplemented or amended Prospectus necessary to resume such dispositions. The Company and the Guarantor may give any such notice only twice during any 365-day period and any such suspensions shall not exceed 30 days for each suspension and there shall not be more than two suspensions in effect during any 365-day period. The Holders of Registrable Securities covered by a Shelf Registration Statement who desire to do so may sell such Registrable Securities in an Underwritten Offering. In any such Underwritten Offering, the investment banker or investment bankers and manager or managers (the "Underwriters") that will administer the offering will be selected by the Majority Holders of the Registrable Securities included in such offering. 4 PARTICIPATION OF BROKER-DEALERS IN EXCHANGE OFFER 4.1 The Company, the Guarantor and the Initial Purchasers acknowledge that the staff of the SEC has taken the position that any broker-dealer that receives Exchange Securities for its own account in the Exchange Offer in exchange for Securities that were acquired by such broker-dealer as a result of market-making or other trading activities (a "PARTICIPATING BROKER-DEALER") may be deemed to be an "underwriter" within the meaning of the Securities Act and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Securities. The Company and the Guarantor understand that it is the staff's position that if the Prospectus contained in the Exchange Offer Registration Statement includes a plan of distribution containing a statement to the above effect and the means by which Participating Broker-Dealers may resell the Exchange Securities, without naming the Participating Broker-Dealers or specifying the amount of Exchange Securities owned by them, such Prospectus may be delivered by Participating Broker-Dealers to satisfy their prospectus delivery obligation under the Securities Act in connection with resales of Exchange Securities for their own accounts, so long as the Prospectus otherwise meets the requirements of the Securities Act. 4.2 In light of the above, and notwithstanding the other provisions of this Agreement, the Company and the Guarantor agree to amend or supplement the Prospectus contained in the Exchange Offer Registration Statement, as would otherwise be contemplated by Section 3.9, for a period of up to 180 days after the last Exchange Date (as such period may be suspended and extended pursuant to the penultimate paragraph of Section 3.15 of this Agreement), if requested in writing by the Initial Purchasers or by one or more Participating Broker-Dealers, in order to expedite or facilitate the disposition of any Exchange Securities by Participating Broker-Dealers consistent with the positions of the staff recited in Section 4.1 above. The Company and the Guarantor further agree that Participating Broker-Dealers shall be authorized to deliver such Prospectus during such period in connection with the resales contemplated by this Section 4. - 12 - 4.3 The Initial Purchasers shall have no liability to the Company, the Guarantor or any Holder with respect to any request that they may make pursuant to Section 4.2 above. 5 INDEMNIFICATION AND CONTRIBUTION 5.1 The Company and the Guarantor, jointly and severally, agree to indemnify and hold harmless each Initial Purchaser and each Holder, their respective affiliates and each Person, if any, who controls any Initial Purchaser or any Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted), joint or several, caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or any Prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Initial Purchaser or any Holder furnished to the Company in writing through J.P. Morgan Securities Inc. or any selling Holder expressly for use therein. In connection with any Underwritten Offering permitted by Section 3, the Company and the Guarantor will also indemnify the Underwriters, if any, selling brokers, dealers and similar securities industry professionals participating in the distribution, their respective affiliates and each Person who controls such Persons (within the meaning of the Securities Act and the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders, if requested in connection with any Registration Statement. 5.2 Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, the Guarantor, the Initial Purchasers and the other selling Holders, their respective affiliates, the directors of the Company and the Guarantor, each officer of the Company and the Guarantor who signed the Registration Statement and each Person, if any, who controls the Company, the Guarantor, any Initial Purchaser and any other selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity set forth in paragraph 5.1 above, but only with respect to any losses, claims, damages or liabilities caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to such Holder furnished to the Company in writing by such Holder expressly for use in any Registration Statement and any Prospectus. 5.3 If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnification may be sought pursuant to either paragraph 5.1 or 5.2 above, such Person (the "INDEMNIFIED PERSON") shall promptly notify the Person against whom such indemnification may be sought (the "INDEMNIFYING PERSON") in writing; PROVIDED that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may - 13 - have under this Section 5 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and PROVIDED, FURTHER, that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person otherwise than under this Section 5. If any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others entitled to indemnification pursuant to this Section 5 that the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm (x) for any Initial Purchaser, its affiliates and any control Persons of such Initial Purchaser shall be designated in writing by J.P. Morgan Securities Inc., (y) for any Holder, its affiliates and any control Persons of such Holder shall be designated in writing by the Majority Holders and (z) in all other cases shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for fees and expenses of counsel as contemplated by this paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by the Indemnifying Person of such request and (ii) the Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional release of such Indemnified Person in form and substance satisfactory to such Indemnified Person from all liability on claims that are the subject matter of such - 14 - proceeding and (B) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person. 5.4 If the indemnification provided for in paragraphs 5.1 and 5.2 above is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantors from the offering of the Securities and the Exchange Securities, on the one hand, and by the Holders from receiving Securities or Exchange Securities registered under the Securities Act, on the other hand, or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company and the Guarantor on the one hand and the Holders on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company and the Guarantor on the one hand and the Holders on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Guarantor or by the Holders and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 5.5 The Company, the Guarantor and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 5 were determined by PRO RATA allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph 5.4 above. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in paragraph 5.4 above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with any such action or claim. Notwithstanding the provisions of this Section 5, in no event shall a Holder be required to contribute any amount in excess of the amount by which the total price at which the Securities or Exchange Securities sold by such Holder exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 5.6 The remedies provided for in this Section 5 are not exclusive and shall not limit any rights or remedies that may otherwise be available to any Indemnified Person at law or in equity. 5.7 The indemnity and contribution provisions contained in this Section 5 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of the Initial Purchasers or any Holder, their - 15 - respective affiliates or any Person controlling any Initial Purchaser or any Holder, or by or on behalf of the Company or the Guarantor, their respective affiliates or the officers or directors of or any Person controlling the Company or the Guarantor, (iii) acceptance of any of the Exchange Securities and (iv) any sale of Registrable Securities pursuant to a Shelf Registration Statement. 6 GENERAL 6.1 NO INCONSISTENT AGREEMENTS The Company and the Guarantor represent, warrant and agree that (i) the rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of any other outstanding securities issued or guaranteed by the Company or the Guarantor under any other agreement and (ii) neither the Company nor the Guarantor has entered into, or on or after the date of this Agreement will enter into, any agreement that is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. 6.2 AMENDMENTS AND WAIVERS The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company and the Guarantor have obtained the written consent of Holders of at least a majority in aggregate principal amount of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or consent; PROVIDED that no amendment, modification, supplement, waiver or consent to any departure from the provisions of Section 5 hereof shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder. 6.3 NOTICES All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 6.3, which address initially is, with respect to the Initial Purchasers, the address set forth in the Purchase Agreement; and (ii) if to the Company and the Guarantor, initially at the Company's address set forth in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 6.3. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next Business Day if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee, at the address specified in the Indenture. 6.4 SUCCESSORS AND ASSIGNS This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; PROVIDED that nothing herein shall be deemed to permit any assignment, transfer or - 16 - other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Registrable Securities in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof. The Initial Purchasers (in their capacity as Initial Purchasers) shall have no liability or obligation to the Company or the Guarantor with respect to any failure by a Holder to comply with, or any breach by any Holder of, any of the obligations of such Holder under this Agreement. 6.5 THIRD PARTY BENEFICIARIES Each Holder shall be a third party beneficiary to the agreements made hereunder between the Company and the Guarantor, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of other Holders hereunder. 6.6 COUNTERPARTS This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 6.7 HEADINGS The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 6.8 GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 6.9 CONSENT TO SERVICE; JURISDICTION The Company, the Guarantor and the Initial Purchasers agree that any legal suit, action or proceeding arising out of or relating to this Agreement may be instituted in any federal or state court in the Borough of Manhattan, The City of New York, in respect of actions brought against each such party as a defendant, and each waives any objection which it may now or hereafter have to the laying of the venue of any such legal suit, action or proceeding, waives any immunity, to the extent permitted by law, from jurisdiction or to service of process in respect of any such suit, action or proceeding, waives any right to which it may be entitled on account of place of residence or domicile and irrevocably submits to the jurisdiction of any such court in any such suit, action or proceeding. The Company and the Guarantor further submit to the jurisdiction of the courts of their own corporate domiciles in any legal suit, action or proceeding arising out of or relating to this Agreement. The Company and the Guarantor hereby designate and appoint Rio Doce America, Inc. ("RDA") located at 546 5th Avenue, 12th Floor, New York, New York, 10036, as their authorized agent upon which process may be served in any legal suit, action or proceeding arising out of or relating to this Agreement which may be instituted in any federal or state court in the Borough of Manhattan, The City of New York, New York, and agree that service of process upon such agent, and written notice of said service to the Company or the Guarantor, as the case may be, by the Person serving the same, shall be deemed in every respect effective service of process upon the Company or the - 17 - Guarantor in any such suit, action or proceeding and further designate the domicile of RDA specified above and any domicile RDA may have in the future as their domicile to receive service of process. If for any reason RDA (or any successor agent for this purpose) shall cease to act as agent for service of process as provided above, the Company and the Guarantor will promptly appoint a successor agent for this purpose reasonably acceptable to the Initial Purchasers. The Company and the Guarantor agree to take any and all actions as may be necessary to maintain such designation and appointment of such agent in full force and effect. 6.10 MISCELLANEOUS This Agreement contains the entire agreement between the parties relating to the subject matter hereof and supersedes all oral statements and prior writings with respect thereto. This Agreement may not be amended or modified except by a writing executed by each of the parties hereto. Section headings herein are for convenience only and are not a part of this Agreement. If any term, provision, covenant or restriction contained in this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable or against public policy, the remainder of the terms, provisions, covenants and restrictions contained herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated. The Company, the Guarantor and the Initial Purchasers shall endeavor in good faith negotiations to replace the invalid, void or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, void or unenforceable provisions. - 18 - IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. VALE OVERSEAS LIMITED By: /s/ Jorge Tadeu Moura Pinho --------------------------------------- Name: Jorge Tadeu Moura Pinho Title: Attorney By: /s/ Bernadeth Vieira de Souza --------------------------------------- Name: Bernadeth Vieira de Souza Title: Attorney COMPANHIA VALE DO RIO DOCE By: /s/ Leonardo Moretzsohm de Andrade --------------------------------------- Name: Leonardo Moretzsohm de Andrade Title: Attorney By: /s/ Andrea Marques de Almeida --------------------------------------- Name: Andrea Marques de Almeida Title: Attorney Confirmed and accepted as of the date first above written: J.P. MORGAN SECURITIES INC. For itself and on behalf of the several Initial Purchasers By: /s/ Wendy Royal --------------------------------------- Authorized Signatory Sworn to before me this 8th day of March, 2002 /s/ James M. Foley - ------------------------------------------- Notary Public - 19 - SCHEDULE 1 INITIAL PURCHASER - ----------------- J.P. Morgan Securities Inc. Banco Bilbao Vizcaya Argentaria, S.A. Merrill, Lynch, Pierce, Fenner & Smith Incorporated Salomon Smith Barney, Inc. - 20 - EX-3.1 4 y58436ex3-1.txt MEMORANDUM AND ARTICLES OF ASSOCIATION Exhibit 3.1 THE COMPANIES LAW (2000 REVISION) COMPANY LIMITED BY SHARES MEMORANDUM & ARTICLES OF ASSOCIATION OF VALE OVERSEAS LIMITED TABLE OF CONTENTS MEMORANDUM OF ASSOCIATION The Name of the Company.................................................... 1 The Registered Office of the Company....................................... 1 The Objects for which the Company is established........................... 1 The Liability of the Members............................................... 1 The Capital of the Company................................................. 2 ARTICLES OF ASSOCIATION Table A.................................................................... 1 Interpretation............................................................. 1 Preliminary................................................................ 2 Shares..................................................................... 3 Variation Of Rights Attaching To Shares.................................... 3 Certificates............................................................... 3 Fractional Shares.......................................................... 4 Lien....................................................................... 4 Calls On Shares............................................................ 4 Forfeiture Of Shares....................................................... 5 Transfer Of Shares......................................................... 6 Transmission Of Shares..................................................... 6 Alteration Of Capital...................................................... 7 Redemption And Purchase Or Own Shares...................................... 7 Closing Register Of Members Or Fixing Record Date.......................... 8 General Meetings........................................................... 8 Notice Of General Meetings................................................. 9 Proceedings At General Meetings............................................ 9 Votes Of Members........................................................... 10 Corporations Acting By Representatives At Meetings......................... 11 Directors.................................................................. 11 Alternate Director......................................................... 12 Powers And Duties Of Directors............................................. 12 Borrowing Powers Of Directors.............................................. 13 The Seal................................................................... 13 Disqualification Of Directors.............................................. 14 Proceedings Of Directors................................................... 14 Dividends.................................................................. 16 Accounts And Audit......................................................... 17 Capitalisation Of Profits.................................................. 17 Share Premium Account...................................................... 18 Notices.................................................................... 19 Indemnity.................................................................. 20 Non-Recognition Of Trusts.................................................. 20 Winding Up................................................................. 20 Amendment Of Articles Of Association....................................... 21 Registration By Way Of Continuation........................................ 21 i THE COMPANIES LAW (2000 REVISION) --------------------------------- REGISTERED AND FILED COMPANY LIMITED BY SHARES AS NO: 109351 THIS 3RD DAY ------------------------- OF APRIL 2001 /s/ DONNELL H. DIXON MEMORANDUM OF ASSOCIATION --------------------------- OF ASST REGISTRAR OF COMPANIES CAYMAN ISLANDS VALE OVERSEAS LIMITED ---------------------- 1. The name of the Company is VALE OVERSEAS LIMITED. 2. The Registered Office of the Company will be situate at the offices of WALKERS, WALKER HOUSE, P.O. BOX 265GT, GEORGE TOWN, GRAND CAYMAN, CAYMAN ISLANDS or at such other location as the Directors may from time to time determine. 3. The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by any law as provided by Section 7(4) of The Companies Law (2000 Revision). 4. The Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit as provided by Section 27(2) of The Companies Law (2000 Revision). 5. Nothing in the preceding sections shall be deemed to permit the Company to carry on the business of a Bank or Trust Company without being licensed in that behalf under the provisions of the Banks & Trust Companies Law (2000 Second Revision), or to carry on Insurance Business from within the Cayman Islands or the business of an Insurance Manager, Agent, Sub-agent or Broker without being licensed in that behalf under the provisions of the Insurance Law (1999 Revision), or to carry on the business of Company Management without being licensed in that behalf under the provisions of the Companies Management Law (2000 Revision). 6. The Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands; Provided that nothing in this section shall be construed as to prevent the Company effecting and concluding contracts in the Cayman Islands, and exercising in the Cayman Islands all of its powers necessary for the carrying on of its business outside the Cayman Islands. 7. The liability of the members is limited to the amount, if any, unpaid on the shares respectively held by them. [REGISTRAR OF COMPANIES CAYMAN ISLANDS EXEMPT STAMP] 1 8. The capital of the Company is US$1,000.00 divided into 1,000 shares of a nominal or par value of US$1.00 each provided always that subject to the provisions of The Companies Law (2000 Revision) and the Articles of Association the Company shall have power to redeem or purchase any of its shares and to sub-divide or consolidate the said shares or any of them and to issue all or any part of its capital whether original, redeemed, increased or reduced with or without any preference, priority or special privilege or subject to any postponement of rights or to any conditions or restrictions whatsoever and so that unless the conditions of issue shall otherwise expressly provide every issue of shares whether stated to be Ordinary, Preference or otherwise shall be subject to the powers on the part of the Company hereinbefore provided. 9. The Company may exercise the power contained in Section 225 of The Companies Law (2000 Revision) to deregister in the Cayman Islands and be registered by way of continuation in some other jurisdiction. 2 The undersigned, whose name, address and description is subscribed, is desirous of being formed into a Company in pursuance of this Memorandum of Association, and agrees to take the number of shares in the capital of the Company set opposite his name.
- -------------------------------------------------------------------------------- NAME, ADDRESS AND DESCRIPTION NUMBER OF SHARES TAKEN BY OF SUBSCRIBER SUBSCRIBER - -------------------------------------------------------------------------------- JONATHAN CULSHAW ONE SHARE P.O. Box 265GT, Grand Cayman (Sgd.) JONATHAN CULSHAW ------------------------------- Attorney-at-Law JONATHAN CULSHAW 3 April 2001 (Sgd.) PAULA SHEAFF - ------------------------------- Witness to the above signature: PAULA SHEAFF Address: P.O. Box 265GT, Grand Cayman Occupation: Secretary
I, DONNELL H. DIXON, Asst. Registrar of Companies, in and for the Cayman Islands, DO HEREBY CERTIFY that this is a true copy of the Memorandum of Association of VALE OVERSEAS LIMITED. Dated this 3rd of April, 2001. /s/ DONNELL H. DIXON ----------------------------- [REGISTRAR OF COMPANIES CAYMAN ISLANDS EXEMPT STAMP] 3 [CAYMAN ISLANDS GRAPHIC] THE COMPANIES LAW (2000 REVISION) COMPANY LIMITED BY SHARES ARTICLES OF ASSOCIATION OF VALE OVERSEAS LIMITED -------------------------------- REGISTERED AND FILED AS NO: 109351 THIS 3RD DAY OF APRIL 2001 /S/ DONNELL H. DIXON --------------------------- ASST REGISTRAR OF COMPANIES CAYMAN ISLANDS -------------------------------- TABLE A The Regulations contained or incorporated in Table 'A' in the First Schedule of the Companies Law (2000 Revision) shall not apply to this Company and the following Articles shall comprise the Articles of Association of the Company: INTERPRETATION 1. In these Articles: "COMPANIES LAW" means the Companies Law (2000 Revision) of the Cayman Islands and any statutory amendment or re-enactment thereof. Where any provision of the Companies Law is referred to, the reference is to that provision as amended by any law for the time being in force; "DIRECTORS" and "BOARD OF DIRECTORS" means the Directors of the Company for the time being, or as the case may be, the Directors assembled as a Board or as a committee thereof; "MEMBER" means a person whose name is entered in the register of members as the holder of a share or shares and includes each subscriber of the Memorandum pending the issue to him of the subscriber share or shares; "MEMORANDUM OF ASSOCIATION" means the Memorandum of Association of the Company, as amended and re-stated from time to time; "ORDINARY RESOLUTION" means a resolution: (a) passed by a simple majority of such Members as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of the Company and where a poll is taken regard shall be had in computing a majority to the number of votes to which each Member is entitled; or (b) approved in writing by all of the Members entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Members, and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments if more than one, is executed; [REGISTRAR OF COMPANIES CAYMAN ISLANDS EXEMPT STAMP] 1 "PAID UP" means paid up as to the par value and any premium payable in respect of the issue of any shares and includes credited as paid up: "REGISTER OF MEMBERS" means the register to be kept by the Company in accordance with Section 40 of the Companies Law: "SEAL" means the Common Seal of the Company including any facsimile thereof: "SHARE" means any share in the capital of the Company, including a fraction of any share: "SIGNED" includes a signature or representation of a signature affixed by mechanical means: "SPECIAL RESOLUTION" means a resolution passed in accordance with Section 60 of the Companies Law, being a resolution: (a) passed by a majority of not less than two-thirds of such Members as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of the Company of which notice specifying the intention to propose the resolution as a Special Resolution has been duly given and where a poll is taken regard shall be had in computing a majority to the number of votes to which each Member is entitled, or (b) approved in writing by all of the Members entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Members and the effective date of the Special Resolution so adopted shall be the date on which the instrument or the last of such instruments if more than one, is executed. 2. In these Articles, save where the context requires otherwise: (a) words importing the singular number shall include the plural number and vice versa; (b) words importing the masculine gender only shall include the feminine gender; (c) words importing persons only shall include companies or associations or bodies of persons, whether corporate or not; (d) "may" shall be construed as permissive and "shall" shall be construed as imperative; (e) a reference to a dollar or dollars (or $) is a reference to dollars of the United States; and (f) references to a statutory enactment shall include reference to any amendment or reenactment thereof for the time being in force. 3. Subject to the last two preceding Articles, any words defined in the Companies Law shall, if not inconsistent with the subject or context, bear the same meaning in these Articles. PRELIMINARY 4. The business of the Company may be commenced as soon after incorporation as the Directors see fit, notwithstanding that part only of the shares may have been allotted or issued. 2 5. The registered office of the Company shall be at such address in the Cayman Islands as the Directors shall from time to time determine. The Company may in addition establish and maintain such other offices and places of business and agencies in such places as the Directors may from time to time determine. SHARES 6. Subject as otherwise provided in these Articles, all shares in the capital of the Company for the time being and from time to time unissued shall be under the control of the Directors, and may be re-designated, allotted or disposed of in such manner, to such persons and on such terms as the Directors in their absolute discretion may think fit. 7. The Company may in so far as may be permitted by law, pay a commission to any person in consideration of his subscribing or agreeing to subscribe whether absolutely or conditionally for any shares. Such commissions may be satisfied by the payment of cash or the lodgement of fully or partly paid-up shares or partly in one way and partly in the other. The Company may also on any issue of shares pay such brokerage as may be lawful. VARIATION OF RIGHTS ATTACHING TO SHARES 8. If at any time the share capital is divided into different classes of shares, the rights attaching to any class (unless otherwise provided by the terms of issue of the shares of that class) may be varied or abrogated with the consent in writing of the holders of two-thirds of the issued shares of that class, or with the sanction of a resolution passed by at least a two-thirds majority of the holders of shares of the class present in person or by proxy at a separate general meeting of the holders of the shares of the class. To every such separate general meeting the provisions of these Articles relating to general meetings of the Company shall mutatis mutandis apply, but so that the necessary quorum shall be at least one person holding or representing by proxy at least one-third of the issued shares of the class and that any holder of shares of the class present in person or by proxy may demand a poll. 9. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied or abrogated by the creation or issue of further shares ranking pari passu therewith or the redemption or purchase of shares of any class by the Company. CERTIFICATES 10. Every person whose name is entered as a member in the Register of Members shall, without payment, be entitled to a certificate in the form determined by the Directors. Such certificate may be under the Seal. All certificates shall specify the share or shares held by that person and the amount paid up thereon, provided that in respect of a share or shares held jointly by several persons the Company shall not be bound to issue more than one certificate, and delivery of a certificate for a share to one of several joint holders shall be sufficient delivery to all. 11. If a share certificate is defaced, lost or destroyed it may be renewed on such terms, if any, as to evidence and indemnity as the Directors think fit. 3 FRACTIONAL SHARES 12. The Directors may issue fractions of a share of any class of shares, and, if so issued, a fraction of a share (calculated to three decimal points) shall be subject to and carry the corresponding fraction of liabilities (whether with respect to any unpaid amount thereon, contribution, calls or otherwise), limitations, preferences, privileges, qualifications, restrictions, rights (including, without limitation, voting and participation rights) and other attributes of a whole share of the same class of shares. If more than one fraction of a share of the same class is issued to or acquired by the same Member such fractions shall be accumulated. For the avoidance of doubt, in these Articles the expression "share" shall include a fraction of a share. LIEN 13. The Company shall have a first priority lien and charge on every share (not being a fully paid up share) for all moneys (whether presently payable or not) called or payable at a fixed time in respect of that share, and the Company shall also have a first priority lien and charge on all shares (other than fully paid up shares) standing registered in the name of a single person for all moneys presently payable by him or his estate to the Company, but the Directors may at any time declare any share to be wholly or in part exempt from the provisions of this Article. The Company's lien, if any, on a share shall extend to all dividends payable thereon. 14. The Company may sell, in such manner as the Directors think fit, any shares on which the Company has a lien, but no sale shall be made unless some sum in respect of which the lien exists is presently payable nor until the expiration of 14 days after a notice in writing, stating and demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder for the time being of the share, or the persons entitled thereto by reason of his death or bankruptcy. 15. For giving effect to any such sale the Directors may authorise some person to transfer the shares sold to the purchaser thereof. The purchaser shall be registered as the holder of the shares comprised in any such transfer and he shall not be bound to see to the application of the purchase money, nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings in reference to the sale. 16. The proceeds of the sale shall be received by the Company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable, and the residue shall (subject to a like lien for sums not presently payable as existed upon the shares prior to the sale) be paid to the person entitled to the shares at the date of the sale. CALLS ON SHARES 17. The Directors may from time to time make calls upon the Members in respect of any moneys unpaid on their shares, and each Member shall (subject to receiving at least 14 days notice specifying the time or times of payment) pay to the Company at the time or times so specified the amount called on his shares. 18. The joint holders of a share shall be jointly and severally liable to pay calls in respect thereof. 19. If a sum called in respect of a share is not paid before or on the day appointed for payment thereof, the person from whom the sum is due shall pay interest upon the sum at the rate of 4 eight per centum per annum from the day appointed for the payment thereof to the time of the actual payment, but the Directors shall be at liberty to waive payment of that interest wholly or in part. 20. The provisions of these Articles as to the liability of joint holders and as to payment of interest shall apply in the case of non-payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the amount of the share, or by way of premium, as if the same had become payable by virtue of a call duly made and notified. 21. The Directors may make arrangements on the issue of shares for a difference between the Members, or the particular shares, in the amount of calls to be paid and in the times of payment. 22. The Directors may, if they think fit, receive from any member willing to advance the same all or any part of the moneys uncalled and unpaid upon any shares held by him, and upon all or any of the moneys so advanced may (until the same would, but for such advance, become presently payable) pay interest at such rate (not exceeding without the sanction of an Ordinary Resolution, eight per cent. per annum) as may be agreed upon between the Member paying the sum in advance and the Directors. FORFEITURE OF SHARES 23. If a Member fails to pay any call or instalment of a call on the day appointed for payment thereof, the Directors may, at any time thereafter during such time as any part of such call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued. 24. The notice shall name a further day (not earlier than the expiration of 14 days from the date of the notice) on or before which the payment required by the notice is to be made, and shall state that in the event of non-payment at or before the time appointed the shares in respect of which the call was made will be liable to be forfeited. 25. If the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by notice has been made, be forfeited by a resolution of the Directors to that effect. 26. A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the Directors think fit, and at any time before a sale or disposition the forfeiture may be cancelled on such terms as the Directors think fit. 27. A person whose shares have been forfeited shall cease to be a Member in respect of the forfeited shares, but shall, notwithstanding, remain liable to pay to the Company all moneys which at the date of forfeiture were payable by him to the Company in respect of the shares, but his liability shall cease if and when the Company receives payment in full of the fully paid up amount of the shares. 28. A statutory declaration in writing that the declarant is a Director of the Company, and that a share in the Company has been duly forfeited on a date stated in the declaration, shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share. The Company may receive the consideration, if any, given for the share on any sale or disposition thereof and may execute a transfer of the share in favour of the person to 5 whom the share is sold or disposed of and he shall thereupon be registered as the holder of the share, and shall not be bound to see to the application of the purchase money, if any, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the share. 29. The provisions of these Articles as to forfeiture shall apply in the case of non-payment of any sum which by the terms of issue of a share becomes due and payable, whether on account of the amount of the share, or by way of premium, as if the same had been payable by virtue of a call duly made and notified. TRANSFER OF SHARES 30. The instrument of transfer of any share shall be in any usual or common form or such other form as the Directors may approve and executed by or on behalf of the transferor and if in respect of a nil or partly paid share or if so required by the Directors shall also be executed on behalf of the transferee and shall be accompanied by the certificate of the shares to which it relates and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer. The transferor shall be deemed to remain a holder of the share until the name of the transferee is entered in the Register of Members in respect thereof. 31. The Directors may in their absolute discretion decline to register any transfer of shares without assigning any reason therefor. If the Directors refuse to register a transfer of any shares, they shall within two months after the date on which the transfer was lodged with the Company send to the transferee notice of the refusal. 32. The registration of transfers may be suspended at such times and for such periods as the Directors may from time to time determine, provided always that such registration shall not be suspended for more than 45 days in any year. 33. All instruments of transfer which shall be registered shall be retained by the Company, but any instrument of transfer which the Directors may decline to register shall (except in any case of fraud) be returned to the person depositing the same. TRANSMISSION OF SHARES 34. The legal personal representative of a deceased sole holder of a share shall be the only person recognised by the Company as having any title to the share. In the case of a share registered in the name of two or more holders, the survivors or survivor, or the legal personal representatives of the deceased survivor, shall be the only person recognised by the Company as having any title to the share. 35. Any person becoming entitled to a share in consequence of the death or bankruptcy of a Member shall upon such evidence being produced as may from time to time be properly required by the Directors, have the right either to be registered as a member in respect of the share or, instead of being registered himself, to make such transfer of the share as the deceased or bankrupt person could have made; but the Directors shall, in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by the deceased or bankrupt person before the death or bankruptcy. 6 36. A person becoming entitled to a share by reason of the death or bankruptcy of the holder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share, except that he shall not, before being registered as a Member in respect of the share, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the Company. ALTERATION OF CAPITAL 37. The Company may from time to time by Ordinary Resolution increase the share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe. 38. The Company may by Ordinary Resolution: (a) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares; (b) convert all or any of its paid up shares into stock and reconvert that stock into paid up shares of any denomination; (c) subdivide its existing shares, or any of them into shares of a smaller amount provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived; (d) cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled. 39. The Company may by Special Resolution reduce its share capital and any capital redemption reserve in any manner authorised by law. REDEMPTION AND PURCHASE OF OWN SHARES 40. Subject to the provisions of the Companies Law, the Company may: (a) issue shares on terms that they are to be redeemed or are liable to be redeemed at the option of the Company or the Member on such terms and in such manner as the Directors may, before the issue of such shares, determine; (b) purchase its own shares (including any redeemable shares) on such terms and in such manner as the Directors may determine and agree with the Member; and (c) make a payment in respect of the redemption or purchase of its own shares otherwise than out of profits or the proceeds of a fresh issue of shares. 41. Any share in respect of which notice of redemption has been given shall not be entitled to participate in the profits of the Company in respect of the period after the date specified as the date of redemption in the notice of redemption. 7 42. The redemption or purchase of any share shall not be deemed to give rise to the redemption or purchase of any other share. 43. The Directors may when making payments in respect of redemption or purchase of shares, if authorised by the terms of issue of the shares being redeemed or purchased or with the agreement of the holder of such shares, make such payment either in cash or in specie. CLOSING REGISTER OF MEMBERS OR FIXING RECORD DATE 44. For the purpose of determining those Members that are entitled to receive notice of, attend or vote at any meeting of Members or any adjournment thereof, or those Members that are entitled to receive payment of any dividend, or in order to make a determination as to who is a Member for any other purpose, the Directors may provide that the Register of Members shall be closed for transfers for a stated period but not to exceed in any case 40 days. If the Register of Members shall be so closed for the purpose of determining those Members that are entitled to receive notice of, attend or vote at a meeting of Members such register shall be so closed for at least 10 days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the Register of Members. 45. In lieu of or apart from closing the Register of Members, the Directors may fix in advance a date as the record date for any such determination of those Members that are entitled to receive notice of, attend or vote at a meeting of the Members and for the purpose of determining those Members that are entitled to receive payment of any dividend the Directors may, at or within 90 days prior to the date of declaration of such dividend fix a subsequent date as the record date for such determination. 46. If the Register of Members is not so closed and no record date is fixed for the determination of those Members entitled to receive notice of, attend or vote at a meeting of Members or those Members that are entitled to receive payment of a dividend, the date on which notice of the meeting is posted or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Members. When a determination of those Members that are entitled to receive notice of, attend or vote at a meeting of Members has been made as provided in this section, such determination shall apply to any adjournment thereof. GENERAL MEETINGS 47. The Directors may, whenever they think fit, convene a general meeting of the Company. 48. General meetings shall also be convened on the written requisition of any Member or Members entitled to attend and vote at general meetings of the Company who hold not less than 10 per cent of the paid up voting share capital of the Company deposited at the registered office of the Company specifying the objects of the meeting for a date no later than 21 days from the date of deposit of the requisition signed by the requisitionists, and if the Directors do not convene such meeting for a date not later than 45 days after the date of such deposit, the requisitionists themselves may convene the general meeting in the same manner, as nearly as possible, as that in which meetings may be convened by the Directors, and all reasonable expenses incurred by the requisitionists as a result of the failure of the Directors shall be reimbursed to them by the Company. 8 49. If at any time there are no Directors of the Company, any two Members (or if there is only one Member then that Member) entitled to vote at general meetings of the Company may convene a general meeting in the same manner as nearly as possible as that in which meetings may be convened by the Directors. NOTICE OF GENERAL MEETINGS 50. At least seven days notice counting from the date service is deemed to take place as provided in these Articles specifying the place, the day and the hour of the meeting and, in case of special business, the general nature of that business, shall be given in manner hereinafter provided or in such other manner (if any) as may be prescribed by the Company by Ordinary Resolution to such persons as are, under these Articles, entitled to receive such notices from the Company, but with the consent of all the Members entitled to receive notice of some particular meeting and attend and vote thereat, that meeting may be convened by such shorter notice or without notice and in such manner as those Members may think fit. 51. The accidental omission to give notice of a meeting to or the non-receipt of a notice of a meeting by any Member shall not invalidate the proceedings at any meeting. PROCEEDINGS AT GENERAL MEETINGS 52. All business carried out at a general meeting shall be deemed special with the exception of sanctioning a dividend, the consideration of the accounts, balance sheets, and ordinary report of the Directors and the Company's auditors, and the appointment and removal of Directors and the fixing of the remuneration of the Company's auditors. No special business shall be transacted at any general meeting without the consent of all Members entitled to receive notice of that meeting unless notice of such special business has been given in the notice convening that meeting. 53. No business shall be transacted at any general meeting unless a quorum of Members is present at the time when the meeting proceeds to business. Save as otherwise provided by these Articles, one or more Members holding at least a majority of the paid up voting share capital of the Company present in person or by proxy shall be a quorum. 54. If within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of Members, shall be dissolved. In any other case it shall stand adjourned to the same day in the next week, at the same time and place, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting the Member of Members present and entitled to vote shall be a quorum. 55. The chairman, if any, of the Board of Directors shall preside as chairman at every general meeting of the Company. 56. If there is no such chairman, or if at any meeting he is not present within fifteen minutes after the time appointed for holding the meeting or is unwilling to act as chairman, the Members present shall choose one of their number to be chairman. 57. The chairman may with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting) adjourn a meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. When a meeting is 9 adjourned for 10 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Save as aforesaid it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting. 58. At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands, unless a poll is (before or on the declaration of the result of the show of hands) demanded by one or more Members present in person or by proxy entitled to vote and who together hold not less than 10 per cent of the paid up voting share capital of the Company, and unless a poll is so demanded, a declaration by the chairman that a resolution has, on a show of hands, been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the book of the proceedings of the Company, shall be conclusive evidence of the fact, without proof of the number or proportion of the votes recorded in favour of, or against, that resolution. 59. If a poll is duly demanded it shall be taken in such manner as the chairman directs, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. 60. In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takes place or at which the poll is demanded, shall be entitled to a second or casting vote. 61. A poll demanded on the election of a chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the chairman of the meeting directs. VOTES OF MEMBERS 62. Subject to any rights and restrictions for the time being attached to any class or classes of shares, on a show of hands every Member present in person and every person representing a Member by proxy shall at a general meeting of the Company have one vote and on a poll every Member and every person representing a Member by proxy shall have one vote for each share of which he or the person represented by proxy is the holder. 63. In the case of joint holders the vote of the senior who tenders a vote whether in person or by proxy shall be accepted to the exclusion of the votes of the joint holders and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members. 64. A Member of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee, or other person in the nature of a committee appointed by that court and any such committee or other person, may on a poll, vote by proxy. 65. No Member shall be entitled to vote at any general meeting unless all calls or other sums presently payable by him in respect of shares in the Company have been paid. 66. On a poll votes may be given either personally or by proxy. 67. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under seal 10 or under the hand of an officer or attorney duly authorised. A proxy need not be a Member of the Company. 68. An instrument appointing a proxy may be in any usual or common form or such other form as the Directors may approve. 69. The instrument appointing a proxy shall be deemed to confer authority to demand or join in demanding a poll. 70. A resolution in writing signed by all the Members for the time being entitled to receive notice of and to attend and vote at general meetings (or being corporations by their duly authorised representatives) shall be as valid and effective as if the same had been passed at a general meeting of the Company duly convened and held. CORPORATIONS ACTING BY REPRESENTATIVES AT MEETINGS 71. Any corporation which is a Member or a Director may by resolution of its directors or other governing body authorise such person as it thinks fit to act as its representative at any meeting of the Company or of any class of Members or of the Board of Directors or of a committee of Directors, and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual Member or Director. DIRECTORS 72. The name of the first Director(s) shall either be determined in writing by a majority (or in the case of a sole subscriber that subscriber) of, or elected at a meeting of, the subscribers of the Memorandum of Association. 73. The Company may by Ordinary Resolution appoint any person to be a Director. 74. Subject to the provisions of these Articles, a Director shall hold office until such time as he is removed from office by the Company by Ordinary Resolution. 75. The Company may by Ordinary Resolution from time to time fix the maximum and minimum number of Directors to be appointed but unless such number is fixed as aforesaid the number of Directors shall be unlimited. 76. The remuneration of the Directors shall from time to time be determined by the Company by Ordinary Resolution. 77. The shareholding qualification for Directors may be fixed by the Company by Ordinary Resolution and unless and until so fixed no share qualification shall be required. 78. The Directors shall have power at any time and from time to time appoint a person as Director, either as a result of a casual vacancy or as an additional Director, subject to the maximum number (if any) imposed by the Company by Ordinary Resolution. 11 ALTERNATE DIRECTOR 79. Any Director may in writing appoint another person to be his alternate to act in his place at any meeting of the Directors at which he is unable to be present. Every such alternate shall be entitled to notice of meetings of the Directors and to attend and vote thereat as a Director when the person appointing him is not personally present and where he is a Director to have a separate vote on behalf of the Director he is representing in addition to his own vote. A Director may at any time in writing revoke the appointment of an alternate appointed by him. Such alternate shall not be an officer of the Company and shall be deemed to be the agent of the Director appointing him. The remuneration of such alternate shall be payable out of the remuneration of the Director appointing him and the proportion thereof shall be agreed between them. 80. Any Director may appoint any person, whether or not a Director, to be the proxy of that Director to attend and vote on his behalf, in accordance with instructions given by that Director, or in the absence of such instructions at the discretion of the proxy, at a meeting or meetings of the Directors which that Director is unable to attend personally. The instrument appointing the proxy shall be in writing under the hand of the appointing Director and shall be in any usual or common form or such other form as the Directors may approve, and must be lodged with the chairman of the meeting of the Directors at which such proxy is to be used, or first used, prior to the commencement of the meeting. POWERS AND DUTIES OF DIRECTORS 81. Subject to the provisions of the Companies Law, these Articles and to any resolutions made in a general meeting, the business of the Company shall be managed by the Directors, who may pay all expenses incurred in setting up and registering the Company and may exercise all powers of the Company. No resolution made by the Company in general meeting shall invalidate any prior act of the Directors which would have been valid if that resolution had not been made. 82. The Directors may from time to time appoint any person, whether or not a director of the Company to hold such office in the Company as the Directors may think necessary for the administration of the Company, including without prejudice to the foregoing generality, the office of President, one or more Vice-Presidents, Treasurer, Assistant Treasurer, Manager or Controller, and for such term and at such remuneration (whether by way of salary or commission or participation in profits or partly in one way and partly in another), and with such powers and duties as the Directors may think fit. The Directors may also appoint one or more of their number to the office of Managing Director upon like terms, but any such appointment shall ipso facto determine if any Managing Director ceases from any cause to be a Director, or if the Company by Ordinary Resolution resolves that his tenure of office be terminated. 83. The Directors may appoint the Company Secretary (and if need be an Assistant Secretary or Assistant Secretaries) who shall hold office for such term, at such remuneration and upon such conditions and with such powers as they think fit. Any Secretary or Assistant Secretary so appointed by the Directors may be removed by the Directors. 12 84. The Directors may delegate any of their powers to committees consisting of such member or members of their body as they think fit: any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the Directors. 85. The Directors may from time to time and at any time by power of attorney appoint any company, firm or person or body of persons, whether nominated directly or indirectly by the Directors, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretion (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Directors may think fit, and may also authorise any such attorney to delegate all or any of the powers, authorities and discretion vested in him. 86. The Directors may from, time to time provide for the management of the affairs of the Company in such manner as they shall think fit and the provisions contained in the three next following paragraphs shall be without prejudice to the general powers conferred by this paragraph. 87. The Directors from time to time and at any time may establish any committees, local boards or agencies for managing any of the affairs of the company and may appoint any persons to be members of such committees or local boards and may appoint any managers or agents of the Company and may fix the remuneration of any of the aforesaid. 88. The Directors from time to time and at any time may delegate to any such committee, local board, manager or agent any of the powers, authorities and discretions for the time being vested in the Directors and may authorise the members for the time being of any such local board, or any of them to fill up any vacancies therein and to act notwithstanding vacancies and any such appointment or delegation may be made on such terms and subject to such conditions as the Directors may think fit and the Directors may at any time remove any person so appointed and may annul or vary any such delegation, but no person dealing in good faith and without notice of any such annulment or variation shall be affected thereby. 89. Any such delegates aforesaid may be authorised by the Directors to subdelegate all or any of the powers, authorities, and discretion for the time being vested to them. BORROWING POWERS OF DIRECTORS 90. The Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the Company or of any third party. THE SEAL 91. The Seal of the Company shall not be affixed to any instrument except by the authority of a resolution of the Board of Directors provided always that such authority may be given prior to or after the affixing of the Seal and if given after may be in general form confirming a number of affixings of the Seal. The Seal shall be affixed in the presence of a Director or the Secretary (or an Assistant Secretary) of the Company or in the presence of any one or more 13 persons as the Directors may appoint for the purpose and every person as aforesaid shall sign every instrument to which the Seal of the Company is so affixed in their presence. 92. The Company may maintain a facsimile of its Seal in such countries or places as the Directors may appoint and such facsimile Seal shall not be affixed to any instrument except by the authority of a resolution of the Board of Directors provided always that such authority may be given prior to or after the affixing of such facsimile Seal and if given after may be in general form confirming a number of affixings of such facsimile Seal. The facsimile Seal shall be affixed in the presence of such person or persons as the Directors shall for this purpose appoint and such person or persons as aforesaid shall sign every instrument to which the facsimile Seal of the Company is so affixed in their presence and such affixing of the facsimile Seal and signing as aforesaid shall have the same meaning and effect as if the Company Seal had been affixed in the presence of and the instrument signed by a Director or the Secretary (or an Assistant Secretary) of the Company or in the presence of any one or more persons as the Directors may appoint for the purpose. 93. Notwithstanding the foregoing, the Secretary or any Assistant Secretary shall have the authority to affix the Seal, or the facsimile Seal, to any instrument for the purposes of attesting authenticity of the matter contained therein but which does not create any obligation binding on the Company. DISQUALIFICATION OF DIRECTORS 94. The office of Director shall be vacated, if the Director: (a) becomes bankrupt or makes any arrangement or composition with his creditors; (b) is found to be or becomes of unsound mind; or (c) resigns his office by notice in writing to the Company. PROCEEDINGS OF DIRECTORS 95. The Directors may meet together (either within or without the Cayman Islands) for the despatch of business, adjourn, and otherwise regulate their meetings and proceedings as they think fit. Questions arising at any meeting shall be decided by a majority of votes. In case of an equality of votes the chairman shall have a second or casting vote. A Director may, and the Secretary or Assistant Secretary on the requisition of a Director shall, at any time summon a meeting of the Directors. 96. A Director or Directors may participate in any meeting of the Board of Directors, or of any committee appointed by the Board of Directors of which such Director or Directors are members, by means of telephone or similar communication equipment by way of which all persons participating in such meeting can hear each other and such participation shall be deemed to constitute presence in person at the meeting. 97. The quorum necessary for the transaction of the business of the Directors may be fixed by the Directors, and unless so fixed, if there be more than two Directors shall be two, and if there be two or less Directors shall be one. A Director represented by proxy or by an Alternate 14 Director at any meeting shall be deemed to be present for the purposes of determining whether or not a quorum is present. 98. A Director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the Company shall declare the nature of his interest at a meeting of the Directors. A general notice given to the Directors by any Director to the effect that he is a member of any specified company or firm and is to be regarded as interested in any contract which may thereafter be made with that company or firm shall be deemed a sufficient declaration of interest in regard to any contract so made. A Director may vote in respect of any contract or proposed contract or arrangement notwithstanding that he may be interested therein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of the Directors at which any such contract or proposed contract or arrangement shall come before the meeting for consideration. 99. A Director may hold any other office or place of profit under the Company (other than the office of auditor) in conjunction with his office of Director for such period on such terms (as to remuneration and otherwise) as the Directors may determine and no Director or intending Director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any such other office or place of profit or as vendor, purchaser or otherwise, nor shall any such contract or arrangement entered into by or on behalf of the Company in which any Director is in any way interested, be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason of such Director holding that office or of the fiduciary relation thereby established. A Director, notwithstanding his interest, may be counted in the quorum present at any meeting whereat he or any other Director is appointed to hold any such office or place of profit under the Company or whereat the terms of any such appointment are arranged and he may vote on any such appointment or arrangement. 100. Any Director may act by himself or his firm in a professional capacity for the Company, and he or his firm shall be entitled to remuneration for professional services as if he were not a Director; provided that nothing herein contained shall authorise a Director or his firm to act as auditor to the Company. 101. The Directors shall cause minutes to be made in books or loose-leaf folders provided for the purpose of recording: (a) all appointments of officers made by the Directors; (b) the names of the Directors present at each meeting of the Directors and of any committee of the Directors; (c) all resolutions and proceedings at all meetings of the Company, and of the Directors and of committees of Directors. 102. When the chairman of a meeting of the Directors signs the minutes of such meeting the same shall be deemed to have been duly held notwithstanding that all the Directors have not actually come together or that there may have been a technical defect in the proceedings. 15 103. A resolution signed by all the Directors shall be as valid and effectual as if it had been passed at a meeting of the Directors duly called and constituted. When signed a resolution may consist of several documents each signed by one or more of the Directors. 104. The continuing Directors may act notwithstanding any vacancy in their body but if and so long as their number is reduced below the number fixed by or pursuant to the Articles of the Company as the necessary quorum of Directors, the continuing Directors may act for the purpose of increasing the number, or of summoning a general meeting of the Company, but for no other purpose. 105. The Directors may elect a chairman of their meetings and determine the period for which he is to hold office but if no such chairman is elected, or if at any meeting the chairman is not present within fifteen minutes after the time appointed for holding the same, the Directors present may choose one of their number to be chairman of the meeting. 106. A committee appointed by the Directors may elect a chairman of its meetings. If no such chairman is elected, or if at any meeting the chairman is not present within five minutes after the time appointed for holding the same, the members present may choose one of their number to be chairman of the meeting. 107. A committee appointed by the Directors may meet and adjourn as it thinks proper. Questions arising at any meeting shall be determined by a majority of votes of the committee members present and in case of an equality of votes the chairman shall have a second or casting vote. 108. All acts done by any meeting of the Directors or of a committee of Directors, or by any person acting as a Director, shall notwithstanding that it be afterwards discovered that there was some defect in the appointment of any such Director or person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director. DIVIDENDS 109. Subject to any rights and restrictions for the time being attached to any class or classes of shares, the Directors may from time to time declare dividends (including interim dividends) and other distributions on shares in issue and authorise payment of the same out of the funds of the Company lawfully available therefor. 110. Subject to any rights and restrictions for the time being attached to any class or classes of shares, the Company by Ordinary Resolution may declare dividends, but no dividend shall exceed the amount recommended by the Directors. 111. The Directors may, before recommending or declaring any dividend, set aside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, at the discretion of the Directors be applicable for meeting contingencies, or for equalising dividends or for any other purpose to which those funds be properly applied and pending such application may, at the like discretion, either be employed in the business of the Company or be invested in such investments (other than shares of the Company) as the Directors may from time to time think fit. 112. Any dividend may be paid by cheque or warrant sent through the post to the registered address of the Member or person entitled thereto, or in the case of joint holders, to any one 16 of such joint holders at his registered address or to such person and such address as the Member or person entitled, or such joint holders as the case may be, may direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent or to the order of such other person as the Member or person entitled, or such joint holders as the case may be, may direct. 113. The Directors when paying dividends to the Members in accordance with the foregoing provisions may make such payment either in cash or in specie. 114. No dividend shall be paid otherwise than out of profits or, subject to the restrictions of the Companies Law, the share premium account. 115. Subject to the rights of persons, if any, entitled to shares with special rights as to dividends, all dividends shall be declared and paid according to the amounts paid on the shares, but if and so long as nothing is paid up on any of the shares in the Company dividends may be declared and paid according to the amounts of the shares. No amount paid on a share in advance of calls shall, while carrying interest, be treated for the purposes of this Article as paid on the share. 116. If several persons are registered as joint holders of any share, any of them may give effectual receipts for any dividend or other moneys payable on or in respect of the share. 117. No dividend shall bear interest against the Company. ACCOUNTS AND AUDIT 118. The books of account relating to the Company's affairs shall be kept in such manner as may be determined from time to time by the Directors. 119. The books of account shall be kept at the registered office of the Company, or at such other place or places as the Directors think fit, and shall always be open to the inspection of the Directors. 120. The Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Members not being Directors, and no Member (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by law or authorised by the Directors or by the Company by Ordinary Resolution. 121. The accounts relating to the Company's affairs shall be audited in such manner and with such financial year end as may be determined from time to time by the Company by Ordinary Resolution or failing any such determination by the Directors or failing any determination as aforesaid shall not be audited. CAPITALISATION OF PROFITS 122. Subject to the Companies Law, the Board may, with the authority of an Ordinary Resolution: 17 (a) resolve to capitalise an amount standing to the credit of reserves (including a share premium account, capital redemption reserve and profit and loss account), whether or not available for distribution: (b) appropriate the sum resolved to be capitalised to the Members in proportion to the nominal amount of shares (whether or not fully paid) held by them respectively and apply that sum on their behalf in or towards: (i) paying the amounts (if any) for the time being unpaid on shares held by them respectively, or (ii) paying up in full unissued shares or debentures of a nominal amount equal to that sum, and allot the shares or debentures, credited as fully paid, to the Members (or as they may direct) in those proportions, or partly in one way and partly in the other, but the share premium account, the capital redemption reserve and profits which are not available for distribution may, for the purposes of this Article, only be applied in paying up unissued shares to be allotted to members credited as fully paid; (c) make any arrangements it thinks fit to resolve a difficulty arising in the distribution of a capitalised reserve and in particular, without limitation, where shares or debentures become distributable in fractions the Board may deal with the fractions as it thinks fit; (d) authorise a person to enter (on behalf of all the Members concerned) an agreement with the Company providing for either: (i) the allotment to the members respectively, credited as fully paid, of shares or debentures to which they may be entitled on the capitalisation, or (ii) the payment by the Company on behalf of the Members (by the application of their respective proportions of the reserves resolved to be capitalised) of the amounts or part of the amounts remaining unpaid on their existing shares. an agreement made under the authority being effective and binding on all those Members; and (e) generally do all acts and things required to give effect to the resolution. SHARE PREMIUM ACCOUNT 123. The Board of Directors shall in accordance with Section 34 of the Companies Law establish a share premium account and shall carry to the credit of such account from time to time a sum equal to the amount or value of the premium paid on the issue of any share. 124. There shall be debited to any share premium account on the redemption or purchase of a share the difference between the nominal value of such share and the redemption or purchase price provided always that at the discretion of the Board of Directors such sum may be paid out of 18 the profits of the Company or, if permitted by Section 37 of the Companies Law, out of capital. NOTICES 125. Any notice or document may be served by the Company or by the person entitled to give notice to any Member either personally, by facsimile or by sending it through the post in a prepaid letter or via a recognised courier service, fees prepaid, addressed to the Member at his address as appearing in the Register of Members. In the case of joint holders of a share, all notices shall be given to that one of the joint holders whose name stands first in the Register of Members in respect of the joint holding, and notice so given shall be sufficient notice to all the joint holders. 126. Notices posted to addresses outside the Cayman Islands shall be forwarded by prepaid airmail. 127. Any Member present, either personally or by proxy, at any meeting of the Company shall for all purposes be deemed to have received due notice of such meeting and, where requisite, of the purposes for which such meeting was convened. 128. Any notice or other document, if served by (a) post, shall be deemed to have been served five days after the time when the letter containing the same is posted and if served by courier, shall be deemed to have been served five days after the time when the letter containing the same is delivered to the courier (in proving such service it shall be sufficient to prove that the letter containing the notice or document was properly addressed and duly posted or delivered to the courier), or, (b) facsimile, shall be deemed to have been served upon confirmation of receipt or (c) recognised delivery service, shall be deemed to have been served 48 hours after the time when the letter containing the same is delivered to the courier service and in proving such service it shall be sufficient to prove that the letter containing the notice or documents was properly addressed and duly posted or delivered to the courier. 129. Any notice or document delivered or sent by post to or left at the registered address of any Member in accordance with the terms of these Articles shall notwithstanding that such Member be then dead or bankrupt, and whether or not the Company has notice of his death or bankruptcy, be deemed to have been duly served in respect of any share registered in the name of such Member as sole or joint holder, unless his name shall at the time of the service of the notice or document, have been removed from the Register of Members as the holder of the share, and such service shall for all purposes be deemed a sufficient service of such notice or document on all persons interested (whether jointly with or as claiming through or under him) in the share. 130. Notice of every general meeting shall be given to: (a) all Members who have supplied to the Company an address for the giving of notices to them; and (b) every person entitled to a share in consequence of the death or bankruptcy of a Member, who but for his death or bankruptcy would be entitled to receive notice of the meeting. No other person shall be entitled to receive notices of general meetings. 19 INDEMNITY 131. Every Director (including for the purposes of this Article any Alternate Director appointed pursuant to the provisions of these Articles). Managing Director, agent, Secretary, Assistant Secretary, or other officer for the time being and from time to time of the Company (but not including the Company's auditor) and the personal representatives of the same shall be indemnified and secured harmless out of the assets and funds of the Company against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by him in or about the conduct of the Company's business or affairs or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by him in defending (whether successfully or otherwise) any civil proceedings concerning the Company or its affairs in any court whether in the Cayman Islands or elsewhere. 132. No such Director, Alternate Director, Managing Director, agent, Secretary, Assistant Secretary or other officer of the Company (but not including the Company's auditor) shall be liable (i) for the acts, receipts, neglects, defaults or omissions of any other such director or officer or agent of the Company or (ii) by reason of his having joined in any receipt for money not received by him personally or (iii) for any loss on account of defect of title to any property of the Company or (iv) on account of the insufficiency of any security in or upon which any money of the Company shall be invested or (v) for any loss incurred through any bank, broker or other agent or (vi) for any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgement or oversight on his part or (vii) for any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the duties, powers authorities, or discretions of his office or in relation thereto, unless the same shall happen through his own dishonesty. NON-RECOGNITION OF TRUSTS 133. No person shall be recognised by the Company as holding any share upon any trust and the Company shall not, unless required by law, be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent or future interest in any of its shares or any other rights in respect thereof except an absolute right to the entirety thereof in each Member registered in the Register of Members. WINDING UP 134. If the Company shall be wound up the liquidator may, with the sanction of an Ordinary Resolution of the Company divide amongst the Members in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may, for such purpose set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as the liquidator, with the like sanction shall think fit, but so that no Member shall be compelled to accept any shares or other securities whereon there is any liability. 20 AMENDMENT OF ARTICLES OF ASSOCIATION 135. Subject to the Companies Law and the rights attaching to the various classes of shares, the Company may at any time and from time to time by Special Resolution alter or amend these Articles in whole or in part. REGISTRATION BY WAY OF CONTINUATION 136. The Company may by Special Resolution resolve to be registered by way of continuation in a jurisdiction outside the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing. In furtherance of a resolution adopted pursuant to this Article, the Directors may cause an application to be made to the Registrar of Companies to deregister the Company in the Cayman Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing and may cause all such further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company. 21 _______________________________________________________________________________ NAME, ADDRESS AND DESCRIPTION OF SUBSCRIBER _______________________________________________________________________________ JONATHAN CULSHAW P.O. Box 265GT, Grand Cayman (Sgd.) JONATHAN CULSHAW _______________________ JONATHAN CULSHAW Attorney-at-Law 3 April 2001 (Sgd.): PAULA SHEAFF ____________________________________________ Witness to the above signature: PAULA SHEAFF Address: P.O. Box 265GT, Grand Cayman Occupation: Secretary I, DONNELL H. DIXON, Asst, Registrar of Companies, in and for the Cayman Islands, DO HEREBY CERTIFY that this is a true copy of the Articles of Association of VALE OVERSEAS LIMITED Dated this 3rd of April, 2001. /s/ DONNELL H. DIXON ____________________ [REGISTRAR OF COMPANIES EXEMPTED CAYMAN ISLANDS STAMP] 22 EX-4.1 5 y58436ex4-1.txt INDENTURE Exhibit 4.1 Dated as of March 8, 2002 VALE OVERSEAS LIMITED, AS COMPANY and COMPANHIA VALE DO RIO DOCE, AS GUARANTOR and JPMORGAN CHASE BANK, AS TRUSTEE INDENTURE LINKLATERS 1345 Avenue of the Americas 19th Floor New York, NY 10105 Telephone: (1-212) 424 9000 Facsimile: (1-212) 424 9100 Ref: PERR/SEYB LINKLATERS & ALLIANCE Linklaters is a member firm of Linklaters & Alliance a non-partnership association TABLE OF CONTENTS
PAGE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION............. 1 1.1 DEFINITIONS.................................................. 1 1.2 COMPLIANCE CERTIFICATES AND OPINIONS......................... 9 1.3 FORM OF DOCUMENTS DELIVERED TO TRUSTEE....................... 10 1.4 ACTS OF HOLDERS; RECORD DATES................................ 10 1.5 NOTICES, ETC., TO TRUSTEE, COMPANY AND GUARANTOR............. 12 1.6 NOTICE TO HOLDERS; WAIVER.................................... 13 1.7 CONFLICT WITH TRUST INDENTURE ACT............................ 13 1.8 EFFECT OF HEADINGS AND TABLE OF CONTENTS..................... 14 1.9 SUCCESSORS AND ASSIGNS....................................... 14 1.10 SEPARABILITY CLAUSE.......................................... 14 1.11 BENEFITS OF INDENTURE........................................ 14 1.12 GOVERNING LAW................................................ 14 1.13 LEGAL HOLIDAYS............................................... 14 1.14 CONSENT TO SERVICE; JURISDICTION............................. 14 1.15 LANGUAGE OF NOTICES, ETC..................................... 15 2 SECURITY FORMS...................................................... 15 2.1 FORMS GENERALLY.............................................. 15 2.2 FORM OF FACE OF SECURITY..................................... 16 2.3 FORM OF REVERSE OF SECURITY.................................. 18 2.4 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION............. 24 3 THE SECURITIES...................................................... 25 3.1 AMOUNT UNLIMITED; ISSUABLE IN SERIES......................... 25 3.2 DENOMINATIONS................................................ 27 3.3 EXECUTION, AUTHENTICATION, DELIVERY AND DATING............... 27 3.4 REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.......... 29 3.5 MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES............. 32 3.6 PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED............... 32 3.7 PERSONS DEEMED OWNERS........................................ 33 3.8 CANCELLATION................................................. 34 3.9 COMPUTATION OF INTEREST...................................... 34 3.10 CUSIP OR "ISIN" NUMBERS...................................... 34
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PAGE 4 SATISFACTION AND DISCHARGE......................................... 34 4.1 SATISFACTION AND DISCHARGE OF INDENTURE..................... 34 4.2 APPLICATION OF TRUST MONEY.................................. 35 5 REMEDIES........................................................... 36 5.1 EVENTS OF DEFAULT........................................... 36 5.2 ILLEGALITY EVENTS........................................... 37 5.3 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.......... 37 5.4 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE...................................... 39 5.5 TRUSTEE MAY FILE PROOFS OF CLAIM............................ 39 5.6 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES. 40 5.7 APPLICATION OF MONEY COLLECTED.............................. 40 5.8 LIMITATION ON SUITS......................................... 40 5.9 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST........................................ 41 5.10 RESTORATION OF RIGHTS AND REMEDIES.......................... 41 5.11 RIGHTS AND REMEDIES CUMULATIVE.............................. 41 5.12 DELAY OR OMISSION NOT WAIVER................................ 41 5.13 CONTROL BY HOLDERS.......................................... 42 5.14 WAIVER OF PAST DEFAULTS..................................... 42 5.15 UNDERTAKING FOR COSTS....................................... 42 5.16 WAIVER OF USURY, STAY OR EXTENSION LAWS..................... 42 6 THE TRUSTEE........................................................ 43 6.1 CERTAIN DUTIES AND RESPONSIBILITIES......................... 43 6.2 NOTICE OF DEFAULT; POTENTIAL DEFAULT........................ 43 6.3 CERTAIN RIGHTS OF TRUSTEE................................... 43 6.4 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES...... 45 6.5 MAY HOLD SECURITIES......................................... 45 6.6 MONEY HELD IN TRUST......................................... 45 6.7 COMPENSATION AND REIMBURSEMENT.............................. 45 6.8 CONFLICTING INTERESTS....................................... 46 6.9 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY..................... 46 6.10 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR........... 46 6.11 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR...................... 48 6.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. 49 6.13 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY........... 49 6.14 APPOINTMENT OF AUTHENTICATING AGENT......................... 49
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6.15 APPOINTMENT OF LUXEMBOURG TRANSFER AGENT................... 51 6.16 TRUSTEE'S APPLICATION FOR INSTRUCTIONS FROM THE COMPANY.... 51 7 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY................. 51 7.1 COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.. 51 7.2 PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS..... 51 7.3 REPORTS BY TRUSTEE......................................... 52 8 CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE.............. 52 8.1 COMPANY AND GUARANTOR MAY CONSOLIDATE, ETC. ONLY ON CERTAIN TERMS...................................... 52 8.2 SUCCESSOR SUBSTITUTED...................................... 53 8.3 RIGHT TO REDEMPTION........................................ 53 9 SUPPLEMENTAL INDENTURES........................................... 53 9.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS......... 53 9.2 SUPPLEMENTAL INDENTURES OR WAIVER WITH CONSENT OF HOLDERS.. 55 9.3 EXECUTION OF SUPPLEMENTAL INDENTURES....................... 56 9.4 EFFECT OF SUPPLEMENTAL INDENTURES.......................... 56 9.5 CONFORMITY WITH TRUST INDENTURE ACT........................ 56 9.6 REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES......... 56 9.7 EFFECT OF WAIVER........................................... 56 10 COVENANTS......................................................... 57 10.1 PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST................. 57 10.2 MAINTENANCE OF OFFICE OR AGENCY............................ 57 10.3 MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST............ 58 10.4 STATEMENT BY OFFICERS AS TO DEFAULT........................ 59 10.5 REPORTS BY COMPANY AND GUARANTOR........................... 59 10.6 LIMITATION ON LIENS........................................ 59 10.7 PAYMENT OF ADDITIONAL AMOUNTS.............................. 60 10.8 INDEMNIFICATION OF JUDGMENT CURRENCY....................... 63 10.9 FURTHER ACTS; PROTECTION OF COLLATERAL..................... 63 10.10 NOTICE OF LATE PAYMENT..................................... 65 10.11 SECURITIES HELD BY THE COMPANY............................. 65 10.12 SECURITIES ISSUED OR OUTSTANDING........................... 65 10.13 STATUS OF GUARANTY AND SECURITIES.......................... 65 10.14 RATING..................................................... 65 10.15 MAINTENANCE OF GOOD STANDING............................... 65
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10.16 MAINTENANCE OF PROPERTIES.................................. 65 10.17 PAYMENT OF TAXES........................................... 66 10.18 OWNERSHIP OF THE COMPANY AND PAYMENT OF EXPENSES........... 66 10.19 FINANCIAL STATEMENTS AND REPORTS........................... 66 10.20 NOTICE TO TRUSTEE.......................................... 66 10.21 RESTRICTIONS ON THE COMPANY................................ 67 10.22 RESTRICTIONS ON THE GUARANTOR.............................. 67 10.23 CHANGE TO CONSTITUTIVE DOCUMENTS OF THE COMPANY............ 68 11 REDEMPTION OF SECURITIES.......................................... 68 11.1 RIGHT OF REDEMPTION........................................ 68 11.2 NOTICE OF REDEMPTION....................................... 69 11.3 DEPOSIT OF REDEMPTION PRICE................................ 69 11.4 SECURITIES PAYABLE ON REDEMPTION DATE...................... 70 11.5 SECURITIES REDEEMED IN PART................................ 70 12 GUARANTY.......................................................... 70 12.1 THE GUARANTY............................................... 70 12.2 GUARANTY UNCONDITIONAL..................................... 71 12.3 DISCHARGE; REINSTATEMENT................................... 71 12.4 WAIVER BY THE GUARANTOR.................................... 71 12.5 SUBROGATION AND CONTRIBUTION............................... 72 12.6 STAY OF ACCELERATION....................................... 72 12.7 EXECUTION AND DELIVERY OF GUARANTY......................... 72
Note: This table of contents shall not, for any purpose, be deemed to be a part of this Indenture. -iv- INDENTURE, dated as of March 8, 2002 among VALE OVERSEAS LIMITED, a Cayman exempted company incorporated with limited liability (herein called the "COMPANY"), having its principal office at Walker House, P.O. Box 908 GT, Mary Street, Georgetown, Grand Cayman, Cayman Islands, COMPANHIA VALE DO RIO DOCE, a company organized under the laws of the Federative Republic of Brazil (herein called the "GUARANTOR"), having its principal office at Avenida Graca Aranha, No. 26, 17(0) Andar, 20005-900 Rio de Janeiro, RJ, Brazil, and JPMORGAN CHASE BANK, a bank duly organized and existing under the laws of New York, as Trustee (herein called the "TRUSTEE"). RECITALS OF THE COMPANY AND THE GUARANTOR The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its debt securities (herein called collectively the "SECURITIES"), to be issued in one or more tranches of one or more series as in this Indenture provided. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. In addition, the Guarantor has duly authorized the execution and delivery of this Indenture as guarantor of the Securities. All things necessary to make this Indenture a valid agreement of the Guarantor, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: It is hereby covenanted and agreed that the terms and conditions upon which the Securities are issued, authenticated, delivered and accepted by all Persons (as defined below) who shall from time to time be or become the Holders thereof, and the terms and conditions upon which any property herein mortgaged and pledged is to be held and disposed of, which said terms and conditions the Trustee hereby accepts and agrees to discharge pursuant to the terms hereof, are as follows: 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION 1.1 DEFINITIONS For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: 1.1.1 the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; 1.1.2 terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; 1.1.3 all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States at the date of such computation; 1.1.4 unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or Section, as the case may be, of this Indenture; - 1 - 1.1.5 unless the context otherwise requires, any reference to a statute, rule or regulation refers to the same (including any successor statute, rule or regulation thereto) as it may be amended from time to time; and 1.1.6 the words "HEREIN", "HEREOF" and "HEREUNDER" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "ACT", when used with respect to any Holder, has the meaning specified in Section 1.4. "ADDITIONAL AMOUNTS" has the meaning specified in Section 10.7. "AFFILIATE" of any specified Person means (i) any other Person who directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with such specified Person or (ii) for the purposes of the definition of Indebtedness, any other Person in which such specified Person has a 20% or more holding of voting shares. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "AGENT MEMBERS" has the meaning specified in Section 3.4.5. "APPLICABLE PROCEDURES" of the Depositary means, with respect to any matter at any time, the policies and procedures of the Depositary, if any, that are applicable to such matter at such time. "AUTHENTICATING AGENT" means any Person authorized by the Trustee pursuant to Section 6.14 to act on behalf of the Trustee to authenticate Securities of one or more series. "BOARD OF DIRECTORS" means either the board of directors of the Company or the Guarantor, as applicable, or any committee of that board duly authorized to act for it in respect hereof. "BOARD RESOLUTION" means a copy of a resolution certified by the Secretary or an Assistant Secretary of each of the Company and the Guarantor to have been duly adopted by the Board of Directors of each of the Company and the Guarantor and to be in full force and effect on the date of such certification, and delivered to the Trustee. "BRAZIL" means the Federative Republic of Brazil. "BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in The City of New York or the City of Rio de Janeiro are authorized or obligated by law or executive order to close. "CLEARSTREAM, LUXEMBOURG" has the meaning specified in Section 3.4.5. "COMMISSION" means the U.S. Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of - 2 - this instrument such Commission is not existing and performing the duties now assigned to it under applicable law, then the body performing such duties at such time. "COMPANY" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "COMPANY REQUEST" or "COMPANY ORDER" means a written request or order signed on behalf of the Company by any two of its Directors or its attorneys in fact in accordance with its Bylaws and delivered to the Trustee. "CONSOLIDATED NET TANGIBLE ASSETS" means total assets (stated net of applicable reserves and other properly deductible items, to the extent not already deducted in the computation of total assets) after deducting therefrom (i) all current liabilities and (ii) all goodwill, trade names, trademarks, patents and other like intangible assets, each as set forth on the most recent balance sheet of the Guarantor and its consolidated Subsidiaries and computed in accordance with U.S. generally accepted accounting principles. "CORPORATE TRUST OFFICE" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered which office as of the date hereof is located at 450 West 33rd Street, New York, New York 10001, Attention: Institutional Trust Services. "CORPORATION" means a corporation, association, company, limited liability company, joint-stock company or business trust. "DEFAULTED INTEREST" has the meaning specified in Section 3.6. "DEFAULT RATE OF INTEREST" means the rate of interest otherwise payable on the principal of the Securities plus 1% per annum. "DEPOSITARY" means The Depository Trust Company until a successor Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Depositary" shall mean such successor Depositary. "DOLLAR" and "$" mean a U.S. Dollar or other equivalent unit in such coin or currency of the United States as at the time shall be legal tender for the payment of public and private debts. "EUROCLEAR" has the meaning specified in Section 3.4.5. "EVENT OF DEFAULT" has the meaning specified in Section 5.1. "EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934 and any successor statute thereto. "EXPIRATION DATE" has the meaning specified in Section 1.4.7. "FIRST SUPPLEMENTAL INDENTURE" has the meaning specified in Section 3.1. "FOREIGN TAXES" has the meaning specified in Section 10.7. - 3 - "GLOBAL SECURITY" means a Security that evidences all or part of the Securities of any series and is authenticated and delivered to, and registered in the name of, the Depositary for such Securities or a nominee thereof. "GUARANTOR" means the Person named as the "Guarantor" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Guarantor" shall mean such Person. "GUARANTY" means the guaranty of the Securities by the Guarantor pursuant to this Indenture. "HOLDER" means, with respect to any Security, a Person in whose name such Security is registered in the Security Register. "ILLEGALITY EVENT" has the meaning specified in Section 5.2. "INDEBTEDNESS" means any amount payable (whether as a direct obligation or indirectly through a guarantee by such person) pursuant to an agreement involving or evidencing money borrowed or received, a conditional sale or a transfer with recourse or with an obligation to repurchase or pursuant to a lease with substantially the same economic effect as any such agreement or instrument and which, under U.S. generally accepted accounting principles, would constitute a capitalized lease obligation, PROVIDED, HOWEVER, that as used in Section 5.1.3, "Indebtedness" shall not include any payment made by the Guarantor on behalf of an Affiliate, upon any Indebtedness of such Affiliate becoming immediately due and payable as a result of a default by such Affiliate, pursuant to a guarantee or similar instrument provided by the Guarantor in connection with such Indebtedness, provided that such payment made by the Guarantor is made within five Business Days of notice being provided to the Guarantor that payment is due under such guarantee or similar instrument. "INDENTURE" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. The term "Indenture" shall also include the terms of particular series of Securities established as contemplated by Section 3.1. "INTEREST PAYMENT DATE", when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "JUDGMENT CURRENCY" has the meaning specified in Section 10.8. "LIEN" means any mortgage, charge, pledge, lien, hypothecation, security interest or other encumbrance, including, without limitation, any equivalent of the foregoing created under the laws of the Cayman Islands, Brazil or any other jurisdiction. "MATURITY", when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, exercise of repurchase right or otherwise. - 4 - "MOODY'S" means Moody's Investors Service, Inc. "NOTICE OF DEFAULT" means a written notice of the kind specified in Section 6.2. "OFFICERS' CERTIFICATE" means a certificate signed in the name of the Company or the Guarantor by any two of its Directors or its attorneys in fact in accordance with its Bylaws, and delivered to the Trustee. "OPINION OF COUNSEL" means a written opinion of counsel, who may be counsel for the Company or the Guarantor, and who shall be reasonably acceptable to the Trustee. "OUTSTANDING", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose payment, redemption or repurchase money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; PROVIDED that, if such Securities are to be redeemed, notice of such redemption shall have been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee shall have been made; and (iii) Securities which have been paid pursuant to Section 3.5 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; PROVIDED, HOWEVER, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given, made or taken any request, demand, authorization, direction, notice, consent, waiver or other action hereunder as of any date, (A) the principal amount of a Security denominated in one or more foreign currencies or currency units which shall be deemed to be Outstanding shall be the Dollar equivalent, determined as of such date in the manner provided as contemplated by Section 3.1.11, of the principal amount of such Security, and (B) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee - 5 - is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "PAYING AGENT" means any Person (i) having a combined capital and surplus of not less than $100,000,000, (ii) subject to supervision or examination by Federal or State authority and (iii) having a long-term unsecured debt rating with respect to U.S. dollar obligations of at least A2 or its equivalent rating by Moody's, that is authorized by the Company to pay the principal of or any premium or interest on any Securities on behalf of the Company. "PERMITTED LIEN" means any Lien: (i) granted upon or with regard to any property hereafter acquired by the Company or the Guarantor to secure the purchase price of such property or to secure Indebtedness incurred solely for the purpose of financing the acquisition of such property, PROVIDED, HOWEVER, that the maximum sum secured by such security shall not exceed the purchase price of such property or the Indebtedness incurred solely for the purpose of financing the acquisition of such property; (ii) in existence on the date hereof and any extension, renewal or replacement thereof; PROVIDED, HOWEVER, that the total amount of Indebtedness so secured shall not exceed the amount so secured on the date hereof; (iii) arising by operation of law, such as tax, merchants', maritime or other similar liens arising in the ordinary course of the Company's or Guarantor's business; (iv) arising in the ordinary course of business in connection with the financing of export, import or other trade transactions to secure indebtedness of the Company or Guarantor; (v) securing or providing for the payment of Indebtedness incurred in connection with any project financing by the Guarantor, PROVIDED that (1) such security shall not extend to any property in existence on the date hereof, to any revenues from such property, or to any proceeds from claims belonging to the Guarantor which arise from the operation, failure to meet specifications, failure to complete, exploitation, sale or loss of, or damage to, such property ("CLAIMS PROCEEDS"), (2) such security shall not extend to any property (or to any revenues or Claims Proceeds therefrom) at any project in existence on the date hereof, other than the existing power plant projects named Vitoria Energia, Aimores, Candonga, Funil, Capim Branco I and Capim Branco II, Foz do Chapeco, Santa Isabel, Serra Quebrada and Estreito projects and (3) such security only extends to properties which are the subject of such project financing, to any revenues from such properties, or to any Claims Proceeds from such properties; (vi) granted upon or with regard to any present or future asset or property of the Company or Guarantor to (i) any Brazilian governmental credit agency (including, but not limited to the Brazilian National Treasury, Banco Nacional de Desenvolvimento Economico e Social, BNDES Participacoes S.A., - 6 - Financiadora de Estudos e Projetos and Agencia Especial de Financiamento Industrial); (ii) any Brazilian official financial institutions (including, but not limited to Banco da Amazonia S.A. - BASA e Banco do Nordeste do Brasil S.A. - BNB); (iii) any international official export-import bank or official export-import credit insurer; or (iv) the International Finance Corporation or any international multilateral or government-sponsored agency; (vii) existing on any asset prior to the acquisition thereof by the Company or Guarantor and not created in contemplation of such acquisition; (viii) any Lien created over funds reserved for the payment of principal, interest and premium, if any, due in respect of Securities issued under this Indenture; or (ix) hereafter granted upon or in respect of any asset of the Company or Guarantor other than those referred to in Clauses (i) through (viii) above, PROVIDED that the aggregate amount of Indebtedness secured pursuant to this clause (ix) shall not, on the date any such Indebtedness is incurred, exceed an amount equal to 10 per cent of the Guarantor's stockholders' equity (calculated on the basis of the Guarantor's latest quarterly unaudited or annual audited non-consolidated financial statements, whichever is the most recently prepared, in accordance with accounting principles generally accepted in Brazil and currency exchange rates prevailing on the last day of the period covered by such financial statements). "PERSON" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "PLACE OF PAYMENT", when used with respect to the Securities of any series and subject to Section 10.2, means the place or places where the principal of and any premium and interest on the Securities of that series are payable as specified as contemplated by Section 3.1.6. "PREDECESSOR SECURITY" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.5 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "RDA" has the meaning specified in Section 1.14. "REDEMPTION DATE", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "REDEMPTION PRICE", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture as set forth in such Security. "REGISTRATION RIGHTS AGREEMENT", has the meaning specified in Section 3.1. - 7 - "REGULAR RECORD DATE" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 3.1.5. "REPURCHASE DATE", when used with respect to any Security to be repurchased, means the date fixed for such repurchase by or pursuant to this Indenture. "REPURCHASE PRICE", when used with respect to any Security to be repurchased, means the price at which it is to be repurchased pursuant to this Indenture as set forth in such Security. "RESPONSIBLE OFFICER", when used with respect to the Trustee, means any vice president, any assistant secretary, any assistant treasurer, any trust officer, any assistant trust officer or any other officer of the Trustee, in each case, located in the Institutional Trust Services department (or successor department) of the Trustee, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "SECURITIES" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. All references herein to the Securities shall be deemed to include the Guaranty of the Securities, which is an integral part thereof. "SECURITIES ACT" means the U.S. Securities Act of 1933 and any successor statute thereto. "SECURITY REGISTER" and "SECURITY REGISTRAR" have the respective meanings specified in Section 3.4. "SIGNIFICANT SUBSIDIARY" shall mean, at any time, a Subsidiary which meets any of the following conditions: (a) the Guarantor's and its other Subsidiaries' investments in and advances to the Subsidiary exceed 10% of the total assets of the consolidated group as of the end of the most recently completed fiscal year; (b) the Guarantor's and its other Subsidiaries' proportionate share of the total assets (after intercompany eliminations) of the Subsidiary exceeds 10% of the total assets of the consolidated group as of the end of the most recently completed fiscal year; or (c) the Guarantor's and its other Subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle of the Subsidiary exceeds 10% of such income of the consolidated group for the most recently completed fiscal year. "SPECIAL RECORD DATE" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.6. "STATED MATURITY", when used with respect to any Security or any installment of interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable. "SUBSIDIARY" shall mean any entity of which the Guarantor directly or indirectly owns more than 51% of the outstanding voting shares, and the Guarantor has the ability to elect a majority of the members of the board of directors or other governing body. - 8 - "SUCCESSOR CORPORATION" has the meaning specified in Section 8.1.1. "SUCCESSOR JURISDICTION" means the jurisdiction, other than Brazil or the Cayman Islands, in which a Successor Corporation is incorporated or considered to be resident. "TRANSFER" of any Security means any sale, pledge, transfer, hypothecation or other disposition of such Security or any interest therein. "TRUST INDENTURE ACT" means the U.S. Trust Indenture Act of 1939 and any successor statute thereto. "TRUSTEE" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. Each Trustee shall be a Person that (i) is eligible pursuant to the Trust Indenture Act to act as such, (ii) has a combined capital and surplus of at least $100,000,000, (iii) is subject to supervision or examination by Federal or State authority, (iv) has a long-term unsecured debt rating with respect to U.S. dollar obligations of at least A2 or its equivalent rating by Moody's and (v) has its Corporate Trust Office in the United States. "UNITED STATES" or "U.S." means the United States of America (including the States thereof and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction. 1.2 COMPLIANCE CERTIFICATES AND OPINIONS Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company and the Guarantor shall furnish to the Trustee such certificates and opinions as may be required hereunder and under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company or the Guarantor, or an Opinion of Counsel if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirements set forth in this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (except for certificates provided for in Section 10.4) shall include, 1.2.1 a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; 1.2.2 a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; 1.2.3 a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an - 9 - informed opinion as to whether or not such covenant or condition has been complied with; and 1.2.4 a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. 1.3 FORM OF DOCUMENTS DELIVERED TO TRUSTEE In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company or the Guarantor may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company or the Guarantor stating that the information with respect to such factual matters is in the possession of the Company or the Guarantor, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. 1.4 ACTS OF HOLDERS; RECORD DATES 1.4.1 Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company and the Guarantor. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "ACT" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee, the Company and the Guarantor, if made in the manner provided in this Section. - 10 - 1.4.2 The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. 1.4.3 The ownership of Securities shall be proved by the Security Register. 1.4.4 Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee, the Company or the Guarantor in reliance thereon, whether or not notation of such action is made upon such Security. 1.4.5 The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders of Securities of such series, PROVIDED that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of the relevant series on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date; PROVIDED that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 1.6. - 11 - 1.4.6 The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 5.3, (iii) any request to institute proceedings referred to in Section 5.8.2 or (iv) any direction referred to in Section 5.13, in each case with respect to Securities of such series. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of such series on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; PROVIDED that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action (whereupon the record date previously set shall automatically and without any action by any Person be canceled and of no effect), nor shall anything in this paragraph be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities of the relevant series in the manner set forth in Section 1.6. 1.4.7 With respect to any record date set pursuant to this Section, the party hereto that sets such record date may designate any day as the "Expiration Date" and from time to time may change the Expiration Date to any earlier or later day, PROVIDED that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other party hereto in writing, and to each Holder of Securities of the relevant series in the manner set forth in Section 1.6, on or prior to the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the party hereto that set such record date shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date. Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. - 12 - 1.5 NOTICES, ETC., TO TRUSTEE, COMPANY AND GUARANTOR Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, 1.5.1 the Trustee by any Holder or by the Company or Guarantor shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing (which may be by facsimile) to or with the Trustee at its Corporate Trust Office, or 1.5.2 (i) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to both the Company and the Guarantor and (ii) the Guarantor by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to both the Guarantor and the Company, in either case addressed to it at the address specified below or at any other address previously furnished in writing to the Trustee by the Company or the Guarantor: Avenida Graca Aranha, No. 26, 17[degree] Andar 20005-900 Rio de Janeiro, RJ, Brazil Attention: Financial Director Fax: 011-5521-3814-4679 Tel: 011-5521-3814-4726 with a copy to: Attention: General Counsel Fax: 011-5521-3814-9921 Tel: 011-5521-3814-4566 1.6 NOTICE TO HOLDERS; WAIVER Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. - 13 - Notwithstanding the provisions of this Section 1.6, in case any series of Securities are listed in any stock exchange, a notice to holders of such Securities given in accordance with the rules and procedures of such stock exchange shall be regarded as a valid notice under this section 1.6. 1.7 CONFLICT WITH TRUST INDENTURE ACT If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or excluded, as the case may be. 1.8 EFFECT OF HEADINGS AND TABLE OF CONTENTS The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. 1.9 SUCCESSORS AND ASSIGNS All covenants and agreements in this Indenture by the Company or the Guarantor shall bind its respective successors and assigns, whether so expressed or not. 1.10 SEPARABILITY CLAUSE In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 1.11 BENEFITS OF INDENTURE Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. 1.12 GOVERNING LAW THIS INDENTURE, THE SECURITIES AND THE GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 1.13 LEGAL HOLIDAYS In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, Redemption Date or at the Stated Maturity, as the case may be; PROVIDED that no interest - 14 - shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be. 1.14 CONSENT TO SERVICE; JURISDICTION The Company, the Guarantor and the Trustee agree that any legal suit, action or proceeding arising out of or relating to this Indenture, and the Company and the Guarantor agree that any legal suit, action or proceeding arising out of or relating to the Securities, may be instituted in any federal or state court in the Borough of Manhattan, The City of New York, in respect of actions brought against each such party as a defendant, and each waives any objection which it may now or hereafter have to the laying of the venue of any such legal suit, action or proceeding, waives any immunity, to the extent permitted by law, from jurisdiction or to service of process in respect of any such suit, action or proceeding, waives any right to which it may be entitled on account of place of residence or domicile and irrevocably submits to the jurisdiction of any such court in any such suit, action or proceeding. The Company and the Guarantor further submit to the jurisdiction of the courts of their own corporate domiciles in any legal suit, action or proceeding arising out of or relating to this Indenture or the Securities. The Company and the Guarantor hereby designate and appoint Rio Doce America, Inc. ("RDA") located at 546 5th Avenue, 12th Floor, New York, New York, 10036, as their authorized agent upon which process may be served in any legal suit, action or proceeding arising out of or relating to this Indenture or the Securities which may be instituted in any federal or state court in the Borough of Manhattan, The City of New York, New York, and agree that service of process upon such agent, and written notice of said service to the Company or the Guarantor, as the case may be, by the Person serving the same, shall be deemed in every respect effective service of process upon the Company or the Guarantor in any such suit, action or proceeding and further designate the domicile of RDA specified above and any domicile RDA may have in the future as their domicile to receive service of process. If for any reason RDA (or any successor agent for this purpose) shall cease to act as agent for service of process as provided above, the Company and the Guarantor will promptly appoint a successor agent for this purpose reasonably acceptable to the Trustee. The Company and the Guarantor agree to take any and all actions as may be necessary to maintain such designation and appointment of such agent in full force and effect. 1.15 LANGUAGE OF NOTICES, ETC. Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication. 2 SECURITY FORMS 2.1 FORMS GENERALLY The Securities and the Trustee's certificates of authentication shall be in substantially the forms set forth in this Article or in such other form as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in - 15 - each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or Depositary thereof or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and the Guarantor and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 3.3 for the authentication and delivery of such Securities. The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. 2.2 FORM OF FACE OF SECURITY The following legends shall appear on the face of each Global Security: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND ANY AGENT THEREOF AS OWNER AND HOLDER OF THIS SECURITY FOR ALL PURPOSES. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR REGISTERED SECURITIES IN DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERRED TO IN SECTION 3.4.2. OF THE INDENTURE, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. The following legend shall appear on the face of each Global Security for which The Depository Trust Company is to be the Depositary: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. - 16 - VALE OVERSEAS LIMITED [ ] GUARANTEED BY COMPANHIA VALE DO RIO DOCE No. [__] CUSIP No. [__] $[ ] VALE OVERSEAS LIMITED, a company organized and existing under the laws of the Cayman Islands (herein called the "COMPANY", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to [ ], or registered assigns, the principal sum of [ ] Dollars on [ ] [IF THE SECURITY IS TO BEAR INTEREST PRIOR TO MATURITY, INSERT -- , and to pay interest thereon from [ ] or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on [ ] and [ ] in each year, commencing [ ], and at the Maturity thereof, at the rate of [ ]% per annum, until the principal hereof is paid or made available for payment [IF APPLICABLE, INSERT -- , PROVIDED that any principal [and premium], and any such installment of interest, which is overdue shall bear interest at the rate of [ ]% per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available for payment, and such interest shall be payable on demand]. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the [ ] or [ ] (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest so payable, but not punctually paid or duly provided for on any Interest Payment Date will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which this Security may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture]. [IF THE SECURITY IS NOT TO BEAR INTEREST PRIOR TO MATURITY, INSERT -- The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption, upon repurchase or at Stated Maturity and in such case the overdue principal [and any overdue premium] shall bear interest at the rate of [ ]% per annum (to the extent that the payment of such interest shall be legally enforceable), from the dates such amounts are due until they are paid or made available for payment. Interest on any overdue principal [or premium] shall be payable on demand.] Payment of the principal of [(and premium, if any)] and [IF APPLICABLE, INSERT -- any such] interest on this Security will be made pursuant to the Applicable Procedures of the - 17 - Depositary as permitted in the Indenture, PROVIDED, HOWEVER, that if this Security is not a Global Security, payment may be made at the office or agency of the Company maintained for that purpose in New York, New York, in such coin or currency of the United States as at the time of payment is legal tender for payment of public and private debts, upon surrender of this Security in the case of any payment due at the Maturity of the principal thereof (other than any payment of interest payable on an Interest Payment Date); and PROVIDED, FURTHER, that at the option of the Company, payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. Dated: [______] VALE OVERSEAS LIMITED By: ______________________________ Name: Title: By: ______________________________ Name: Title: The undersigned hereby irrevocably and unconditionally guarantees the full and punctual payment (whether at the Stated Maturity, upon redemption, purchase pursuant to an offer to purchase or acceleration or otherwise) of the principal, premium, interest, Additional Amounts and all other amounts that may come due and payable under this Security. IN WITNESS WHEREOF, the Guarantor has caused this instrument to be duly endorsed. COMPANHIA VALE DO RIO DOCE By: ______________________________ Name: Title: - 18 - By: ______________________________ Name: Title: 2.3 FORM OF REVERSE OF SECURITY This Security is one of a duly authorized issue of securities of the Company (herein called the "SECURITIES"), issued and to be issued in one or more tranches of one or more series under an Indenture, dated as of March 8, 2002 (herein called the "INDENTURE", which term shall have the meaning assigned to it in such instrument), among the Company, Companhia Vale do Rio Doce, as Guarantor (herein called the "GUARANTOR") and JPMorgan Chase Bank, as Trustee (herein called the "TRUSTEE", which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Guarantor, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. The full and punctual payment of the principal of, premium, if any, and interest on, and all other amounts payable under, this Security is guaranteed by the Guarantor. This Security is one of the series designated on the face hereof [IF APPLICABLE, INSERT -- , limited in aggregate principal amount to $[ ]]. [IF APPLICABLE, INSERT -- The Securities of this series are subject to redemption upon not less than [ ] days' nor more than [ ] days' notice, at any time [IF APPLICABLE, INSERT -- on or after [ ], 20[ ]], as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed [IF APPLICABLE, INSERT -- on or before [ ], [ ]%, and if redeemed] during the 12-month period beginning [ ] of the years indicated, REDEMPTION REDEMPTION YEAR PRICE YEAR PRICE ---- ----- ---- ----- and thereafter at a Redemption Price equal to [ ]% of the principal amount, together in the case of any such redemption with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.] [IF THE SECURITY IS SUBJECT TO REDEMPTION OF ANY KIND, INSERT -- In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.] - 19 - [If the Security is not subject to redemption, insert - This Security is not redeemable prior to Stated Maturity.] [IF THE SECURITY IS NOT AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT -- If an Event of Default or Illegality Event with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.] [IF THE SECURITY IS AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT -- If an Event of Default or Illegality Event with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. Such amount shall be equal to -- INSERT FORMULA FOR DETERMINING THE AMOUNT. Upon payment (i) of the amount of principal so declared due and payable and (ii) of interest on any overdue principal, premium and interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company's obligations in respect of the payment of the principal of and premium and interest, if any, on the Securities of this series shall terminate.] All payments of principal[, premium] and interest in respect of the Securities shall be made without withholding or deduction for any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the Cayman Islands or Brazil or any Successor Jurisdiction or any authority therein or thereof having power to tax ("FOREIGN TAXES") except to the extent that such Foreign Taxes are required by the Cayman Islands, Brazil, such Successor Jurisdiction or such authority to be withheld or deducted. In the event of any withholding or deduction for any Foreign Taxes, the Company or the Guarantor, as the case may be, shall pay such additional amounts ("ADDITIONAL AMOUNTS") as will result in receipt by the Holders of Securities on the respective due dates of such amounts as would have been received by them had no such withholding or deduction (including for any Foreign Taxes payable in respect of Additional Amounts) been required, except that no such Additional Amounts shall be payable with respect to any payment on a Security: (i) to, or to a third party on behalf of, a Holder who is liable for any such taxes, duties, assessments or other governmental charges which would not have been imposed but for (A) a connection between the Holder and the Cayman Islands or Brazil other than the mere holding of such Security and the receipt of payments with respect to such Security or (B) failure by the Holder to comply with any certification, identification or other reporting requirement concerning the nationality, residence, identity or connection with the Cayman Islands, Brazil or a Successor Jurisdiction, or applicable political subdivision or authority thereof or therein having power to tax, of such Holder, if compliance is required by such Successor Jurisdiction, or any political subdivision or authority thereof or therein having power to tax as a precondition to exemption from, or reduction in the rate of, the tax, assessment or other governmental charge and the Company has given the Holders at least 30 days' notice that Holders will be required to provide such certification, identification or other requirement; - 20 - (ii) in respect of any such taxes, duties, assessments or other governmental charges with respect to a Security surrendered (if surrender is required) more than 30 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for and notice thereof given to Holders, whichever occurs later, except to the extent that the Holder of such Security would have been entitled to such Additional Amounts on surrender of such Security for payment on the last day of such 30-day period; (iii) in respect of estate, inheritance, gift, sales, transfer, personal property or similar tax, assessment or governmental charge imposed with respect to a Security; (iv) in respect of any tax, assessment or other governmental charge payable otherwise than by deduction or withholding from payments on any series of Securities or by direct payment by the Company or the Guarantor in respect of claims made against the Company or the Guarantor; (v) where such Additional Amount is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of November 26-27, 2000 or any law implementing or complying with, or introduced in order to conform to, such directive; or (vi) in respect of any combination of the above. For purposes of the provisions described in clause (i) above, the term "Holder" of any Security means the direct nominee of any beneficial owner of such Security, which holds such beneficial owner's interest in such Security. Notwithstanding the foregoing, the limitations on the Company's or the Guarantor's obligation to pay Additional Amounts set forth in clause (i) above shall not apply if the provision of information, documentation or other evidence described in such clause (i) would be materially more onerous, in form, in procedure or in the substance of information disclosed, to a Holder or beneficial owner of a Security (taking into account any relevant differences between U.S. and Cayman Islands or Brazilian law, regulation or administrative practice) than comparable information or other reporting requirements imposed under U.S. tax law (including tax treaties between the United States and the Cayman Islands or Brazil), regulation (including proposed regulations) and administrative practice. The Company or the Guarantor, as the case may be, shall promptly provide the Trustee with documentation (which may consist of certified copies of such documentation) satisfactory to the Trustee evidencing the payment of Foreign Taxes in respect of which the Company or the Guarantor has paid any Additional Amounts. Copies of such documentation shall be made available to the Holders of the Securities or the Paying Agent, as applicable, upon request therefor. The Company or the Guarantor, as the case may be, shall pay all stamp, issue, registration, documentary or other similar duties, if any, which may be imposed by the Cayman Islands or Brazil or any governmental entity or political subdivision therein or - 21 - thereof, or any taxing authority of or in any of the foregoing, with respect to the Indenture or the issuance of the Securities or the Guaranties. All references herein or in the Indenture to principal, premium or interest in respect of any Security or Guaranty shall be deemed to include all Additional Amounts, if any, payable in respect of such principal, premium or interest, unless the context otherwise requires, and express mention of the payment of Additional Amounts in any provision hereof shall not be construed as excluding reference to Additional Amounts in those provisions hereof where such express mention is not made. In the event that Additional Amounts actually paid with respect to the Securities pursuant to the preceding paragraph are based on rates of deduction or withholding of taxes in excess of the appropriate rate applicable to the Holder of such Securities, and, as a result thereof such Holder is entitled to make claim for a refund or credit of such excess from the authority imposing such withholding tax, then such Holder shall, by accepting such Securities, be deemed to have assigned and transferred all right, title, and interest to any such claim for a refund or credit of such excess to the Company and the Guarantor. However, by making such assignment, the Holder makes no representation or warranty that the Company or the Guarantor will be entitled to receive such claim for a refund or credit and incurs no other obligation with respect thereto. All references in the Indenture and the Securities to principal in respect of any Security shall be deemed to mean and include any Redemption Price or Repurchase Price payable in respect of such Security pursuant to any redemption or repurchase right hereunder (and all such references to the Stated Maturity of the principal in respect of any Security shall be deemed to mean and include the Redemption Date or Repurchase Date with respect to any such Redemption Price or Repurchase Price), and all such references to principal, premium, interest or Additional Amounts shall be deemed to mean and include any amount payable in respect hereof pursuant to Section 10.7 of the Indenture, and express mention of the payment of any Redemption Price, or Repurchase Price or any such other amount in any provision hereof or of the Indenture shall not be construed as excluding reference to the payment of any Redemption Price or Repurchase Price, or any such other amounts in those provisions hereof where such express reference is not made. The Company may redeem the Securities if, as a result of any amendment to, or change in, the laws (or any rules, or regulations thereunder) of the Cayman Islands or Brazil or any political subdivision or taxing authority thereof or therein affecting taxation or any amendment to or change in an official interpretation, administration or application of such laws, rules, or regulations (including a holding by a court of competent jurisdiction), which amendment or change of such laws, rules, or regulations or the interpretation thereof becomes effective on or after [Insert date specified therefor in Securities of the applicable series], the Company would be obligated, after taking measures the Company considers reasonable to avoid such requirement, to pay Additional Amounts in excess of the Additional Amounts that the Company would be obligated to pay if payments made on the Securities were subject to withholding or deduction of Foreign Taxes at the rate of 15%. In such event, the Securities are subject to redemption upon not less than 30 nor more than 60 days' notice by mail, at any time, as a whole but not in - 22 - part, at the election of the Company, at a cash price equal to the sum of (i) the principal amount of the Securities being redeemed, (ii) any accrued original issue discount thereon to the date fixed for redemption, (iii) accrued and unpaid current interest thereon to the date fixed for redemption, (iv) any premium applicable in the case of redemption prior to Maturity, and (v) any Additional Amounts (as defined in the Indenture) which would otherwise be payable. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions (i) permitting the Holders of a majority in principal amount of the Securities at the time Outstanding of any series to be affected under the Indenture, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and (ii) permitting the Holders of a majority in principal amount of the Securities at the time Outstanding of any series to be affected under the Indenture, on behalf of the Holders of all Securities of such series, to waive certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture, or for the appointment of a receiver or trustee, or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default or Illegality Event with respect to the Securities of this series, the Holders of not less than 25% in principal amount of the Securities of this series at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default or Illegality Event as Trustee and offered the Trustee indemnity reasonably satisfactory to it, and the Trustee shall not have received from the Holders of a majority in principal amount of Securities of this series at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any [premium or] interest hereon on or after the respective due dates expressed herein. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any [premium and] interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office of the Trustee or agency of the Company - 23 - in any place where the principal of and any [premium and] interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $1,000 and any multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due surrender of this Security for registration of transfer, the Company, the Guarantor, the Trustee and any agent of the Company, the Guarantor or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Guarantor, the Trustee nor any such agent shall be affected by notice to the contrary. [IF THIS SECURITY IS A GLOBAL SECURITY, INSERT - This Security is a Global Security and is subject to the provisions of the Indenture relating to Global Securities, including the limitations in Section 3.4 thereof on transfers and exchanges of Global Securities.] This Security and the Indenture shall be governed by and construed in accordance with the laws of the State of New York. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Security, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the [__] entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT--______________ (Cust) Custodian _____________ under Uniform (Minor) Gifts to Minors Act ________________(State) Additional abbreviations may also be used though not in the above list. - 24 - 2.4 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. Dated: [_______] JPMORGAN CHASE BANK, as Trustee By: ________________________ Authorized Officer 3 THE SECURITIES 3.1 AMOUNT UNLIMITED; ISSUABLE IN SERIES The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more tranches of one or more series. No Securities may be issued before written confirmation is received by the Trustee from Moody's that the issue of such Securities will not result in a downgrading of the then current rating assigned to any Outstanding Securities provided that no such written confirmation shall be required in connection with the issuance of up to $300,000,000 aggregate principal amount of Series A and Series B 8.625% Enhanced Guaranteed Notes due 2007 (collectively, the "2007 Notes") pursuant to the First Supplemental Indenture dated as of the date hereof among the Company, the Guarantor and the Trustee (the "First Supplemental Indenture") or (ii) the issuance of the "Exchange Securities" contemplated by the Registration Rights Agreement dated as of March 8, 2002 among the Company, the Guarantor and the Initial Purchasers named therein (the "Registration Rights Agreement"). There shall be established in or pursuant to a Board Resolution and, subject to Section 3.3, set forth, or determined in the manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series, 3.1.1 the title of the Securities, including CUSIP Numbers, of the series (which shall distinguish the Securities of the series from Securities of any other series); 3.1.2 any limit upon the aggregate principal amount of the Securities which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 3.4, 3.5, 9.6 or 11.5 and except for any Securities which, pursuant to Section 3.3, are deemed never to have been authenticated and delivered hereunder); 3.1.3 the Person to whom any interest on a Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest; - 25 - 3.1.4 the date or dates on which the principal of the Securities of the series is payable; 3.1.5 the rate or rates at which the Securities of the series shall bear interest, if any, the date or dates from which such interest shall accrue, the Interest Payment Dates on which any such interest shall be payable and the Regular Record Date for any interest payable on any Interest Payment Date; 3.1.6 the place or places where the principal of and any premium and interest on Securities of the series shall be payable and the manner in which any payment may be made; 3.1.7 the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company; 3.1.8 the obligation, if any, of the Company to redeem or purchase Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; 3.1.9 the rights, if any, of the Holders of the series to demand exchange of their Securities for Securities subject to a registration statement under the Securities Act declared effective by the Commission; 3.1.10 if other than denominations of $1,000 and any integral multiple thereof, the denominations in which Securities of the series shall be issuable; 3.1.11 if other than the currency of the United States, the currency, currencies or currency units in which payment of the principal of and any premium and interest on any Securities of the series shall be payable and the manner of determining the equivalent thereof in the currency of the United States for purposes of the definition of "Outstanding" in Section 1.1; 3.1.12 if the amount of payments of principal of or any premium or interest on any Securities of the series may be determined with reference to an index, the manner in which such amounts shall be determined; 3.1.13 if the principal of or any premium or interest on any Securities of the series is to be payable, at the election of the Company or a Holder thereof, in one or more currencies or currency units other than that or those in which the Securities are stated to be payable, the currency, currencies or currency units in which payment of the principal of and any premium and interest on Securities of such series as to which such election is made shall be payable, and the periods within which and the terms and conditions upon which such election is to be made; 3.1.14 if other than the principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 5.3; - 26 - 3.1.15 any collateral or other security pledged against payment of principal, interest or premium, if any, on the Securities; 3.1.16 the applicability, non-applicability, or variation, of Section 10.7 with respect to the Securities of such series; 3.1.17 if and as applicable, that the Securities the series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the Depositary or Depositaries for such Global Security or Global Securities and any circumstances other than those set forth in Section 3.4 in which any such Global Security may be transferred to, and registered and exchanged for Securities registered in the name of, a Person other than the Depositary for such Global Security or a nominee thereof and in which any such transfer may be registered; 3.1.18 the terms and conditions, if any, pursuant to which the Securities are convertible into or exchangeable for any other securities; 3.1.19 any addition to or change in the covenants set forth in Article Ten which applies to the Securities of the series; and 3.1.20 any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture, except as permitted by Section 9.1.5). All Securities of any one series shall be substantially identical except as to issue price and first payment of interest. If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series. Notwithstanding Clause 3.1.2 herein and unless otherwise expressly provided with respect to a series of Securities, the aggregate principal amount of a series of Securities may be increased and additional Securities of such series may be issued up to the maximum aggregate principal amount authorized with respect to such series as increased. 3.2 DENOMINATIONS The Securities shall be issuable only in registered form without coupons and, unless otherwise specified as contemplated by Section 3.1.10, only in denominations of $1,000 and any integral multiple thereof. 3.3 EXECUTION, AUTHENTICATION, DELIVERY AND DATING The Securities shall be executed on behalf of the Company by any two of its Directors or its attorneys in fact in accordance with its Bylaws. The Guaranty on the Securities shall be endorsed on behalf of the Guarantor by any two of its Directors or its attorneys in fact in accordance with its Bylaws. The signature of any of these officers on the Securities or the Guaranty may be manual or facsimile. - 27 - Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. Guaranties bearing the manual or facsimile endorsement of individuals who were at any time the proper officers of the Guarantor shall bind the Guarantor, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of Securities bearing such endorsement or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company and properly endorsed by the Guarantor to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities. If the form or terms of the Securities of the series have been established by or pursuant to one or more Board Resolutions as permitted by Sections 2.1 and 3.1, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Opinion of Counsel stating, 3.3.1 if the form of such Securities has been established by or pursuant to Board Resolution as permitted by Section 2.1, that such form has been established in conformity with the provisions of this Indenture; 3.3.2 if the terms of such Securities have been established by or pursuant to Board Resolution as permitted by Section 3.1, that such terms have been established in conformity with the provisions of this Indenture; 3.3.3 that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; and 3.3.4 that the Guaranty, when the Securities upon which it shall have been endorsed shall have been authenticated and delivered by the Trustee and when properly endorsed by the Guarantor in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Guarantor enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and the general equity principles. If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if, in the opinion of counsel to the Trustee, the issue of - 28 - such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture. Notwithstanding the provisions of Section 3.1 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Officers' Certificate otherwise required pursuant to Section 3.1 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued and in that case the Trustee may rely, as to the authorization by the Company and the Guarantor of any of such Securities and the Guaranty, the form and terms thereof and the legality, validity, binding effect and enforceability thereof, upon the Opinion of Counsel and the other documents delivered pursuant to Sections 2.1 and 3.1 and this Section, as applicable, in connection with the first authentication of Securities of such series. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature of an authorized officer, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 3.8, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. 3.4 REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office herein sometimes referred to as the "SECURITY Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "SECURITY REGISTRAR" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 10.2 for such purpose, and subject to the other provisions of this Section, the Company shall execute and the Guarantor shall endorse, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount. At the option of the Holder, and subject to the other provisions of this Section, Securities of any series may be exchanged for other Securities of the same series, of any - 29 - authorized denominations and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, and subject to the other provisions of this Section, the Company shall execute and the Guarantor shall endorse, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and subject to the other provisions of this Section, entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 9.6 or 11.5 not involving any transfer. If the Securities of any series (or of any series and specified tenor) are to be redeemed in part, the Company shall not be required (A) to issue, register the transfer of or exchange any Securities of that series (or of that series and specified tenor, as the case may be) during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of any such Securities selected for redemption under Section 11.2 and ending at the close of business on the day of such mailing, or (B) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. The provisions of Clauses 3.4.1, 3.4.2, 3.4.3, 3.4.4 and 3.4.5 below shall apply only to Global Securities: 3.4.1 Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. 3.4.2 Notwithstanding any other provision in this Indenture or the Securities, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary or a nominee thereof unless (A) the Depositary has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security, (B) the Depositary has ceased to function as a clearing agency registered under the Exchange Act or Clearstream, Luxembourg or Euroclear is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or - 30 - announces an intention permanently to cease doing business or does in fact do so, (C) there shall have occurred and be continuing an Event of Default or Illegality Event with respect to such Global Security or (D) a request for certificates has been made by the Company upon 60 days' prior written notice given to the Trustee in accordance with the Depositary's customary procedures and to the Depositary. Any Global Security exchanged pursuant to Clause (A) or (B) above shall be so exchanged in whole and not in part and any Global Security exchanged pursuant to Clause (C) or (D) above may be exchanged in whole or from time to time in part as directed by the Depositary. Any Security issued in exchange for a Global Security or any portion thereof shall be a Global Security, PROVIDED that any such Security so issued that is registered in the name of a Person other than the Depositary or a nominee thereof shall not be a Global Security. 3.4.3 Securities issued in exchange for a Global Security or any portion thereof pursuant to Clause 3.4.2 above shall be issued in definitive, fully registered form, without interest coupons, shall have an aggregate principal amount equal to that of such Global Security or portion thereof to be so exchanged, shall be registered in such names and be in such authorized denominations as the Depositary shall designate and shall bear any legends required hereunder. Any Global Security to be exchanged in whole shall be surrendered by the Depositary to the Trustee, as Security Registrar. With regard to any Global Security to be exchanged in part, either such Global Security shall be so surrendered for exchange or, if the Trustee is acting as custodian for the Depositary or its nominee with respect to such Global Security, the principal amount thereof shall be reduced, by an amount equal to the portion thereof to be so exchanged, by means of an appropriate adjustment made on the records of the Trustee. Upon any such surrender or adjustment, the Trustee shall authenticate and deliver the Security issuable on such exchange to or upon the order of the Depositary or an authorized representative thereof. 3.4.4 In the event of the occurrence of any of the events specified in Clause 3.4.2 above, the Company will promptly make available to the Trustee a reasonable supply of certificated Securities in definitive, fully registered form, without interest coupons. 3.4.5 Neither any members of, or participants in, the Depositary ("AGENT MEMBERS") nor any other Persons on whose behalf Agent Members may act (including Euroclear Bank S.A./N.V., as operator of the Euroclear System ("EUROCLEAR") and Clearstream Banking, societe anonyme ("CLEARSTREAM, LUXEMBOURG") and account holders and participants therein) shall have any rights under this Indenture with respect to any Global Security, or under any Global Security, and the Depositary or such nominee, as the case may be, may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and holder of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any - 31 - written certification, proxy or other authorization furnished by the Depositary or such nominee, as the case may be, or impair, as between the Depositary, its Agent Members and any other person on whose behalf an Agent Member may act, the operation of customary practices of such Persons governing the exercise of the rights of a holder of any Security. 3.4.6 None of the Company, the Guarantor, the Trustee or any agent of the Company, the Guarantor or the Trustee shall have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. 3.5 MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES If any mutilated Security is surrendered to the Trustee, the Company shall execute, the Guarantor shall endorse and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute, the Guarantor shall endorse and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security upon compliance with the foregoing provisions. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. - 32 - 3.6 PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "DEFAULTED INTEREST") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause 3.6.1 or 3.6.2 below: 3.6.1 The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities of such series at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause 3.6.2. 3.6.2 The Company may make payment of any Defaulted Interest on the Securities of any series to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the - 33 - proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. 3.7 PERSONS DEEMED OWNERS Prior to due surrender of a Security for registration of transfer, the Company, the Guarantor, the Trustee and any agent of the Company, the Guarantor or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 3.6) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Guarantor, the Trustee nor any agent of the Company, the Guarantor or the Trustee shall be affected by notice to the contrary. 3.8 CANCELLATION All Securities surrendered for payment, redemption, repurchase, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be disposed of as directed by a Company Order. 3.9 COMPUTATION OF INTEREST Unless otherwise specified under Section 3.1 with respect to the Securities of a particular series, interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. 3.10 CUSIP OR "ISIN" NUMBERS The Company in issuing the Securities may use "CUSIP" or "ISIN" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" or "ISIN" numbers in notices of redemption as a convenience to Holders; PROVIDED that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the CUSIP or ISIN numbers. - 34 - 4 SATISFACTION AND DISCHARGE 4.1 SATISFACTION AND DISCHARGE OF INDENTURE This Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when 4.1.1 either (i) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.5 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee for cancellation; or (ii) all such Securities not theretofore delivered to the Trustee for cancellation (a) have become due and payable, or (b) will become due and payable at their Stated Maturity within one year, or (c) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i) or (ii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity, Redemption Date or Repurchase Date, as the case may be; 4.1.2 the Company has paid or caused to be paid all other sums payable hereunder by the Company; and 4.1.3 the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company and the Guarantor to the Trustee under Section 6.7, the obligations of the Company and the Guarantor to any Authenticating Agent under Section 6.14 and, if money shall have been deposited with the Trustee pursuant to subclause (ii) of Clause - 35 - 4.1.1 of this Section, the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3 shall survive such satisfaction and discharge. 4.2 APPLICATION OF TRUST MONEY Subject to the provisions of the last paragraph of Section 10.3, all money deposited with the Trustee pursuant to Section 4.1 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee. 5 REMEDIES 5.1 EVENTS OF DEFAULT "Event of Default", wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall have occurred and be continuing: 5.1.1 a failure to pay any interest (or Additional Amounts, if any) on any of the Securities on the date when due and such failure shall continue for a period of 30 days; 5.1.2 a failure to pay any principal or premium, if any, (or Additional Amounts, if any) on any of the Securities on the date when due; 5.1.3 any default or event of default by the Company or the Guarantor or any Significant Subsidiary occurring and continuing under any agreement, instrument or other document evidencing outstanding Indebtedness in excess of $50,000,000 in aggregate (or its equivalent in other currencies) and such default or event of default results in the actual acceleration of such Indebtedness; 5.1.4 the Company or the Guarantor shall fail to perform or observe any other material covenant or agreement in respect of the Securities contained in this Indenture or in a supplemental indenture (other than a covenant which has been expressly included in this Indenture solely for the benefit of series of Securities other than that series) and such failure shall continue for a period of 30 days after it occurs; or 5.1.5 the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company, the Guarantor or any Significant Subsidiary in an involuntary case or proceeding under any applicable bankruptcy, insolvency, suspension of payments, reorganization or other similar law, or (B) a decree or order adjudging the Company, the Guarantor or any Significant Subsidiary a bankrupt or insolvent, or suspending payments, or approving as - 36 - properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company, the Guarantor or any Significant Subsidiary under any applicable law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company, the Guarantor or any Significant Subsidiary or of any substantial part of the property of the Company, the Guarantor or any Significant Subsidiary, or ordering the winding up or liquidation of the affairs of the Company, the Guarantor or any Significant Subsidiary, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or 5.1.6 the commencement by the Company, the Guarantor or any Significant Subsidiary of a voluntary case or proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company, the Guarantor or any Significant Subsidiary to the entry of a decree or order for relief in respect of the Company, the Guarantor or any Significant Subsidiary in an involuntary case or proceeding under any applicable bankruptcy, insolvency, suspension of payments, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against the Company, the Guarantor or any Significant Subsidiary, or the filing by the Company, the Guarantor, or any Significant Subsidiary of a petition or answer or consent seeking reorganization or relief under any applicable law or the consent by the Company, the Guarantor or any Significant Subsidiary to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company, the Guarantor or any Significant Subsidiary or of any substantial part of the property of the Company, the Guarantor or any Significant Subsidiary, or the making by the Company, the Guarantor or any Significant Subsidiary of an assignment for the benefit of creditors, or the admission by the Company, the Guarantor or any Significant Subsidiary in writing of its inability to pay its debts generally as they become due or the taking of corporate action by the Company, the Guarantor or any Significant Subsidiary in furtherance of any such action (evidenced by the adoption of a corporate resolution in favor of any such actions or an action of any of the officers of the Company, the Guarantor or such Significant Subsidiary that similarly binds the Company, the Guarantor or such Significant Subsidiary, as the case may be), or the general inability of the Company, the Guarantor or any Significant Subsidiary to make payment of their obligations as they come due. 5.2 ILLEGALITY EVENTS "ILLEGALITY EVENT", wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Illegality Event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall have occurred and be continuing: - 37 - 5.2.1 any governmental authorization necessary for the performance of any obligation of the Company or the Guarantor under this Indenture or the Securities fails to enter into or come into full force and effect or remain in full force and effect; 5.2.2 it is or will become unlawful for the Company or the Guarantor to perform or comply with any one or more of its obligations under any of the Securities; or 5.2.3 any event occurs which under the laws of Brazil or the Cayman Islands has an analogous effect to any of the events referred to in paragraph 5.2.1 above. 5.3 ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT If an Event of Default or Illegality Event with respect to any series of Securities (other than those Events of Default in Sections 5.1.5 and 5.1.6 insofar as they relate to the Company and the Guarantor but not to a Significant Subsidiary of the Guarantor), occurs and is continuing, then and in every such case, including an Event of Default in Sections 5.1.5 and 5.1.6 relating to a Significant Subsidiary of the Guarantor, the Trustee shall, at the written request of the Holders of not less than 25% in principal amount of the Outstanding Securities of that series, by notice in writing to the Company, declare the principal of all the Securities to be due and payable immediately, and upon any such declaration such principal and any accrued interest and any unpaid Additional Amounts thereon shall become immediately due and payable. If an Event of Default specified in Sections 5.1.5 and 5.1.6 occurs and is continuing with respect to the Company or the Guarantor (but not a Significant Subsidiary of the Guarantor), the principal and any accrued interest, together with any Additional Amounts thereon, on all of the Securities of that series then Outstanding shall automatically, and without any declaration or other action on the part of the Trustee or any Holder, become immediately due and payable. At any time after such a declaration of acceleration with respect to Securities of any series at the time Outstanding has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if 5.3.1 the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all overdue interest and any Additional Amounts thereon on all of the Securities of that series, (ii) the principal of any Securities of that series which have become due otherwise than by such declaration of acceleration, (iii) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by (or prescribed therefor in) the Securities of that series, and (iv) all sums paid or advanced by the Trustee hereunder and all amounts owing the Trustee under Section 6.7; - 38 - and 5.3.2 all Events of Default or Illegality Events, other than the non-payment of the principal of Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.14. No such rescission shall affect any subsequent default or impair any right consequent thereon. 5.4 COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE The Company covenants that if 5.4.1 default is made in the payment of any interest (including any Additional Amounts) on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or 5.4.2 default is made in the payment of the principal (including any Redemption Price or Repurchase Price) of (or premium, if any, on) any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and any premium and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and premium and on any overdue interest, at the rate borne by (or prescribed therefor in) such Securities, together with any Additional Amounts thereon, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and all amounts due the Trustee under Section 6.7. If an Event of Default or Illegality Event with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of that series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. 5.5 TRUSTEE MAY FILE PROOFS OF CLAIM In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee - 39 - shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.7. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; PROVIDED, HOWEVER, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors' or other similar committee. 5.6 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. 5.7 APPLICATION OF MONEY COLLECTED Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or any premium or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.7; SECOND: To the payment of the amounts then due and unpaid for principal of and any premium and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and any premium and interest, respectively; and THIRD: Any remaining amounts shall be repaid to the Company. 5.8 LIMITATION ON SUITS No Holder of any Securities of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless 5.8.1 such Holder has previously given written notice to the Trustee of a continuing Event of Default or Illegality Event with respect to the Securities of that series; - 40 - 5.8.2 the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default or Illegality Event in its own name as Trustee hereunder; 5.8.3 such Holder or Holders have offered to the Trustee indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; 5.8.4 the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and 5.8.5 no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. 5.9 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND INTEREST Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and any premium and (subject to Section 3.6) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption or repurchase, on the Redemption Date or Repurchase Date, as the case may be), and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. 5.10 RESTORATION OF RIGHTS AND REMEDIES If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Guarantor, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. 5.11 RIGHTS AND REMEDIES CUMULATIVE Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.5, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given - 41 - hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. 5.12 DELAY OR OMISSION NOT WAIVER No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default or Illegality Event shall impair any such right or remedy or constitute a waiver of any such Event of Default or Illegality Event or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. 5.13 CONTROL BY HOLDERS The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, PROVIDED that 5.13.1 such direction shall not be in conflict with any rule of law or with this Indenture, 5.13.2 the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and 5.13.3 subject to the provisions of Section 6.1, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall, by a Responsible Officer or Officers of the Trustee, determine that the proceeding so directed would involve the Trustee in personal liability against which indemnity would not be satisfactory. 5.14 WAIVER OF PAST DEFAULTS The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past Event of Default or Illegality Event hereunder with respect to such series and its consequences, except a default 5.14.1 in the payment of the principal of or any premium or interest on any Security of such series, or 5.14.2 in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Upon any such waiver, such default or Illegality Event shall cease to exist, and any Event of Default or Illegality Event arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or Illegality Event or impair any right consequent thereon. - 42 - 5.15 UNDERTAKING FOR COSTS In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs, including reasonable attorneys' fees and expenses, against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; PROVIDED that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company, the Guarantor, or the Trustee or in any suit to require the Company to repurchase any Security in accordance with its terms. 5.16 WAIVER OF USURY, STAY OR EXTENSION LAWS Each of the Company and the Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and each of the Company and the Guarantor (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. 6 THE TRUSTEE 6.1 CERTAIN DUTIES AND RESPONSIBILITIES The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. The Trustee shall deliver a copy of all notices, documents, certificates and other items (including reports and opinions) received or delivered pursuant to this Indenture to Moody's. The agreement of the Trustee made in the preceding sentence has been made as a matter of courtesy and accommodation only and the Trustee shall not be liable to any Person for its failure to comply with the agreement contained therein. 6.2 NOTICE OF DEFAULT; POTENTIAL DEFAULT If a default occurs hereunder with respect to Securities of any series, the Trustee shall give the Holders of Securities of such series notice of such default as and to the extent provided by the Trust Indenture Act (a "NOTICE OF DEFAULT"). Specifically, the Trustee shall provide Notice of Default to each Holder promptly, but in no event later than within - 43 - 15 days of occurrence, and in the manner provided by Section 313(c) of the Trust Indenture Act or any successor section thereto, of any default of which the Trustee is aware. The Trustee shall also provide a notice to each Holder of any claim of default within 30 days of receiving a written assertion of such claim from Holders of no less than 10% of the aggregate principal amount of Notes then outstanding. For the purpose of this Section, the term "DEFAULT" means any event which is, or after notice or lapse of time or both would become, an Event of Default or Illegality Event with respect to Securities of such series. If on the Business Day prior to an Interest Payment Date the Company has not deposited with the Trustee funds sufficient to pay the interest due on the next Interest Payment Date, then the Trustee shall provide written notice to the Guarantor of such failure. 6.3 CERTAIN RIGHTS OF TRUSTEE Subject to the provisions of Section 6.1: 6.3.1 the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document (whether in its original or facsimile form) believed by it to be genuine and to have been signed or presented by the proper party or parties; 6.3.2 any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution. Any request or direction of the Guarantor mentioned herein shall be sufficiently evidenced by a written request or direction signed on behalf of the Guarantor by any two of its Directors or its attorneys in fact in accordance with its Bylaws; 6.3.3 whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; 6.3.4 the Trustee may consult with counsel of its own choice and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; 6.3.5 the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; 6.3.6 the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, - 44 - report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document in connection with this Indenture, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation; 6.3.7 the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; PROVIDED that the Trustee shall be required to terminate any such agent if it has actual knowledge of any wilful or negligent failure by such agent to perform its delegated duties; and 6.3.8 the Trustee shall not be deemed to have notice of any default or Event of Default or Illegality Event unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default, Event of Default or Illegality Event is received by the Trustee at the Corporate Trust Office of the Trustee from the Company, the Guarantor or any Holder, and such notice references the Securities and this Indenture. 6.4 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES Neither the Trustee nor any Authenticating Agent assume any responsibility for the correctness of the recitals contained herein and in the Securities, except the Trustee's certificates of authentication. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company or the Guarantor of Securities or the proceeds thereof. 6.5 MAY HOLD SECURITIES The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company or the Guarantor, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.8 and 6.13, may otherwise deal with the Company and the Guarantor with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. 6.6 MONEY HELD IN TRUST Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. - 45 - 6.7 COMPENSATION AND REIMBURSEMENT 6.7.1 The Company and the Guarantor agree to pay to the Trustee from time to time such compensation as shall be agreed in writing between the parties for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust). 6.7.2 The Company and the Guarantor agree, except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable and itemized expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or willful misconduct. 6.7.3 The Guarantor agrees to fully indemnify each of the Trustee and any predecessor Trustee for, and to hold it harmless against, any and all losses, liabilities, damages, claims or expenses incurred without negligence or willful misconduct on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim (whether asserted by the Company, a Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1.5 or Section 5.1.6, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or State bankruptcy, insolvency or other similar law. As security for the performance of the obligations of the Company and the Guarantor under this Section, the Trustee shall have a claim prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (premium, if any) or interest on such Securities. The provisions of this Section shall survive the satisfaction and discharge of this Indenture. 6.8 CONFLICTING INTERESTS If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. To the extent permitted by the Trust Indenture Act, the Trustee shall not be deemed to have a conflicting interest by virtue of being a trustee under this Indenture with respect to Securities of more than one series. - 46 - 6.9 CORPORATE TRUSTEE REQUIRED; ELIGIBILITY There shall at all times be one (and only one) Trustee hereunder with respect to the Securities of each series, which may be a Trustee hereunder for Securities of one or more other series. Each Trustee shall be a Person that (i) is eligible pursuant to the Trust Indenture Act to act as such, (ii) has a combined capital and surplus of at least $100,000,000, (iii) is subject to supervision or examination by Federal or State authority, (iv) has a long-term unsecured debt rating with respect to U.S. dollar obligations of at least A2 or its equivalent rating by Moody's and (v) has its Corporate Trust Office in the United States. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section and to the extent permitted by the Trust Indenture Act, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee with respect to the Securities of any series shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. 6.10 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.11. The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.11 shall not have been delivered to the Trustee within 45 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. If at any time: 6.10.1 the Trustee shall fail to comply with Section 6.8 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or 6.10.2 the Trustee shall cease to be eligible under Section 6.9 and shall fail to resign after written request therefor by the Company or by any such Holder, or 6.10.3 the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (A) the Company by a Board Resolution may remove the Trustee with respect to all Securities, or (B) subject to Section 5.15, any Holder who has - 47 - been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 6.11. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 6.11, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 6.11, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series to all Holders of Securities of such series in the manner provided in Section 1.6. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. 6.11 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. - 48 - In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in the first or second preceding paragraph, as the case may be. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. 6.12 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such - 49 - authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. 6.13 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). 6.14 APPOINTMENT OF AUTHENTICATING AGENT The Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon original issue and upon exchange, registration of transfer, or partial redemption or pursuant to Section 3.5, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, have a combined capital and surplus of at least $100,000,000, be subject to supervision or examination by Federal or State authority and have a long-term unsecured debt rating with respect to U.S. dollar obligations of at least A2 or its equivalent rating by Moody's. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, - 50 - or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Company and the Guarantor agree to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section. If an appointment is made pursuant to this Section, the Securities may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Securities referred to in the within-mentioned Indenture. JPMorgan Chase Bank, as Trustee By: ____________________________ as Authenticating Agent By: ____________________________ Authorized Officer 6.15 APPOINTMENT OF LUXEMBOURG TRANSFER AGENT For so long as the rules of the Luxembourg Stock Exchange so require, the Company and the Guarantor shall appoint and maintain a transfer agent located in Luxembourg with respect to Securities listed on the Luxembourg Stock Exchange. The Company and the Guarantor agree to pay to each such agent from time to time reasonable compensation for its services under this Section. 6.16 TRUSTEE'S APPLICATION FOR INSTRUCTIONS FROM THE COMPANY Any application by the Trustee for written instructions from the Company may, at the option of the Trustee, set forth in writing any action proposed to be taken or omitted by the Trustee under this Indenture and the date on and/or after which such action shall be taken or such omission shall be effective. The Trustee shall not be liable for any action taken by, or omission of, the Trustee in accordance with a proposal included in such application on or after the date specified in such application (which date shall not be less than five Business Days after the date any officer of the Company actually receives such application, unless any such officer shall have consented in writing to any earlier date) unless prior to taking any such action (or the effective date in the case of an omission), the Trustee shall have received written instructions in response to such application specifying the action to be taken or omitted. - 51 - 7 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY 7.1 COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS The Company will furnish or cause to be furnished to the Trustee 7.1.1 semi-annually, not more than 15 days after each Regular Record Date with respect to each series of Securities, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities of such series as of such Regular Record Date, and 7.1.2 at such other times as the Trustee may reasonably request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar. 7.2 PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS 7.2.1 The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.1 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.1 upon receipt of a new list so furnished. 7.2.2 The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. 7.2.3 Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. 7.3 REPORTS BY TRUSTEE The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within sixty days after each March 8 following the date of this Indenture deliver to Holders a brief report, dated as of such March 8, which complies with the provisions of such Section 313(a). A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed, with the Commission (unless at the time no Outstanding Securities have been registered with the - 52 - Commission pursuant to the Securities Act) and with the Company. The Company will promptly notify the Trustee when any Securities are listed on any stock exchange. 8 CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE 8.1 COMPANY AND GUARANTOR MAY CONSOLIDATE, ETC. ONLY ON CERTAIN TERMS Neither the Company nor the Guarantor shall, without the consent of the Holders of a majority in aggregate principal amount of the Securities in accordance with this Indenture, consolidate with or merge into any other corporation or (x) in the case of the Company, convey or transfer all or substantially all of its properties or assets to any other Person or (y) in the case of the Guarantor, convey or transfer all or substantially all of its mining properties or assets to any other Person, unless: 8.1.1 the corporation formed by such consolidation or into which the Company or Guarantor is merged or the Person which acquires by conveyance or transfer all or substantially all of the properties or assets of the Company or all or substantially all of the mining properties or assets of the Guarantor (the "Successor Corporation") shall expressly assume, pursuant to this Indenture, the due and punctual repayment of the principal and interest on all the Securities and all other obligations of the Company or the Guarantor, as applicable, under the Indenture and the Securities; 8.1.2 immediately after giving effect to such transaction, no Event of Default or Illegality Event with respect to any Security shall have occurred and be continuing; 8.1.3 the Company and the Guarantor have delivered to the Trustee (a) a certificate signed by an executive officer of the Company and an executive officer of the Guarantor stating that such consolidation, merger, conveyance or transfer complies with this Article and that all conditions precedent herein provided, which relate to such transaction, have been complied with and (b) an Opinion of Counsel of recognized standing as to the legal issues relating thereto; and 8.1.4 the Successor Corporation shall expressly agree to withhold against any tax, duty, assessment or other governmental charge thereafter imposed or levied by Brazil, the Cayman Islands, a Successor Jurisdiction or any political subdivision or authority thereof or therein having power to tax as a consequence of such consolidation, merger, conveyance or transfer with respect to the payment of principal of or interest on the Securities, and to pay such Additional Amounts as may be necessary to ensure that the net amounts receivable by Holders after any withholding or deduction of any such tax, assessment, duty or other governmental charge shall equal the respective amounts of principal, premium (if any) and interest which would have been receivable in respect of the Securities in the absence of such consolidation, merger, conveyance or transfer; provided, however, that Holders will not be subject to the exceptions and limitations contained in Section 10.7 in relation to the Successor Jurisdiction. - 53 - 8.2 SUCCESSOR SUBSTITUTED Upon any consolidation, merger, conveyance, or transfer in accordance with this Article, the Successor Corporation shall succeed to, and be substituted for, and may exercise every right and power of the Company or the Guarantor, as applicable, under the Securities with the same effect as if the Successor Corporation had been named as the issuer or guarantor of the Securities herein. 8.3 RIGHT TO REDEMPTION No Successor Corporation shall have the right to redeem the Securities unless the Company and the Guarantor would have been entitled to redeem the Securities in similar circumstances. 9 SUPPLEMENTAL INDENTURES 9.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS Without the consent of any Holders, the Company, when authorized by a Board Resolution, the Guarantor, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: 9.1.1 to evidence the succession of another Person to the Company or the Guarantor and the assumption by any such successor of the covenants of the Company or the Guarantor herein and in the Securities; or 9.1.2 to add to the covenants of the Company or the Guarantor for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company or the Guarantor; or 9.1.3 to add any additional Events of Default or Illegality Events for the benefit of the Holders of all or any series of Securities (and if such additional Events of Default or Illegality Events are to be for the benefit of less than all series of Securities, stating that such additional Events of Default or Illegality Events are expressly being included solely for the benefit of such series); or 9.1.4 to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in uncertificated form; or 9.1.5 to add to, change or eliminate any of the provisions of this Indenture in respect of one or more series of Securities, PROVIDED that any such addition, change or elimination (A) shall neither (i) apply to any Security of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (ii) modify the rights of the Holder of any such Security with - 54 - respect to such provision or (B) shall become effective only when there is no such Security Outstanding; or 9.1.6 to secure the Securities pursuant to the requirements of Article Ten or otherwise; or 9.1.7 to establish the form or terms of Securities of any series as permitted by Sections 2.1 and 3.1; or 9.1.8 to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.11; or 9.1.9 to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, PROVIDED that such action pursuant to this clause 9.1.9 shall not adversely affect the interests of the Holders of Securities of any series in any material respect; or 9.1.10 to issue an unlimited amount of 2007 Notes pursuant to the First Supplemental Indenture, to issue an unlimited amount of "Exchange Securities" contemplated by the Registration Rights Agreement and to comply with the obligations of the Company and the Guarantor thereunder. 9.2 SUPPLEMENTAL INDENTURES OR WAIVER WITH CONSENT OF HOLDERS With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture or waiver, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, the Guarantor, when authorized by a Board Resolution, and the Trustee may (i) enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture or (ii) waive the application of any provision of this Indenture; PROVIDED, HOWEVER, that no such supplemental indenture or waiver shall, without the consent of the Holder of each Outstanding Security affected thereby, 9.2.1 change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or reduce the amount of the principal of any Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.3, or modify in any way the Company's or the Guarantor's obligation to pay Additional Amounts pursuant to Section 10.7 or change any Place of Payment where, or the coin or currency in which, any Security or any premium or interest thereon is payable, or impair the right to institute suit for the - 55 - enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, or repurchase on or after the Redemption Date or Repurchase Date), or 9.2.2 change the terms of payment from, or control over, or release or reduce any collateral or security interest that may be created or provided pursuant to Section 10.6 or any supplemental indenture to secure the payment of principal, interest or premium, if any, under any Security, except as allowed under the terms of any such supplemental indenture, or 9.2.3 reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or 9.2.4 modify any of the provisions of this Section, Section 5.14 or Section 10.9, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby, PROVIDED, HOWEVER, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section and Section 10.9, or the deletion of this proviso, in accordance with the requirements of Section 6.11. A supplemental indenture or waiver which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture or waiver, but it shall be sufficient if such Act shall approve the substance thereof. 9.3 EXECUTION OF SUPPLEMENTAL INDENTURES In executing, or accepting the additional trusts created by, any supplemental indenture or waiver permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture or waiver is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture or waiver which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. - 56 - 9.4 EFFECT OF SUPPLEMENTAL INDENTURES Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. 9.5 CONFORMITY WITH TRUST INDENTURE ACT Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. 9.6 REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. 9.7 EFFECT OF WAIVER A waiver shall be effective to waive compliance with the particular provision and for the particular instance for which the waiver was made and, until such waiver shall become effective, the obligations of the Company or the Guarantor and the duties of the Trustee in respect of any such provision shall remain in full force and effect. 9.8 NOTICE TO LUXEMBOURG STOCK EXCHANGE So long as any Securities of a series are listed on the Luxembourg Stock Exchange, the Company shall give notice to the Luxembourg Stock Exchange of any supplemental indenture or waiver of any covenant in regards such series effected pursuant to this Article 9. 10 COVENANTS 10.1 PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST The Company will duly and punctually pay the principal of and any premium and interest (together with any Additional Amounts payable thereon) on the Securities in accordance with the terms of the Securities and this Indenture. 10.2 MAINTENANCE OF OFFICE OR AGENCY With respect to any Global Security, and except as otherwise may be specified for such Global Security as contemplated by Section 3.1, the Corporate Trust Office of the Trustee shall be the Place of Payment where such Global Security may be presented or surrendered for payment or for registration of transfer or exchange, or where successor - 57 - Securities may be delivered in exchange therefor; PROVIDED, HOWEVER, that any such payment, presentation, surrender or delivery effected pursuant to the Applicable Procedures of the Depositary for such Global Security shall be deemed to have been effected at the Place of Payment for such Global Security in accordance with the provisions of this Indenture. With respect to any Securities that are not in the form of a Global Security, the Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange, and where notices and demands to or upon the Company in respect of the Securities (in this case, without regard to the form of the Securities) and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside the Borough of Manhattan, the City of New York) where the Securities of one or more series, notices and other items may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. 10.3 MONEY FOR SECURITY PAYMENTS TO BE HELD IN TRUST If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of or any premium or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and any premium and interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, on the business day prior to each due date of the principal of or any premium or interest on any Securities of that series, deposit in Dollars with a Paying Agent in New York, New York a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent for any series of Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (1) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (2) during the continuance of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment in respect of the Securities of that series, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent for payment in respect of the Securities of that series. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of or any premium or interest on any Security of any series and remaining unclaimed for two years after such principal, premium or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company and the Guarantor for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such repayment, may, at the expense of the Company, cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. 10.4 STATEMENT BY OFFICERS AS TO DEFAULT The Company and the Guarantor will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company or the Guarantor is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company or the Guarantor shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. The Company and the Guarantor will deliver to the Trustee, as soon as possible and in any event within 15 days after the Company or the Guarantor becomes aware of the occurrence of any Event of Default or Illegality Event or an event which, with notice or the lapse of time or both, would constitute an Event of Default or Illegality Event, an - 59 - Officers' Certificate setting forth the details of such Event of Default or Illegality Event or default and the action which the Company proposes to take with respect thereto. 10.5 REPORTS BY COMPANY AND GUARANTOR The Company (unless at the time no Outstanding Securities have been registered with the Commission pursuant to the Securities Act) and the Guarantor shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act. Notwithstanding that the Guarantor may not be required to remain subject to the reporting requirements of Section 12, 13 or 15(d) of the Exchange Act, the Guarantor will continue to file with the Commission and provide the Trustee with such annual reports and such information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) which are specified in Sections 12, 13 and 15(d) of the Exchange Act. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's and the Guarantor's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). 10.6 LIMITATION ON LIENS Neither the Company nor the Guarantor will create, incur, issue or assume any Indebtedness secured by any Lien, other than a Permitted Lien, without in any such case effectively providing that the Securities (together with, if the Company or Guarantor shall so determine, any other indebtedness of the Company or Guarantor) shall be secured equally and ratably with or prior to such secured Indebtedness. For the purposes of this Section, the (i) giving of a guarantee which is secured by a Lien upon or in respect of any asset of the Company or the Guarantor, and (ii) the creation of a Lien upon or in respect of any asset of the Company or the Guarantor to secure Indebtedness which existed prior to the creation of such Lien, shall be deemed to involve the incurrence of Indebtedness in an amount equal to the principal amount of such Indebtedness effectively secured by such Lien. 10.7 PAYMENT OF ADDITIONAL AMOUNTS 10.7.1 All payments of principal, premium and interest in respect of the Securities shall be made without withholding or deduction for any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the Cayman Islands, Brazil or any Successor Jurisdiction or any authority therein or thereof having power to tax ("FOREIGN TAXES"), except to the extent that such Foreign Taxes are required by the Cayman Islands, Brazil, such Successor Jurisdiction or any such authority to be withheld or deducted. In the event of any withholding or - 60 - deduction for any Foreign Taxes, the Company or the Guarantor, as the case may be, shall pay such additional amounts ("ADDITIONAL Amounts") as will result in receipt by the Holders of Securities on the respective due dates of such amounts as would have been received by them had no such withholding or deduction (including for any Foreign Taxes payable in respect of Additional Amounts) been required, except that no such Additional Amounts shall be payable with respect to any payment on a Security: (i) to, or to a third party on behalf of, a Holder who is liable for any such taxes, duties, assessments or other governmental charges which would not have been imposed but for (A) a connection between the Holder and the Cayman Islands or Brazil other than the mere holding of such Security and the receipt of payments with respect to such Security or (B) failure by the Holder to comply with any certification, identification or other reporting requirement concerning the nationality, residence, identity or connection with the Cayman Islands, Brazil or a Successor Jurisdiction, or applicable political subdivision or authority thereof or therein having power to tax, of such Holder, if compliance is required by such Successor Jurisdiction, or any political subdivision or authority thereof or therein having power to tax as a precondition to exemption from, or reduction in the rate of, the tax, assessment or other governmental charge and the Company has given the Holders at least 30 days' notice that Holders will be required to provide such certification, identification or other requirement; (ii) in respect of any such taxes, duties, assessments or other governmental charges with respect to a Security surrendered (if surrender is required) more than 30 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for and notice thereof given to Holders, whichever occurs later, except to the extent that the Holder of such Security would have been entitled to such Additional Amounts on surrender of such Security for payment on the last day of such 30-day period; (iii) in respect of estate, inheritance, gift, sales, transfer, personal property or similar tax, assessment or governmental charge imposed with respect to a Security; (iv) in respect of any tax, assessment or other governmental charge payable otherwise than by deduction or withholding from payments on any series of Securities or by direct payment by the Company or the Guarantor in respect of claims made against the Company or the Guarantor; (v) where such Additional Amount is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the - 61 - ECOFIN Council meeting of November 26-27, 2000 or any law implementing or complying with, or introduced in order to conform to, such directive; or (vi) in respect of any combination of the above. For purposes of the provisions described in Clause (i) above, the term "Holder" of any Security means the direct nominee of any beneficial owner of such Security, which holds such beneficial owner's interest in such Security. Notwithstanding the foregoing, the limitations on the Company's or the Guarantor's obligation to pay Additional Amounts set forth in Clause (i) above shall not apply if the provision of information, documentation or other evidence described in such Clause (i) would be materially more onerous, in form, in procedure or in the substance of information disclosed, to a Holder or beneficial owner of a Security (taking into account any relevant differences between U.S. and Cayman Islands or Brazilian law, regulation or administrative practice) than comparable information or other reporting requirements imposed under U.S. tax law (including tax treaties between the United States and the Cayman Islands or Brazil), regulation (including proposed regulations) and administrative practice. The Company or the Guarantor, as the case may be, shall promptly provide the Trustee with documentation, if any, (which may consist of certified copies of such documentation) reasonably satisfactory to the Trustee evidencing the payment of Foreign Taxes in respect of which the Company or the Guarantor has paid any Additional Amounts. Copies of such documentation shall be made available to the Holders of the Securities or the Paying Agent, as applicable, upon request therefor. In respect of the Securities issued hereunder, at least 10 days prior to the first date of payment of interest on the Securities and at least 10 days prior to each date, if any, of payment of principal or interest thereafter if there has been any change with respect to the matters set forth in the below-mentioned Officers' Certificate, the Company and the Guarantor shall furnish the Trustee and each Paying Agent with an Officers' Certificate instructing the Trustee and such Paying Agent as to whether such payment of principal of or any interest on such Securities shall be made without deduction or withholding for or on account of any tax, duty, assessment or other governmental charge. If any such deduction or withholding shall be required by the Cayman Islands or Brazil or any Successor Jurisdiction or any authority therein having power to tax, then such certificate shall specify, by country, the amount, if any, required to be deducted or withheld on such payment to Holders of such Securities, and the Company or the Guarantor, as the case may be, (if payment is then due under the Guaranty) shall pay or cause to be paid to the Trustee or such Paying Agent Additional Amounts, if any, required by this Section. The Company and the Guarantor agree to indemnify the Trustee and each Paying Agent for, and to hold them harmless against, any loss, liability or expense reasonably incurred without negligence or bad faith on their part arising out of - 62 - or in connection with actions taken or omitted by them in reliance on any Officers' Certificate furnished pursuant to this Section, the obligation of the Company and the Guarantor to so indemnify being joint and several. 10.7.2 The Company or the Guarantor, as the case may be, shall pay all stamp, issue, registration, documentary or other similar duties, if any, which may be imposed by the Cayman Islands or Brazil or any other governmental entity or political subdivision therein or thereof, or any taxing authority of or in any of the foregoing, with respect to the Indenture or the issuance of the Securities or the Guaranty. 10.7.3 The Company or the Guarantor, as the case may be, shall provide each Paying Agent and any withholding agent under relevant tax regulations with copies of each certificate received by the Company or the Guarantor from a Holder of a Security pursuant to the text of such Security. Each such Paying Agent and withholding agent shall retain each such certificate received by it for as long as any Security is outstanding and in no event for less than four years after its receipt, and for such additional period thereafter, as set forth in an Officers' Certificate, as such certificate may become material in the administration of applicable tax laws. 10.7.4 In the event that Additional Amounts actually paid with respect to the Securities pursuant to the preceding paragraph are based on rates of deduction or withholding of withholding taxes in excess of the appropriate rate applicable to the Holder of such Securities, and, as a result thereof, such Holder is entitled to make claim for a refund or credit of such excess from the authority imposing such withholding tax, then such Holder shall, by accepting such Securities, be deemed to have assigned and transferred all right, title, and interest to any such claim for a refund or credit of such excess to the Company or the Guarantor. However, by making such assignment, the Holder makes no representation or warranty that the Company or the Guarantor will be entitled to receive such claim for a refund or credit and incurs no other obligation with respect thereto. 10.7.5 All references in this Indenture and the Securities to principal, premium or interest in respect of any Security shall be deemed to mean and include all Additional Amounts, if any, payable in respect of such principal, premium or interest, unless the context otherwise requires, and express mention of the payment of Additional Amounts in any provision hereof shall not be construed as excluding reference to Additional Amounts in those provisions hereof where such express mention is not made. All references in this Indenture and the Securities to principal in respect of any Security shall be deemed to mean and include any Redemption Price or Repurchase Price payable in respect of such Security pursuant to any redemption or repurchase right hereunder (and all such references to the Stated Maturity of the principal in respect of any Security shall be deemed to mean and include the Redemption Date or Repurchase Date with respect to any such Redemption Price or Repurchase Price), and all such references to principal, premium, interest or Additional Amounts shall be - 63 - deemed to mean and include any amount payable in respect hereof pursuant to Section 10.7, and express mention of the payment of any Redemption Price or Repurchase Price, or any such other amount in any provision hereof shall not be construed as excluding reference to the payment of any Redemption Price or Repurchase Price, or any such other amounts in those provisions hereof where such express reference is not made. 10.8 INDEMNIFICATION OF JUDGMENT CURRENCY The Company and the Guarantor shall indemnify the Trustee and any Holder of a Security against any loss incurred by the Trustee or such Holder, as the case may be, as a result of any judgment or order being given or made for any amount due under this Indenture or such Security and being expressed and paid in a currency (the "JUDGMENT CURRENCY") other than Dollars, and as a result of any variation between (i) the rate of exchange at which the Dollar amount is converted into the Judgment Currency for the purpose of such judgment or order and (ii) the spot rate of exchange in The City of New York at which the Trustee or such Holder, as the case may be, on the date of payment of such judgment or order is able to purchase Dollars with the amount of the Judgment Currency actually received by the Trustee or such Holder. The foregoing indemnity shall constitute a separate and independent obligation of the Company and the Guarantor and shall continue in full force and effect notwithstanding any such judgment or order as aforesaid. The term "spot rate of exchange" shall include any premiums and costs of exchange payable in connection with the purchase of, or conversion into, Dollars. 10.9 FURTHER ACTS; PROTECTION OF COLLATERAL 10.9.1 The Company and the Guarantor will each take any action, satisfy any condition or do any thing (including the obtaining or effecting of any necessary consent, approval, authorization, exemption, filing, license, order, recording or registration) at any time required in accordance with the applicable laws and regulations to be taken, fulfilled or done in order (i) to enable it lawfully to enter into, exercise its rights and perform and comply with its obligations under the Securities, this Indenture and any supplemental indenture, as the case may be, including any security interest created thereby, (ii) to ensure that those obligations are legally binding and enforceable, (iii) to make the Securities, this Indenture and any supplemental indenture admissible in evidence in the courts of the State of New York, the Cayman Islands and Brazil and (iv) to enable the Trustee to exercise and enforce its respective rights under this Indenture and any supplemental indenture and to carry out the terms, provisions and purposes of this Indenture and any supplemental indenture; 10.9.2 The Company shall from time to time prepare (or shall cause to be prepared), execute, file and deliver all such supplements and amendments hereto and all such financing statements, continuation statements, instruments of further assurance and other instruments (including any additional financing statements, instruments, control agreements or other documents necessary due to a change in applicable law, rule or regulation or otherwise), and shall take such other action necessary or advisable to: - 64 - (i) maintain or preserve any Lien and first priority security interest that may be created pursuant to any supplemental indenture or carry out more effectively the purposes thereof; (ii) perfect, publish notice of or protect the validity of any Lien and first priority security interest that may be created pursuant to any supplemental indenture; (iii) enforce the rights of the Trustee and the Holders of Securities in any collateral or security interest that may be created pursuant to any supplemental indenture; or (iv) preserve and defend title to any collateral or security interest that may be created pursuant to any supplemental indenture and the rights of the Trustee and the Holders of Securities in any collateral or security interest that may be created pursuant to any supplemental indenture against the claims of all Persons and parties. 10.9.3 The Company hereby authorizes the Trustee to file any financing statement, including any amendments or continuations of any original financing statements, with respect to any collateral and or security interest that may be created pursuant to any supplemental indenture and identifying the Company as the debtor as the Trustee deems necessary or desirable. The Company hereby designates the Trustee its agent and attorney-in-fact to execute any financing statement, continuation statement or other instrument required to be filed by the Company pursuant to this Section. Notwithstanding anything herein to the contrary, the Trustee shall have no duty as to maintaining, perfecting or collecting any collateral or security interest that may be created pursuant to any supplemental indenture. 10.10 NOTICE OF LATE PAYMENT So long as any Security is Outstanding, the Company will forthwith upon request by the Trustee give notice to the Holders of Securities of any unconditional payment to the Trustee of any sum due in respect of the Securities made after the Business Day prior to the due date for such payment. 10.11 SECURITIES HELD BY THE COMPANY So long as any Security is Outstanding, the Company will send to the Trustee, as soon as practicable after being so requested by the Trustee, an Officer's Certificate of the Company stating the aggregate principal amount of Securities held or beneficially owned, at the date of such certificate by or on behalf of the Company, the Guarantor or any of its Subsidiaries. The Company will promptly notify the Trustee when it, the Guarantor or any of its Subsidiaries holds or beneficially owns Securities. 10.12 SECURITIES ISSUED OR OUTSTANDING So long as any Security is Outstanding, the Company will send to the Trustee within fourteen (14) days after any written request by the Trustee, an Officer's Certificate - 65 - confirming the aggregate principal amount of Securities issued and/or Outstanding under this Indenture. 10.13 STATUS OF GUARANTY AND SECURITIES The Guarantor will ensure that the Guaranty will rank at least PARI PASSU with any current and future unsecured and unsubordinated Indebtedness of the Guarantor. The Company will ensure that the Securities will rank at least PARI PASSU with any current and future Indebtedness of the Company. 10.14 RATING Upon the further issue of Securities under this Indenture and any supplemental indentures, the Company will obtain a rating confirmation of any other applicable series of Securities then outstanding. 10.15 MAINTENANCE OF GOOD STANDING The Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence and rights to conduct its business under Cayman Islands law as currently contemplated in its Memorandum and Articles of Association. The Guarantor will do or cause to be done all things necessary to preserve and keep in full force and effect its existence. The Company and the Guarantor will comply with all laws, regulations, rules and orders of Brazil and the Cayman Islands, or any political subdivision thereof, which apply to its existence, property and business, including applicable environmental and labor laws, except to the extent such failure to comply would not individually or in the aggregate have a material adverse effect on the general affairs, business, prospects, management, financial position, stockholder's equity or results of operations of the Company or the Guarantor. 10.16 MAINTENANCE OF PROPERTIES The Company and the Guarantor will cause all properties that are material to the conduct of their business to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company and the Guarantor may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; PROVIDED, HOWEVER, that nothing in this Section shall prevent the Company or the Guarantor from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company or the Guarantor, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders of Notes. The Company or the Guarantor will cause all of its properties and its business to be insured against all damages, claims, interruptions and loss encountered in the normal course of business. 10.17 PAYMENT OF TAXES The Company and the Guarantor will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, all taxes, assessments and - 66 - governmental charges levied or imposed upon the Company or the Guarantor or upon the income, profits or property of the Company or the Guarantor (the "TAXES") which, if unpaid, might by law become a Lien upon the property of the Company and the Guarantor; PROVIDED, HOWEVER, that (x) the Company and the Guarantor shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is then-currently being contested in good faith by appropriate proceedings and (y) the Company and the Guarantor shall be in compliance with this Section 10.17 if the individual or the aggregate amount of the Taxes not paid would not have a material adverse effect on the ability of the Guarantor to comply with its obligations under this Indenture. 10.18 OWNERSHIP OF THE COMPANY AND PAYMENT OF EXPENSES The Guarantor will at all times own, either directly or indirectly, 100% of the capital stock of the Company. The Guarantor will determine and timely pay all fees, taxes, tariffs, service company expenses and other monies required to be paid in connection with the establishment and maintenance of the existence of the Company under Cayman Islands law. 10.19 FINANCIAL STATEMENTS AND REPORTS So long as any Note is Outstanding, the Company (but only if required to prepare the requested information under Cayman Islands law) and the Guarantor will send to the Trustee at the time of their issue, and in the case of annual financial statements (which shall be audited) in any event within one hundred twenty (120) days after the end of each financial year, four (4) copies in English of every balance sheet and profit and loss account of the Company and the Guarantor; PROVIDED that unaudited quarterly financial reports must be sent to the Trustee within sixty (60) days of the end of each fiscal quarter. 10.20 NOTICE TO TRUSTEE The Guarantor will provide written notice to the Trustee within five Business Days of depositing funds with the Trustee in satisfaction of the Guaranty. 10.21 RESTRICTIONS ON THE COMPANY So long as any Securities are Outstanding, the Company shall not, without the prior consent in writing of the Trustee if so directed by the holders of not less than 25% of the principal amount of the Securities Outstanding: 10.21.1 engage in any business other than issuing Securities, acquiring and holding any collateral for the payment of Securities, issuing further Securities, entering into agreements and transactions related to all or any of the foregoing and performing any act incidental to or necessary in connection with any of the foregoing; 10.21.2 dispose of any part of any collateral or any interest therein, or create any mortgage, charge or other security or right of recourse in respect thereof in favor of any person; - 67 - 10.21.3 declare or pay any dividends or make any distribution of its assets; 10.21.4 release any party to this Indenture from any existing obligations thereunder; 10.21.5 have any subsidiaries; 10.21.6 consolidate or merge with any other person (other than as contemplated by this Indenture); 10.21.7 take or omit to take any action, or make or omit to make any filing, or consent to the taking or omission to take any action or the making or omission to make any filing, which could lead to the Company becoming subject to any of the events specified in Section 5.1.5 or Section 5.1.6; 10.21.8 have any employees; 10.21.9 incur any indebtedness for borrowed moneys, other than issuing Securities to the extent permitted under this Indenture and provided that: (i) Moody's shall have confirmed in advance to the Trustee in writing that the issue of any further Securities shall not result in a downgrading of the then current rating assigned to any Outstanding Securities; and (ii) following the issue of such further Securities, the Issuer will not be deemed to be an "investment company" as defined in the U.S. Investment Company Act of 1940; or 10.21.10 purchase, own, lease or otherwise acquire any real property (including office premises or like facilities). 10.22 RESTRICTIONS ON THE GUARANTOR So long as any Securities are Outstanding, the Guarantor and the Company shall not: 10.22.1 without the prior consent in writing of the Trustee, if so directed by the holders of not less than 25% of the principal amount of the Securities Outstanding, cause to be made or approve any changes to the constitutive documents of the Company allowing the Company to be engaged in any business or carry out any activities other than the ones contemplated by Section 10.23; or 10.22.2 take or omit to take any action, or make or omit to make any filing, or consent to the taking or omission to take any action or the making or omission to make any filing, which could lead to the Company becoming subject to any of the events specified in Section 5.1.5 or Section 5.1.6. 10.23 CHANGE TO CONSTITUTIVE DOCUMENTS OF THE COMPANY The Guarantor shall take any and all action as the sole shareholder of the Company to effect a change in the constitutive documents of the Company within 90 days of the date hereof. That change shall be to restrict the objects of the Company to acting as a finance company for the CVRD Group by issuing Securities under this Indenture and activities incidental or related thereto and such other purposes as the Trustee may - 68 - approve if so directed by holders of not less than 25% in principal amount of the Outstanding Securities. 11 REDEMPTION OF SECURITIES 11.1 RIGHT OF REDEMPTION 11.1.1 The Securities of any series which are redeemable before their Stated Maturity may not be redeemed at the election of the Company except in accordance with their terms and (except as otherwise specified as contemplated by Section 3.1 for such Securities) in accordance with the provisions of this Article. 11.1.2 The election of the Company to redeem any Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 45 days prior to the Redemption Date fixed by the Company, notify the Trustee of such Redemption Date, of the principal amount of Securities of such series to be redeemed and, if applicable, of the tenor of the Securities specified therefor in the Securities of a series to be redeemed. 11.1.3 If, as a result of any amendment to, or change in, the laws (or any rules or regulation thereunder) of the Cayman Islands or Brazil or any political subdivision or taxing authority thereof or therein affecting taxation or any amendment to or change in an official interpretation, administration or application of such laws, rules or regulations (including a holding by a court of competent jurisdiction), which amendment or change of such laws, rules or regulations or the interpretation thereof becomes effective on or after the date specified therefor in the Securities of a series, the Company would be obligated to pay Additional Amounts in respect of the Securities of such series pursuant to the terms and conditions thereof in excess of those attributable to Cayman Islands or Brazilian withholding tax on the basis of a statutory rate of 15%, and if such obligation cannot be avoided by the Company after taking measures the Company considers reasonable to avoid it, then, at the Company's option, the Securities of such series may be redeemed in whole, but not in part, at any time, on giving not less than 30 nor more than 60 days' notice to the Holders of such Securities, at a Redemption Price equal to 100% of the principal amount thereof and any premium applicable thereto, together with accrued interest up to but not including the Redemption Date and any Additional Amounts which would otherwise be payable; PROVIDED, HOWEVER, that (1) no notice of such redemption may be given earlier than 90 days prior to the earliest date on which the Company would but for such redemption be obligated to pay such Additional Amounts were a payment on such Securities then due, and (2) at the time such notice is given, such obligation to pay such Additional Amounts remains in effect. 11.1.4 Before any notice of redemption pursuant to Section 11.1.3 is given to the Trustee or the Holders of Securities of the relevant series, the Company shall deliver to the Trustee (i) an Officers' Certificate stating that the Company is entitled to effect such redemption and setting forth a statement of facts showing - 69 - that the condition or conditions precedent to the right of the Company so to redeem have occurred or been satisfied and (ii) an Opinion of Counsel to the effect that the Company has or shall become obligated to pay such Additional Amounts as a result of such change or amendment. Such notice, once given to the Trustee, shall be irrevocable. 11.2 NOTICE OF REDEMPTION Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: 11.2.1 the Redemption Date, 11.2.2 the Redemption Price and amount of accrued interest, if any, 11.2.3 that on the Redemption Date the Redemption Price and any accrued interest shall become due and payable upon each Security to be redeemed and that interest thereon shall cease to accrue on and after said date, 11.2.4 the conversion rate (if applicable), the date on which the right to convert the Securities to be redeemed shall terminate and the place or places where such Securities may be surrendered for conversion, 11.2.5 the place or places where such Securities are to be surrendered for payment of the Redemption Price and any accrued interest, and 11.2.6 applicable CUSIP or ISIN Numbers. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company, and such notice, when given to the Holders, shall be irrevocable. 11.3 DEPOSIT OF REDEMPTION PRICE On the Business Day prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date. 11.4 SECURITIES PAYABLE ON REDEMPTION DATE Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with - 70 - said notice, such Security shall be paid by the Company to the Person in whose name such Security is registered at the Redemption Price, together with accrued interest to the Redemption Date; PROVIDED, HOWEVER, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.6. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal shall, until paid, bear interest from the Redemption Date at the rate borne by (or prescribed therefor in) the Security. 11.5 SECURITIES REDEEMED IN PART Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. 12 GUARANTY 12.1 THE GUARANTY Subject to the provisions of this Article, the Guarantor hereby irrevocably and unconditionally guarantees to each Holder of a security of each series authenticated and delivered by the Trustee and to the Trustee the full and punctual payment (whether at the Stated Maturity, upon redemption, purchase pursuant to an offer to purchase or acceleration or otherwise) of the principal, premium, interest, Additional Amounts and all other amounts that may come due and payable under each Security and the full and punctual payment of all other amounts payable by the Company under the Indenture as they come due. Upon failure by the Company to pay punctually any such amount, the Guarantor shall forthwith pay the amount not so paid at the place and time and in the manner specified in the Indenture. 12.2 GUARANTY UNCONDITIONAL The obligations of the Guarantor hereunder are unconditional and absolute and, without limiting the generality of the foregoing, will not be released, discharged or otherwise affected by 12.2.1 any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of the Company under the Indenture or any Security, by operation of law or otherwise; - 71 - 12.2.2 any modification or amendment of or supplement to the Indenture or any Security; 12.2.3 any change in the corporate existence, structure or ownership of the Company, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Company or its assets or any resulting release or discharge of any obligation of the Company contained in the Indenture or any Security; 12.2.4 the existence of any claim, set-off or other rights which the Guarantor may have at any time against the Company, the Trustee or any other Person, whether in connection with the Indenture or any unrelated transactions, PROVIDED that nothing herein prevents the assertion of any such claim by separate suit or compulsory counterclaim; 12.2.5 any invalidity or unenforceability relating to or against the Company for any reason of the Indenture or any Security, or any provision of applicable law or regulation purporting to prohibit the payment by the Company of the principal of or interest on any Security or any other amount payable by the Company under the Indenture; or 12.2.6 any other act or omission to act or delay of any kind by the Company, the Trustee or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to such Guarantor's obligations hereunder. 12.3 DISCHARGE; REINSTATEMENT The Guarantor's obligations hereunder will remain in full force and effect until the principal of, premium, if any, and interest on the Securities and all other amounts payable by the Company under the Indenture have been paid in full. If at any time any payment of the principal of, premium, if any, or interest on any Security or any other amount payable by the Company under the Indenture is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Company or otherwise, the Guarantor's obligations hereunder with respect to such payment will be reinstated as though such payment had been due but not made at such time. 12.4 WAIVER BY THE GUARANTOR 12.4.1 The Guarantor unconditionally and irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against the Company or any other Person. The Guaranty constitutes a guaranty of payment and not of collection. 12.4.2 The Guarantor unconditionally and irrevocably waives any and all rights provided under Articles 1491, 1498 through 1500 and 1502 through 1504 of the Brazilian Civil Code, Articles 261 and 262 of the Brazilian Commercial Code and Article 595 of the Brazilian Civil Procedure Code. - 72 - 12.5 SUBROGATION AND CONTRIBUTION Upon making any payment with respect to any obligation of the Company under this Article, the Guarantor making such payment will be subrogated to the rights of the payee against the Company with respect to such obligation; PROVIDED, HOWEVER, that the Guarantor shall not be entitled to enforce, or to receive any payments arising out of or based upon, such right of subrogation until the principal of (and premium, if any) and interest on all Securities of the relevant series shall have been paid in full. 12.6 STAY OF ACCELERATION If acceleration of the time for payment of any amount payable by the Company under the Indenture or the Securities is stayed upon the insolvency, bankruptcy or reorganization of the Company, all such amounts otherwise subject to acceleration under the terms of the Indenture are nonetheless payable by the Guarantor forthwith on demand by the Trustee or the Holders. 12.7 EXECUTION AND DELIVERY OF GUARANTY The execution by the Guarantor of the Indenture or a supplemental indenture evidences the Guaranty of such Guarantor, whether or not the person signing as an officer of the Guarantor still holds that office at the time of authentication of any Security. The delivery of any Security by the Trustee after authentication constitutes due delivery of the Guaranty set forth in the Indenture on behalf of the Guarantor. - 73 - This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, as of the day and year first above written. EXECUTED AS A DEED BY VALE OVERSEAS LIMITED, as Issuer By: /s/ Jorge Tadeu Moura Pinho --------------------------------------- Name: Jorge Tadeu Moura Pinho Title: Attorney By: /s/ Bernadeth Vieira de Souza --------------------------------------- Name: Bernadeth Vieira de Souza Title: Attorney COMPANHIA VALE DO RIO DOCE, as Guarantor By: /s/ Leonardo Moretzsohm de Andrade --------------------------------------- Name: Leonardo Moretzsohm de Andrade Title: Attorney By: /s/ Andrea Marques de Almeida --------------------------------------- Name: Andrea Marques de Almeida Title: Attorney JPMORGAN CHASE BANK, as Trustee By: /s/ Lesley Daley --------------------------------------- Name: Lesley Daley Title: Trust Officer Sworn to before me this 8th day of March, 2002. /s/ James M. Foley - ------------------------------------- Notary Public -74- CERTAIN SECTIONS OF THIS INDENTURE RELATING TO SECTION 310 THROUGH 318, INCLUSIVE, OF THE TRUST INDENTURE ACT OF 1939: TRUST INDENTURE ACT SECTION INDENTURE SECTION ss.310(a)(1)....................................................6.9 (a)(2)....................................................6.9 (a)(3).........................................Not Applicable (a)(4).........................................Not Applicable (a)(5)....................................................6.9 (b).......................................................6.8 .........................................................6.10 ss.311(a)......................................................6.13 (b)......................................................6.13 ss.312(a).......................................................7.1 ..........................................................7.2 (b).......................................................7.2 (c).......................................................7.2 ss.313(a).......................................................7.3 (b).......................................................7.3 (c)(1)....................................................7.3 (c)(2)....................................................7.3 (c)(3)....................................................7.3 (d).......................................................7.3 ss.314(a)......................................................10.5 (b)......................................................10.5 (c)......................................................10.5 (d)......................................................10.5 ss.315(a).......................................................6.1 (b).......................................................6.2 (c).......................................................6.1 (d).......................................................6.1 (e)......................................................5.15 ss.316(a)(1)(A)................................................5.13 (a)(1)(B)................................................5.14 (a)(2).........................................Not Applicable (b).......................................................5.9 (c).......................................................1.4 ss.317(a)(1)....................................................5.4 (a)(2)....................................................5.5 (b)......................................................10.3 ss.318(a).......................................................1.7 Note: This reconciliation and tie shall not, for any purpose, be deemed to be part of this Indenture. -75- EX-4.2 6 y58436ex4-2.txt FIRST SUPPLEMENTAL INDENTURE EXHIBIT 4.2 Dated as of March 8, 2002 VALE OVERSEAS LIMITED, AS ISSUER and COMPANHIA VALE DO RIO DOCE, AS GUARANTOR and JPMORGAN CHASE BANK, AS TRUSTEE FIRST SUPPLEMENTAL INDENTURE U.S.$300,000,000 Series A and Series B 8.625% Enhanced Guaranteed Notes due 2007 LINKLATERS 1345 Avenue of the Americas 19th Floor New York, NY 10105 Telephone: (1-212) 424 9000 Facsimile: (1-212) 424 9100 Ref: PERR/SEYB LINKLATERS & ALLIANCE Linklaters is a member firm of Linklaters & Alliance a non-partnership association TABLE OF CONTENTS
PAGE 1 DEFINITIONS....................................................... 3 1.1 PROVISIONS OF THE ORIGINAL INDENTURE......................... 3 1.2 DEFINITIONS.................................................. 3 2 GENERAL TERMS AND CONDITIONS OF THE NOTES......................... 8 2.1 DESIGNATION AND PRINCIPAL AMOUNT............................. 8 2.2 FORMS GENERALLY.............................................. 9 2.3 TRANSFERS AND EXCHANGES...................................... 21 2.4 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.............. 25 2.5 MAINTENANCE OF OFFICE OR AGENCY.............................. 25 2.6 LUXEMBOURG LISTING........................................... 25 2.7 REGISTRATION RIGHTS.......................................... 25 2.8 SUSPENSION OF PAYMENT OF PRINCIPAL OF GUARANTY............... 25 2.9 PRESCRIPTION PERIOD.......................................... 26 3 RESERVE ACCOUNT AND LETTERS OF CREDIT............................. 26 3.1 RESERVE ACCOUNT AND LETTERS OF CREDIT........................ 26 3.2 WITHDRAWALS FROM THE RESERVE ACCOUNT AND DRAWDOWNS ON LETTERS OF CREDIT............................... 27 3.3 RELEASE OF COLLATERAL........................................ 29 4 MISCELLANEOUS PROVISIONS.......................................... 29 4.1 SEPARABILITY OF INVALID PROVISIONS........................... 29 4.2 EXECUTION IN COUNTERPARTS.................................... 29 5 REPRESENTATIONS AND WARRANTIES.................................... 29 6 COVENANTS OF THE COMPANY AND THE GUARANTOR........................ 34 7 DISCLOSURE TO MOODY'S............................................. 34 ANNEX A........................................................... 37 ANNEX B........................................................... 39 ANNEX C........................................................... 41 ANNEX D........................................................... 44
-i- FIRST SUPPLEMENTAL INDENTURE, dated as of March 8, 2002, among VALE OVERSEAS LIMITED, a Cayman Islands exempted company incorporated with limited liability (herein called the "COMPANY"), having its principal office at Walker House, P.O. Box 908 GT, Mary Street, Georgetown, Grand Cayman, Cayman Islands, COMPANHIA VALE DO RIO DOCE, a company organized under the laws of the Federative Republic of Brazil (herein called the "GUARANTOR"), having its principal office at Avenida Graca Aranha, No. 26, 17(Degree) Andar, 20005-900 Rio de Janeiro, RJ, Brazil, and JPMORGAN CHASE BANK, a bank duly organized and existing under the laws of the State of New York, having its principal corporate trust office at 450 West 33rd Street, New York, New York 10001, as Trustee (herein called the "Trustee") to the Indenture, dated as of March 8, 2002, among the Company, the Guarantor and the Trustee (herein called the "ORIGINAL INDENTURE"). W I T N E S S E T H : WHEREAS, the Original Indenture provides for the issuance from time to time thereunder, in series, of Securities of the Company carrying the Guaranty of the Guarantor, and Section 9.1 of the Original Indenture provides for the establishment of the form or terms of Securities issued thereunder through one or more supplemental indentures; WHEREAS, the Company and the Guarantor desire by this First Supplemental Indenture to create two series of Securities to be issuable under the Original Indenture, as supplemented by this First Supplemental Indenture, and to be known as the Company's 8.625% Series A Enhanced Guaranteed Notes due 2007 (the "SERIES A NOTES") and the Company's 8.625% Series B Enhanced Guaranteed Notes due 2007 (the "SERIES B NOTES", and, together with the Series A Notes, the "NOTES"), which are to be limited in aggregate principal amount as specified in this First Supplemental Indenture and the terms and provisions of which are to be as specified in this First Supplemental Indenture; WHEREAS, the Company and the Guarantor will be required under the Registration Rights Agreement to exchange the Series A Notes, which are Restricted Notes (as defined below) for Series B Notes freely tradable due to their registration under the Securities Act; WHEREAS, the Company and the Guarantor wish to secure the payment of the Notes by causing to be issued in favor of the Trustee for the benefit of the Holders (as defined in the Original Indenture) of the Notes a Letter of Credit (as defined below) in an amount equal to the Political Risk Coverage (as defined below); WHEREAS, the Company and the Guarantor may, in their sole discretion, substitute any portion or all the amounts available under the letter of credit for funds deposited in the Reserve Account (as defined below) and vice versa, and wish to hereby grant a security interest in favor of the Trustee for the benefit of the Holders (as defined in the Original Indenture) of Notes over such Reserve Account and the funds deposited therein; WHEREAS, the Company and the Guarantor have duly authorized the execution and delivery of this First Supplemental Indenture to establish the Notes as series of Securities under the Original Indenture and to provide for, among other things, the issuance of and the form and terms of the Notes and additional covenants for the benefit of the Holders thereof and the Trustee; and WHEREAS, all things necessary to make this First Supplemental Indenture a valid and binding legal obligation of the Company and the Guarantor according to its terms have been done. -1- NOW, THEREFORE, for and in consideration of the premises and the purchase and acceptance of the Notes by the Holders thereof and for the purpose of setting forth, as provided in the Original Indenture, the form of the Notes and the terms, provisions and conditions thereof, the Company and the Guarantor covenant and agree with the Trustee as follows: That in order to secure the due and punctual payment of interest and the payment of all fees and expenses (including legal fees and expenses) of the Trustee in relation to the Notes under this First Supplemental Indenture (collectively, the "OBLIGATIONS"), the Company hereby grants, mortgages, assigns, transfers and pledges unto the Trustee, for the benefit and security of the Holders of the Notes and the Trustee, and their respective successors and assigns, and grants to the same a security interest in all of the Company's estate, right, title and interest in the property described in clauses First and Second below, whether now owned or hereafter acquired (all such property described in clauses First and Second below, being herein called the "COLLATERAL"), to wit: FIRST THE RESERVE ACCOUNT All right, title and interest of the Company in the Reserve Account (as defined below), any successor account thereto, any and all property held therein or credited thereto, including, without limitation, all instruments, money or cash, and all amounts on deposit from time to time therein. SECOND PROCEEDS All right, title and interest, present and future, of the Company in and to all proceeds, profits, products, revenues and other income, and in and to all proceeds and payments, from and on account of the property, rights and privileges described in clause FIRST above. To have and to hold the Collateral unto the Trustee and its successors and assigns in mortgage, pledge and trust for the benefit and security of the Holders from time to time of all the Notes issued and Outstanding hereunder and the Trustee and for the uses and purposes and subject to the terms and provisions set forth in this First Supplemental Indenture. In trust nevertheless, upon the terms and trusts set forth, for the equal and proportionate benefit and security of all Holders of the Notes issued and to be issued hereunder, without preference, distinction or priority as to Lien (as defined in the Original Indenture) or otherwise of any Note over any other Note by reason of priority in time of issue, sale or negotiation thereof, or by reason of the purpose of issue, or otherwise howsoever, except as herein otherwise expressly provided. The Company does hereby constitute the Trustee the true and lawful attorney of the Company irrevocably, with full power (in the name of the Company or otherwise) to ask, require, demand, receive, settle, compromise, compound and give acquittance for any and all moneys and claims for moneys due and to become due under or arising out of any of the Collateral, to endorse any checks or other instruments or orders in connection therewith and to file any claims or take any action or institute any proceedings which the Trustee may deem to be necessary or advisable in the premises. The Company agrees that any time and from time to time, upon the written request of the Trustee, it will promptly and duly execute and deliver any and all such further instruments and documents as the -2- Trustee may reasonably deem desirable in obtaining the full benefits of the foregoing clauses FIRST and SECOND and of the rights and powers herein granted. The Company does hereby warrant and represent that, except as otherwise contemplated by this Indenture, it has not mortgaged, assigned or pledged, and hereby covenants that it will not mortgage, assign or pledge, so long as this First Supplemental Indenture shall remain in effect, any of the right, title or interest hereby mortgaged, assigned or pledged to anyone other than the Trustee. It is hereby covenanted and agreed that the terms and conditions upon which the Notes are issued, authenticated, delivered and accepted by all Persons (as defined on the Original Indenture) who shall from time to time be or become the Holders thereof, and the terms and conditions upon which the property herein mortgaged and pledged is to be held and disposed of, which said terms and conditions the Trustee hereby accepts and agrees to discharge pursuant to the terms hereof, are as follows: 1 DEFINITIONS 1.1 PROVISIONS OF THE ORIGINAL INDENTURE Except insofar as herein otherwise expressly provided, all the definitions, provisions, terms and conditions of the Original Indenture shall remain in full force and effect. The Original Indenture, as amended and supplemented by this First Supplemental Indenture, is in all respects ratified and confirmed, and the Original Indenture and this First Supplemental Indenture shall be read, taken and considered as one and the same instrument for all purposes. 1.2 DEFINITIONS For all purposes of this First Supplemental Indenture and the Notes, except as otherwise expressly provided or unless the subject matter or context otherwise requires: 1.2.1 any reference to an "Article" or a "Section" refers to an Article or Section, as the case may be, of this First Supplemental Indenture; 1.2.2 the words "herein", "hereof" and "hereunder" and other words of similar import refer to this First Supplemental Indenture as a whole and not to any particular Article, Section or other subdivision; 1.2.3 all terms used in this First Supplemental Indenture that are defined in the Original Indenture have the meanings assigned to them in the Original Indenture, except as otherwise provided in this First Supplemental Indenture and except that all capitalized terms used in Section 5 shall have the meanings ascribed to such terms in the Purchase Agreement (as defined below); 1.2.4 the term "Securities" as defined in the Original Indenture and as used in any definition therein, shall be deemed to include or refer to, as applicable, the Notes; and 1.2.5 the following terms have the meanings given to them in this Section 1.2.5. "AGENT MEMBER TRANSFEREE" has the meaning specified in Section 2.3.2 hereof. "AGENT MEMBER TRANSFEROR" has the meaning specified in Section 2.3.2 hereof. -3- "APPLICABLE PROCEDURES" means with respect to any transfer or transaction involving a Global Note or beneficial interest therein, the rules and procedures of the Depositary, Euroclear and Clearstream, Luxembourg for such Global Note, in each case to the extent applicable to such transaction and as in effect from time to time. "COLLATERAL" has the meaning specified in the granting clause above. "DISTRIBUTION COMPLIANCE PERIOD" means the period of 40 consecutive days beginning on and including the later of (i) the day on which the Series A Notes are first offered to persons other than distributors (as defined in Regulation S) in reliance on Regulation S notice of such day to be given by the Company to the Trustee and (ii) the day on which the closing of the offering of the Original Notes pursuant to the Purchase Agreement occurs. "EVENT OF DEFAULT" shall have the same meaning as set forth in the Original Indenture, except that: (A) the failure of the Company and Guarantor to (i) notify the Trustee in a notice in the form of Annex D attached hereto of the occurrence of a Political Risk Event within five Business Days of such occurrence, or (ii) to notify the Trustee in a notice in the form of Annex D attached hereto of the termination of a Political Risk Event within five Business Days after such termination or (iii) notify the Trustee in a notice in the form of Annex E attached hereto at least one Business Day prior to each Interest Payment Date during the period when a Political Risk Event is in existence or (iv) notify the Trustee in a notice in the form of Annex E attached hereto, contemporaneously with a notice pursuant to paragraph (i) above, if there was an Interest Payment Date falling on or after the occurrence of a Political Risk Event and prior to notice being given pursuant to paragraph (i) above, shall constitute an Event of Default; (B) the giving of notice of the existence of a Political Risk Event by the Company or the Guarantor when a Political Risk Event is not in existence shall also constitute an Event of Default and such Event of Default shall be cause for acceleration of the maturity of the Notes upon the affirmative vote of only 10% of the principal amount of the Notes then Outstanding; PROVIDED, HOWEVER, that the Trustee, for all purposes of this First Supplemental Indenture shall not be charged with notice or knowledge of the occurrence, continuance or termination of a Political Risk Event unless it shall have received written notice thereof from the Company or the Guarantor; and (C) the incorrectness in any material respect of any representation or warranty made by the Company or the Guarantor in this First Supplemental Indenture or any notice in the form of Annex D or Annex E delivered hereunder or any other notice or certificate delivered hereunder (and which other notice or certificate, if it is incorrect in any material respect, is not corrected by the Company or the Guarantor within 30 days of its delivery) when made shall constitute an Event of Default. "EXCHANGE OFFER" means the "Exchange Offer" contemplated by the Registration Rights Agreement, i.e. the exchange of the Series A Notes for Series B Notes which are subject to a registration statement declared effective by the Commission. -4- "GLOBAL NOTE" means a Note that evidences all or part of the Notes and is authenticated and delivered to, and registered in the name of, the Depositary for such Notes or a nominee thereof. Global Notes shall include Restricted Global Notes, Regulation S Global Notes and Unrestricted Global Notes and shall be Global Securities for purposes of the Original Indenture. "GOVERNMENTAL AUTHORITY" means any public legal entity or public agency of Brazil, including, but not limited to, any central bank, whether created by any competent authority, federal, state or local government, or any other legal entity now existing or hereafter created, or now or hereafter owned or controlled, directly or indirectly, by any public legal entity or public agency of Brazil including, but not limited to, any central bank. "GOVERNMENT OF BRAZIL" means the government of Brazil or any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "INITIAL PURCHASERS" means the initial purchasers of the Series A Notes listed in Schedule I to the Purchase Agreement. "LETTER OF CREDIT" means an irrevocable stand-by letter of credit issued by a qualifying institution naming the Trustee as the sole beneficiary and being drawable at the Trustee's sole request. Each institution serving as the issuer of a Letter of Credit must be a bank or a trust company (a) organized and located in a country (other than Brazil) which is a member of the Organization for Economic Cooperation and Development, (b) with a long-term unsecured debt rating with respect to U.S. dollar obligations of at least Aa3 or its equivalent rating by Moody's and (c) with commercial paper rated P-1 or better by Moody's. "MOODY'S" means Moody's Investors Service, Inc. "NOTES" has the meaning specified in the recitals hereof. "OBLIGATIONS" has the meaning specified in the granting clause above. "OWNER TRANSFEREE" has the meaning specified in Section 2.3.2 hereof. "OWNER TRANSFEROR" has the meaning specified in Section 2.3.2 hereof. "PERMITTED HOLDER" at any time means any Person who, at such time, is the holder of at least $5,000,000 in aggregate principal amount of Notes. "PERMITTED INVESTMENTS" means, with respect to amounts on deposit in the Reserve Account: (i) direct obligations of the United States (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States) or obligations the timely payment of the principal of and interest on which is fully guaranteed by the United States; (ii) obligations, debentures, notes or other evidence of indebtedness issued or guaranteed by agencies or instrumentalities of the United States and backed by -5- the full faith and credit of the United States, including, but not limited to, any of the following: United States Treasury, Export-Import Bank of the United States and Government National Mortgage Association; (iii) repurchase agreements with financial institutions (including the Trustee) or savings and loan associations with a long-term rating of Aa2 and a short-term rating of P-1 or better by Moody's and having a combined capital and surplus of at least two hundred fifty million dollars ($250,000,000) fully secured by collateral security, actually delivered to the Trustee or its agent, described in clauses (i) or (ii) of this definition and continuously having a market value at least equal to the amount so invested; (iv) banker's acceptances issued by, or interest-bearing demand or time deposits (including certificates of deposit) in, a bank with either (x) a long-term credit rating of Aa2 or better by Moody's or (y) a short-term rating of P-1 or better by Moody's; (v) commercial paper rated P-1 or better by Moody's; and (vi) money market funds rated Aaa or better by Moody's. Notwithstanding the foregoing, a Permitted Investment must have a stated maturity at least one Business Day prior to the immediately following Interest Payment Date. Nothing contained herein shall be construed to prohibit the Company, the Guarantor and the Trustee from entering into any transactions or agreements that, except for the identity of the parties, would otherwise be permitted hereunder. "POLITICAL RISK COVERAGE" means an amount represented by deposits in the Reserve Account and/or available under Letters of Credit with an aggregate value of $41,421,565 comprising the sum of (i) 18 months interest on the principal amount of the Notes, (ii) an amount equal to 0.50% interest on the principal amount of the Notes for 18 months, (iii) 30 days Default Rate of Interest on the amounts described in (i) and (ii) above, and (iv) the fees and reasonable expenses of the Trustee hereunder for 18 months; provided, however, that (A) Political Risk Coverage shall be reduced by the amount equal to (ii) above upon the earlier of (x) the completion of the Exchange Offer (regardless of how many Notes are exchanged therein), (y) the effectiveness of the Shelf Registration Statement and (z) the Notes are freely transferable under the Securities Act; and (B) Political Risk Coverage shall be reduced to zero at such time as the Guarantor has obtained a long-term foreign currency rating (without the benefit of pledging collateral or any other credit support) from Moody's of Baa2 or better, or none of the Notes remain Outstanding and all Obligations hereunder have been satisfied. The reduction of the Political Risk Coverage allowed under items (A) and (B) above shall not occur without the Trustee first receiving in writing from Moody's confirmation that any such reduction will not reduce the rating then currently assigned to the Notes. The Trustee shall not be charged with notice or knowledge of the fact that the Guarantor has obtained such a rating unless it shall have received written notice thereof from the Company or the Guarantor. -6- "POLITICAL RISK EVENT" means (i) any measures taken, directed, authorized, ratified or approved by the Government of Brazil or Governmental Authority that prevent the Company or the Guarantor from converting Brazilian currency into U.S. dollars and/or remitting U.S. dollars outside Brazil, or (ii) the failure of the Government of Brazil or Governmental Authority (or of entities authorized under the laws of Brazil to operate in the foreign exchange markets) to effect such conversion and/or remittance by the Company or the Guarantor, in each case as otherwise required in accordance with the terms and conditions of the Notes or (iii) expropriation, confiscation, nationalization, discriminatory legislative actions or other governmental measures taken by the Government of Brazil or Governmental Authority which have the effect of depriving the Company or the Guarantor of the use or control of Brazilian currency or U.S. dollars in connection with its Obligations hereunder. A Political Risk Event shall be deemed to have occurred without regard to whether the Company or the Guarantor may be able to make a scheduled interest payment under the Notes in U.S. dollars from offshore sources outside of Brazil. Where an event meets the definition of Political Risk Event and Illegality Event, it shall be considered a Political Risk Event and shall not constitute an Illegality Event. "PREDECESSOR NOTE" of any particular Note means every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 3.5 of the Original Indenture in exchange for or in lieu of a mutilated, destroyed, lost or stolen Note shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Note. "PURCHASE AGREEMENT" means the Purchase Agreement, dated March 1, 2002, among the Company, the Guarantor and the Initial Purchasers. "QUALIFIED INSTITUTIONAL BUYER" means a "qualified institutional buyer" as defined in Rule 144A(a)(1) under the Securities Act. "REGISTRATION RIGHTS AGREEMENT" has the meaning specified in Section 2.7 hereof. "REGULATION S" means Regulation S under the Securities Act. "REGULATION S GLOBAL NOTE" has the meaning specified in Section 2.2 hereof. "RELEVANT DATE" in respect of any payment means the date on which such payment first becomes due or (if the full amount of the monies payable has not been received by the Trustee on or prior to such due date) the date on which notice is given to the Holders that such monies have been so received. "RESERVE ACCOUNT" has the meaning specified in Section 3.1 hereof. "RESTRICTED GLOBAL NOTE" has the meaning specified in Section 2.2 hereof. "RESTRICTED GLOBAL TRANSFERRED AMOUNT" has the meaning specified in Section 2.3.2 hereof. "RESTRICTED NOTES" means Notes offered and sold in their initial distribution in transactions exempt from the registration requirements of the Securities Act other than -7- pursuant to Regulation S and shall include all Notes issued upon registration of transfer of, in exchange for or in lieu of Restricted Notes except as otherwise provided in Section 2.3 hereof. "RESTRICTIVE LEGENDS" has the meaning specified in Section 2.3.1 hereof. "RULE 144A" means Rule 144A under the Securities Act. "SECURITIES INTERMEDIARY" means JPMorgan Chase Bank. "SERIES A NOTES" has the meaning specified in the recitals hereof. "SERIES B NOTES" has the meaning specified in the recitals hereof. "SHELF REGISTRATION STATEMENT" means the Shelf Registration Statement contemplated by the Registration Rights Agreement, i.e. a registration statement with respect to the Series A Notes declared effective by the Commission. "STATED MATURITY DATE" has the meaning specified in Section 2.1 hereof. "UNRESTRICTED GLOBAL NOTE" has the meaning specified in Section 2.2 hereof. 2 GENERAL TERMS AND CONDITIONS OF THE NOTES 2.1 DESIGNATION AND PRINCIPAL AMOUNT There is hereby authorized and established two series of Securities designated the 8.625% Series A Enhanced Guaranteed Notes due 2007 and the 8.625% Series B Enhanced Guaranteed Notes due 2007, initially limited to an aggregate principal amount of $300,000,000 (which amount does not include Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of such series pursuant to Sections 3.4, 3.5, 9.6 or 11.5 of the Original Indenture), which amount shall be specified in the Company Order for the authentication and delivery of Notes pursuant to Section 3.3 of the Original Indenture. The principal of the Notes shall be due and payable at the Stated Maturity Date. The Company may, from time to time and without the consent of the Holders, issue additional notes on terms and conditions identical to those of the Notes, which additional notes shall increase the aggregate principal amount of, and shall be consolidated and form a single series with, the Notes. The Notes shall be known and designated as the "8.625% Enhanced Guaranteed Notes due 2007" of the Company. Their Stated Maturity Date shall be on March 8, 2007, (the "STATED MATURITY DATE"). If a Political Risk Event is in existence at the Stated Maturity Date, then the Stated Maturity Date will automatically be extended to the earlier of (i) the date five Business Days after the Political Risk Event terminates, (ii) September 8, 2008 and (iii) the Interest Payment Date after the Reserve Account and all amounts available to be drawn under any Letters of Credit have been fully depleted. The Notes shall bear interest at the rate of 8.625% per annum, from March 8, 2002 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable semi-annually on March 8 and September 8, commencing September 8, 2002 (an "INTEREST PAYMENT DATE"), until the principal thereof is paid or made available for payment. To the extent interest due on any -8- Interest Payment Date is not paid, interest shall accrue thereon at the Default Rate of Interest, except as provided herein, until such unpaid interest and interest accrued thereon are paid in full. As provided in the Registration Rights Agreement, in the event that either the Exchange Offer is not completed or the Shelf Registration Statement, if required by the Registration Rights Agreement, is not declared effective on or prior to September 8, 2002 then, pursuant to and subject to the Registration Rights Agreement, the interest rate on the Notes will increase by 0.25% per annum, and will increase an additional 0.25% per annum if the same is not completed or effective on December 8, 2002, for an aggregate maximum additional interest of 0.50% per annum. These additional amounts will be payable on the Notes, pursuant to and subject to the Registration Rights Agreement, until the earlier of (i) completion of the Exchange Offer, regardless of how many Notes are exchanged therein, (ii) effectiveness of the Shelf Registration Statement or (iii) the Notes becoming freely tradable under the Securities Act. The Notes shall have such other terms as are set forth therein. The Series A Notes and the Series B Notes shall be considered collectively to be a single class for all purposes of this Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. 2.2 FORMS GENERALLY The Notes shall be in substantially the forms set forth in this Section 2.2, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this First Supplemental Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Notes, as evidenced by their execution thereof. The Trustee shall authenticate (i) the Series A Notes for original issue on the date hereof in the aggregate principal amount of $300,000,000 and (ii) the Series B Notes from time to time for issue only in exchange for a like principal amount of Series A Notes, in each case upon a Company Order, which written order shall specify the amount of Series B Notes to be authenticated and the date of original issue thereof. Upon their original issuance, Notes offered and sold to Qualified Institutional Buyers in accordance with Rule 144A shall be issued in the form of one or more Global Notes in definitive, fully registered form without coupons, substantially in the form set forth in this Section 2.2, with such applicable legends as provided herein (each, a "RESTRICTED GLOBAL NOTE"). Such Restricted Global Notes shall be registered in the name of the Depositary, or its nominee, and deposited with the Trustee, at its Corporate Trust Office, as custodian for the Depositary, duly executed by the Company, and by the Guarantor, in the case of the Guaranty endorsed thereon, and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of any Restricted Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary, as provided in Section 2.3 hereof. Upon their original issuance, Notes offered and sold in reliance on Regulation S shall initially be issued in the form of one or more Global Notes in definitive, fully registered -9- form without coupons, substantially in the form set forth in this Section 2.2, with such applicable legends as provided herein (each, a "REGULATION S GLOBAL NOTE"). Such Regulation S Global Notes shall be registered in the name of the Depositary, or its nominee, and deposited with the Trustee, at its Corporate Trustee Office, as custodian for the Depositary, duly executed by the Company, and by the Guarantor, in the case of the Guaranty endorsed thereon, and authenticated by the Trustee as herein provided, for credit by the Depositary to the respective accounts of beneficial owners of such Notes (or to such other accounts as they may direct) at Euroclear or Clearstream, Luxembourg. After such time as the applicable Distribution Compliance Period shall have terminated, each such Regulation S Global Note shall be referred to herein as an "UNRESTRICTED GLOBAL NOTE". The aggregate principal amount of any Regulation S Global Note or any Unrestricted Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary, as provided in Section 2.3 hereof. Notwithstanding the foregoing, upon consummation of an Exchange Offer, the Company shall issue and, upon receipt of a Company Order as described above, the Trustee shall authenticate one or more Unrestricted Global Notes in aggregate principal amount equal to the principal amount of the Global Notes accepted for exchange in the Exchange Offer. Concurrently with the issuance of such Unrestricted Global Notes, the Trustee shall reduce accordingly the aggregate principal amount of the Global Notes accepted for exchange. 2.2.1 FORM OF FACE OF NOTE [INCLUDE IF NOTE IS A GLOBAL NOTE -- THIS IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO, AS SUPPLEMENTED BY THE FIRST SUPPLEMENTAL INDENTURE, AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE OF THE DEPOSITARY, WHICH MAY BE TREATED BY VALE OVERSEAS LIMITED, COMPANHIA VALE DO RIO DOCE AND THE TRUSTEE AND ANY AGENT THEREOF AS OWNER AND HOLDER OF THIS NOTE FOR ALL PURPOSES. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR REGISTERED NOTES IN DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERRED TO IN SECTION 3.4.2 OF THE INDENTURE, AS SUPPLEMENTED BY THE FIRST SUPPLEMENTAL INDENTURE, THIS GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.] [INCLUDE IF NOTE IS A GLOBAL NOTE AND THE DEPOSITARY IS THE DEPOSITORY TRUST COMPANY -- UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE -10- DEPOSITORY TRUST COMPANY TO VALE OVERSEAS LIMITED OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IN EXCHANGE FOR THIS CERTIFICATE OR ANY PORTION HEREOF IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON OTHER THAN THE DEPOSITORY TRUST COMPANY OR A NOMINEE THEREOF IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] [INCLUDE IF NOTE IS A RESTRICTED GLOBAL NOTE (UNLESS, PURSUANT TO SECTION 2.3 OF THE FIRST SUPPLEMENTAL INDENTURE, THE COMPANY DETERMINES AND CERTIFIES TO THE TRUSTEE THAT THE LEGEND MAY BE REMOVED) -- NEITHER THIS GLOBAL NOTE, THE GUARANTY HEREOF NOR ANY BENEFICIAL INTEREST HEREIN HAS BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER OR BUYERS IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT (PROVIDED THAT AS A CONDITION TO REGISTRATION OF TRANSFER OF THIS GLOBAL NOTE AS SET FORTH ABOVE, VALE OVERSEAS LIMITED MAY REQUIRE DELIVERY OF ANY DOCUMENTS OR OTHER EVIDENCE THAT IT, IN ITS ABSOLUTE DISCRETION, DEEMS NECESSARY OR APPROPRIATE TO EVIDENCE COMPLIANCE WITH SUCH EXEMPTION), AND, IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS. NOTES OWNED BY AN INVESTOR THAT IS NOT A QUALIFIED INSTITUTIONAL BUYER OR A NON U.S. PERSON MAY NOT BE HELD IN BOOK-ENTRY FORM AND MAY NOT BE TRANSFERRED WITHOUT CERTIFICATION THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS, AS PROVIDED IN THE FIRST SUPPLEMENTAL INDENTURE UNDER WHICH THE NOTES ARE ISSUED.] -11- [INCLUDE IF NOTE IS A REGULATION S GLOBAL NOTE (UNLESS, PURSUANT TO SECTION 2.3 OF THE FIRST SUPPLEMENTAL INDENTURE, THE COMPANY DETERMINES AND CERTIFIES TO THE TRUSTEE THAT THE LEGEND MAY BE REMOVED) -- THIS NOTE AND THE GUARANTY HEREOF HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD OR DELIVERED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON, UNLESS SUCH NOTES AND GUARANTY ARE REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF IS AVAILABLE. THE FOREGOING SHALL NOT APPLY FOLLOWING THE EXPIRATION OF FORTY DAYS FROM THE LATER OF (i) THE DATE ON WHICH THESE NOTES WERE FIRST OFFERED AND (ii) THE DATE OF ISSUANCE OF THESE NOTES.] VALE OVERSEAS LIMITED [SERIES A] [SERIES B] 8.625% ENHANCED GUARANTEED NOTES DUE 2007 GUARANTEED BY COMPANHIA VALE DO RIO DOCE [If Restricted Global Note - CUSIP Number 91911TAA1/ISIN Number US91911TAA16] [If Regulation S Global Note - CINS Number G9317UAA3/ ISIN Number USG9317UAA37/Common Code Number 014456856] No. [ ] $[ ] Vale Overseas Limited, a company duly organized and existing under the laws of the Cayman Islands (herein called the "COMPANY", which term includes any successor Person under the Indenture, as supplemented by the First Supplemental Indenture hereinafter referred to), for value received, hereby promises to pay to [ ], or registered assigns, the principal sum of [ ] Dollars [IF THE NOTE IS A GLOBAL NOTE, THEN INSERT -- , or such other principal amount as set forth in the Schedule of Increases or Decreases in Global Note attached hereto] on March 8, 2007, or if a Political Risk Event is in existence on such date, on the earlier of (i) the date five Business Days after the Political Risk Event terminates, (ii) September 8, 2008 and (iii) the Interest Payment Date after the Reserve Account and all amounts available to be drawn under any Letter of Credit have been fully depleted, and to pay interest thereon from March 8, 2002 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, semi-annually on March 8 and September 8 in each year, commencing September 8, 2002 at the rate of 8.625% per annum, until the principal hereof is paid or made available for payment, PROVIDED that any amount of interest on this Note which is overdue shall bear interest (to the extent that payment thereof shall be legally enforceable) at the Default Rate of Interest, except as provided for herein, from the date such amount is due to but not including the day it is paid -12- or made available for payment, and such overdue interest shall be paid as provided in Section 3.6 of the Original Indenture. As provided in the Registration Rights Agreement, in the event that either the Exchange Offer is not completed or the Shelf Registration Statement, if required by the Registration Rights Agreement, is not declared effective on or prior to September 8, 2002 then, pursuant to and subject to the Registration Rights Agreement, the interest rate on the Notes will increase by 0.25% per annum, and will increase an additional 0.25% per annum if the same is not completed or effective on December 8, 2002, for an aggregate maximum additional interest of 0.50% per annum. These additional amounts will be payable on the Notes, pursuant to and subject to the Registration Rights Agreement, until the earlier of (i) completion of the Exchange Offer, regardless of how many Notes are exchanged therein, (ii) effectiveness of the Shelf Registration Statement or (iii) the Notes becoming freely tradable under the Securities Act. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture and First Supplemental Indenture, be paid to the Person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date for such interest, which shall be February 21 or August 24 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on the relevant Regular Record Date and may either be paid to the Person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of the Notes not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture or First Supplemental Indenture. Interest on this Note shall be computed on the basis set forth in the Indenture, as supplemented by the First Supplemental Indenture. Payment of the principal of and interest on this Note will be made to the Person entitled thereto according to the Security Register at the office of the Trustee or agency of the Company in the Borough of Manhattan, The City of New York, New York, maintained for such purpose and at any other office or agency maintained by the Company for such purpose, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts upon surrender of this Note in the case of any payment due at the Maturity of the principal thereof (other than any payment of interest payable on an Interest Payment Date); PROVIDED, HOWEVER, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register; PROVIDED, FURTHER, that all payments of the principal of and -13- interest on this Note, the Permitted Holders of which have given wire transfer instructions to the Trustee, the Company, or its agent at least 10 Business Days prior to the applicable payment date, will be required to be made by wire transfer of immediately available funds to the accounts with financial institutions in the United States specified by such Permitted Holders in such instructions. [IF THE NOTE IS A GLOBAL NOTE, THEN INSERT -- Notwithstanding the foregoing, payment of any amount payable in respect of a Global Note will be made in accordance with the Applicable Procedures of the Depositary.] Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Payment of interest on the Notes has been secured in part by the establishment of the Reserve Account (as defined in the First Supplemental Indenture) or the issue of Letters of Credit (as defined in the First Supplemental Indenture) or any combination of the foregoing, which provide funds sufficient to pay up to 18 months of interest on the Notes plus certain fees and expenses, such funds to be paid to the Holders of the Notes upon the occurrence of certain inconvertibility, transferability or expropriation events. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Indenture, as supplemented by the First Supplemental Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under its corporate seal. Dated: VALE OVERSEAS LIMITED By: _____________________ Name: Title: By: _____________________ Name: Title: The undersigned (the "GUARANTOR") hereby irrevocably and unconditionally guarantees the full and punctual payment (whether at the Stated Maturity Date, upon redemption, purchase pursuant to an offer to purchase or acceleration or otherwise) of the principal, premium, interest, Additional Amounts and all other amounts that may come due and payable under this Note. -14- IN WITNESS WHEREOF, the Guarantor has caused this instrument to be duly endorsed. COMPANHIA VALE DO RIO DOCE By: _____________________ Name: Title: By: _____________________ Name: Title: 2.2.2 FORM OF REVERSE OF NOTE This Note is a duly authorized issue of securities of the Company issued in one or more series (the "SECURITIES") under an Indenture, dated as of March 8, 2002 (herein called the "INDENTURE", which term shall have the meaning assigned to it in such instrument), as supplemented by a First Supplemental Indenture dated as of March 8, 2002 (herein called the "FIRST SUPPLEMENTAL INDENTURE"), among the Company, the Guarantor and JPMorgan Chase Bank, as Trustee (herein called the "TRUSTEE", which term includes any successor trustee under the Indenture), and reference is hereby made to the Indenture, as supplemented by the First Supplemental Indenture, for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Guarantor, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof (herein called the "NOTES"), initially limited in aggregate principal amount to $300,000,000. The full and punctual payment of the principal, premium, if any, and interest and all other amounts payable under this Note is irrevocably and unconditionally guaranteed by the Guarantor. Payment of principal under such guaranty shall be suspended in the event (i) the payment of principal and other amounts due under the Notes is automatically accelerated in accordance with Sections 5.1.5 or 5.1.6 of the Original Indenture with respect to the Company, (ii) the Guarantor is not the subject of Event of Default under Section 5.1.5 or 5.1.6 of the Original Indenture and (iii) at that time there exists a Political Risk Event. In that case, the Guarantor's obligations to make payment of principal under the Guaranty will be suspended until the earlier of (x) five Business Days after the Political Risk Event terminates, (y) the date on which the funds in the Reserve Account or available under the Letters of Credit have been fully depleted and (z) 18 months after the date of acceleration. -15- Additional notes on terms and conditions identical to those of this Note may be issued by the Company without the consent of the Holders of the Notes. The amount evidenced by such additional Notes shall increase the aggregate principal amount of, and shall be consolidated and form a single series with, the Notes. If an Event of Default or Illegality Event with respect to Notes shall occur and be continuing, the principal of all of the Notes may be declared due and payable in the manner and with the effect provided in the Indenture, as supplemented by the First Supplemental Indenture. All payments of principal and interest in respect of the Notes shall be made without withholding or deduction for any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the Cayman Islands or Brazil, or any Successor Jurisdiction or any authority therein or thereof having power to tax ("FOREIGN TAXES") except to the extent that such Foreign Taxes are required by the Cayman Islands, Brazil, such Successor Jurisdiction or any such authority to be withheld or deducted. In the event of any withholding or deduction for any Foreign Taxes, the Company or the Guarantor, as the case may be, shall pay such additional amounts ("ADDITIONAL AMOUNTS") as will result in receipt by the Holders of Notes on the respective due dates of such amounts as would have been received by them had no such withholding or deduction (including for any Foreign Taxes payable in respect of Additional Amounts) been required, except that no such Additional Amounts shall be payable with respect to any payment on a Note: (i) to, or to a third party on behalf of, a Holder who is liable for any such taxes, duties, assessments or other governmental charges which would not have been imposed but for (A) a connection between the Holder and the Cayman Islands or Brazil other than the mere holding of such Note and the receipt of payments with respect to such Note or (B) failure by the Holder to comply with any certification, identification or other reporting requirement concerning the nationality, residence, identity or connection between the Cayman Islands, Brazil or a Successor Jurisdiction, or applicable political subdivision or authority thereof or therein having power to tax, of such Holder, if compliance is required by such Successor Jurisdiction, or any political subdivision or authority thereof or therein having power to tax, as a precondition to exemption from, or reduction in the rate of, the tax, assessment or other governmental charge and the Company has given the Holders at least 30 days' notice that Holders will be required to provide such certification, identification or other requirement; (ii) in respect of any such taxes, duties, assessments or other governmental charges with respect to a Note surrendered (if surrender is required) more than 30 days after the date on which such payment became due and payable or the date on which payment thereof is duly -16- provided for and notice thereof given to Holders, whichever occurs later, except to the extent that the Holder of such Note would have been entitled to such Additional Amounts on surrender of such Note for payment on the last day of such 30-day period; (iii) in respect of estate, inheritance, gift, sales, transfer, personal property or similar tax, assessment or governmental charge imposed with respect to a Note; (iv) in respect of any tax, assessment or other governmental charge payable otherwise than by deduction or withholding from payments on the Notes or by direct payment by the Company or the Guarantor in respect of claims made against the Company or the Guarantor; (v) where such Additional Amount is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of November 26-27, 2000 or any law implementing or complying with, or introduced in order to conform to, such directive; or (vi) in respect of any combination of the above. For purposes of the provisions described in Clause (i) above, the term "HOLDER" of any Note means the direct nominee of any beneficial owner of such Note, which holds such beneficial owner's interest in such Note. Notwithstanding the foregoing, the limitations on the Company's or the Guarantor's obligation to pay Additional Amounts set forth in Clause (i) above shall not apply if (a) the provision of information, documentation or other evidence described in such Clause (i) would be materially more onerous, in form, in procedure or in the substance of information disclosed, to a Holder or beneficial owner of a Note (taking into account any relevant differences between U.S. and Cayman Islands or Brazilian law, regulation or administrative practice) than comparable information or other reporting requirements imposed under U.S. tax law (including tax treaties between the United States and the Cayman Islands or Brazil), regulation (including proposed regulations) and administrative practice. The Company or the Guarantor, as the case may be shall promptly provide the Trustee with documentation (which may consist of certified copies of such documentation) satisfactory to the Trustee evidencing the payment of Foreign Taxes in respect of which the Company or the Guarantor has paid any Additional Amounts. Copies of such documentation shall be made available to the Holders of the Notes or the Paying Agent, as applicable, upon request therefor. The Company or the Guarantor, as the case may be shall pay all stamp, issue, registration, documentary or other similar duties, if any, which may be imposed by the Cayman Islands or Brazil or any governmental entity or political subdivision therein or thereof, or any taxing authority of or in any of the -17- foregoing, with respect to the Indenture, the First Supplemental Indenture or the issuance of the Notes or the Guaranty. All references herein, in the Indenture or in the First Supplemental Indenture, to principal, premium or interest in respect of any Note shall be deemed to include all Additional Amounts, if any, payable in respect of such principal, premium or interest, unless the context otherwise requires, and express mention of the payment of Additional Amounts in any provision hereof shall not be construed as excluding reference to Additional Amounts in those provisions hereof where such express mention is not made. In the event that Additional Amounts actually paid with respect to the Notes pursuant to the preceding paragraph are based on rates of deduction or withholding of withholding taxes in excess of the appropriate rate applicable to the Holder of such Notes, and, as a result thereof such Holder is entitled to make claim for a refund or credit of such excess from the authority imposing such withholding tax, then such Holder shall, by accepting such Notes, be deemed to have assigned and transferred all right, title, and interest to any such claim for a refund or credit of such excess to the Company. However, by making such assignment, the Holder makes no representation or warranty that the Company will be entitled to receive such claim for a refund or credit and incurs no other obligation with respect thereto. All references in the Indenture, the First Supplemental Indenture and the Notes to principal in respect of any Note shall be deemed to mean and include any Redemption Price payable in respect of such Note pursuant to any redemption right hereunder (and all such references to the Stated Maturity Date of the principal in respect of any Note shall be deemed to mean and include the Redemption Date with respect to any such Redemption Price), and all such references to principal, premium, interest or Additional Amounts shall be deemed to mean and include any amount payable in respect hereof pursuant to Section 10.7 of the Indenture. The Notes are subject to redemption upon not less than 30 nor more than 60 days' notice by mail, at any time, as a whole but not in part, at the election of the Company, at a cash price equal to the sum of (i) the principal amount of the Notes being redeemed, (ii) accrued and unpaid current interest thereon to but not including the date fixed for redemption, and (iii) any Additional Amounts (as defined in the Indenture) which would otherwise be payable up to but not including the date fixed for redemption, if, as a result of any amendment to, or change in, the laws (or any laws, rules, or regulations thereunder) of the Cayman Islands or Brazil or any political subdivision or taxing authority thereof or therein affecting taxation or any amendment to or change in an official interpretation, administration or application of such laws, rules, or regulations (including a holding by a court of competent jurisdiction), which amendment or change of such laws, rules, or regulations or the interpretation thereof becomes effective on or after the date of the First Supplemental Indenture, the Company would be obligated, after taking measures the Company considers reasonable -18- to avoid such requirement, to pay Additional Amounts in excess of the Additional Amounts that the Company would be obligated to pay if payments made on the Notes were subject to withholding or deduction of Foreign Taxes at the rate of 15 percent. The Indenture, as supplemented by a supplemental indenture, permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture, as supplemented, at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions (i) permitting the Holders of a majority in principal amount of the Securities at the time Outstanding of any series to be affected under the Indenture, as supplemented, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture, as supplemented, and (ii) permitting the Holders of a majority in principal amount of the Securities at the time Outstanding of any series to be affected under the Indenture as supplemented, on behalf of the Holders of all Securities of such series, to waive certain past defaults under the Indenture as supplemented by the First Supplemental Indenture and their consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note. As provided in and subject to the provisions of the Indenture, as supplemented by the First Supplemental Indenture, the Holder of this Note shall not have the right to institute any proceeding with respect to the Indenture, the First Supplemental Indenture, or for the appointment of a receiver or trustee, or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default or Illegality Event with respect to the Notes, the Holders of not less than 25% (or 10% in the instance of Event of Default due to a false report of a Political Risk Event) in principal amount of the Notes at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default or Illegality Event as Trustee and offered the Trustee indemnity reasonably satisfactory to it, and the Trustee shall not have received from the Holders of a majority in principal amount of Notes at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Note for the enforcement of any payment of principal hereof or any interest hereon on or after the respective due dates expressed herein. -19- No reference herein to the Indenture or the First Supplemental Indenture and no provision of this Note or of the Indenture or the First Supplemental Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and the First Supplemental Indenture and subject to certain limitations therein set forth (including, without limitation, the restrictions on transfer under Sections 2.2 and 2.3 of the First Supplemental Indenture) the transfer of this Note is registrable in the Security Register, upon surrender of this Note for registration of transfer at the office of the Trustee or agency of the Company in any place where the principal of and any interest on this Note are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Notes are issuable only in registered form without coupons in denominations of [IF THE NOTE IS NOT A RESTRICTED CERTIFICATED NOTE, THEN INSERT -- $1,000 and any multiple thereof] [IF THE NOTE IS A RESTRICTED CERTIFICATED NOTE, THEN INSERT -- $100,000 and any integral multiple of $1,000 in excess thereof]. As provided in the Indenture, as supplemented by the First Supplemental Indenture, and subject to certain limitations therein set forth, Notes are exchangeable for a like aggregate principal amount of Notes of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due surrender of this Note for registration of transfer, the Company, the Guarantor, the Trustee and any agent of the Company, the Guarantor or of the Trustee may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note is overdue, and neither the Company, the Guarantor, the Trustee nor any such agent shall be affected by notice to the contrary. [IF THE NOTE IS A GLOBAL NOTE, THEN INSERT -- This Note is a Global Note and is subject to the provisions of the Indenture and the First Supplemental Indenture relating to Global Notes, including the limitations in Section 2.3 of the First Supplemental Indenture on transfers and exchanges of Global Notes.] This Note, the Indenture and the First Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York. -20- All terms used in this Note which are defined in the Indenture, as supplemented by the First Supplemental Indenture, shall have the meanings assigned to them in the Indenture, as supplemented by the First Supplemental Indenture. ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Note, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT-- [ ] (Cust) Custodian [ ] under Uniform (Minor) Gifts to Minors Act [ ] (State) ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THOUGH NOT IN THE ABOVE LIST. [TO BE ATTACHED TO GLOBAL NOTES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE The initial principal amount of this Global Note is $[ ]. The following increases or decreases in this Global Note have been made:
PRINCIPAL AMOUNT OF SIGNATURE OF AMOUNT OF DECREASE AMOUNT OF INCREASE THIS GLOBAL NOTE AUTHORIZED OFFICER IN PRINCIPAL AMOUNT IN PRINCIPAL AMOUNT FOLLOWING SUCH OF TRUSTEE OR NOTES DATE OF EXCHANGE OF THIS GLOBAL NOTE OF THIS GLOBAL NOTE DECREASE OR INCREASE CUSTODIAN - ------------------------ ---------------------- --------------------- ---------------------- ---------------------- - ------------------------ ---------------------- --------------------- ---------------------- ---------------------- - ------------------------ ---------------------- --------------------- ---------------------- ---------------------- - ------------------------ ---------------------- --------------------- ---------------------- ----------------------
2.3 TRANSFERS AND EXCHANGES 2.3.1 RESTRICTED NOTES Restricted Notes shall be subject to the restrictions on transfer (the "TRANSFER RESTRICTIONS") provided in the applicable legend(s) (the "RESTRICTIVE LEGENDS") required to be set forth on the face of each Restricted -21- Note pursuant to Section 2.2, unless compliance with the Transfer Restrictions shall be waived by the Company in writing delivered to the Trustee. The Transfer Restrictions shall cease and terminate with respect to any particular Restricted Note upon receipt by the Company of evidence satisfactory to it (which may include an opinion of independent counsel experienced in matters of United States federal securities law) that, as of the date of determination, such Restricted Note (a) has been transferred by the Holder thereof pursuant to Rule 144 promulgated under the Securities Act, (b) has been sold pursuant to an effective registration statement under the Securities Act, or (c) has been transferred in a transaction satisfying all the requirements of Rule 903 or 904 (as applicable) of Regulation S, and receipt by the Trustee of an Officer's Certificate certifying that the Company has received such evidence which may include an opinion of counsel stating that the Transfer Restrictions have ceased and terminated with respect to such Note. All references in the preceding sentence to any regulation, rule or provision thereof shall be deemed also to refer to any successor provisions thereof. In addition, the Company may terminate the Transfer Restrictions with respect to any particular Restricted Note in such other circumstances as it determines are appropriate for this purpose and shall deliver to the Trustee an opinion of counsel, if any, and Officer's Certificate certifying that the Transfer Restrictions have ceased and terminated with respect to such Note. At the request of the Holder and upon the surrender of such Restricted Notes to the Trustee or Security Registrar for exchange in accordance with the provisions of this Section 2.3, any Restricted Note as to which the Transfer Restrictions shall have terminated in accordance with the preceding paragraph shall be exchanged for a new Note of like aggregate principal amount, but without the Restrictive Legends. Any Restricted Note as to which the Restrictive Legends shall have been removed pursuant to this paragraph (and any Note issued upon registration of transfer of, exchange for or in lieu of such Restricted Note) shall thereupon cease to be a "Restricted Note" for all purposes of this First Supplemental Indenture. The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith and without negligence on its part in accordance with such notice or any opinion of counsel. As used in this Section 2.3.1, the term "transfer" encompasses any sale, pledge, transfer or other disposition of any Notes referred to herein. 2.3.2 TRANSFERS BETWEEN GLOBAL NOTES (i) RESTRICTED GLOBAL NOTE TO REGULATION S GLOBAL NOTE If the owner of a beneficial interest (an "OWNER TRANSFEROR") in a Restricted Global Note wishes at any time to transfer such beneficial interest to a Person (an "OWNER TRANSFEREE") who wishes to take delivery thereof in the form of a beneficial interest in a Regulation S Global Note, such transfer may be effected, subject to the Applicable Procedures, only in -22- accordance with the provisions of this Section 2.3.2(i). Upon receipt by the Trustee, as Security Registrar, at the Corporate Trust Office of (l) written instructions given in accordance with the Applicable Procedures from the Agent Member, whose account is to be debited (an "AGENT MEMBER TRANSFEROR") with respect to the Restricted Global Note, directing the Trustee, as Security Registrar, to credit or cause to be credited to a specified account of another Agent Member (an "AGENT MEMBER TRANSFEREE") (which shall be an account with Euroclear or Clearstream, Luxembourg or both) a beneficial interest in a Regulation S Global Note in a principal amount equal to the beneficial interest in the Restricted Global Note to be so transferred (the "RESTRICTED GLOBAL TRANSFERRED AMOUNT"), (2) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Member Transferee to be credited with, and the Agent Member Transferor to be debited by, the Restricted Global Transferred Amount, and (3) a certificate in substantially the form set forth in Annex A given by the Owner Transferor, the Trustee, as Security Registrar, shall instruct the Depositary to reduce the principal amount of the Restricted Global Note, and to increase the principal amount of the Regulation S Global Note, by the Restricted Global Transferred Amount, and to credit, or cause to be credited to, the account of the Agent Member Transferee a beneficial interest in the Regulation S Global Note, and to debit, or cause to be debited to, the account of the Agent Member Transferor a beneficial interest in the Restricted Global Note, in each case having a principal amount equal to the Restricted Global Transferred Amount. (ii) RESTRICTED GLOBAL NOTE TO UNRESTRICTED GLOBAL NOTE If an Owner Transferor wishes at any time to transfer a beneficial interest in a Restricted Global Note to an Owner Transferee who wishes to take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 2.3.2(ii). Upon receipt by the Trustee, as Security Registrar, at the Corporate Trust Office of (l) written instructions given in accordance with the Applicable Procedures from the Agent Member Transferor directing the Trustee, as Security Registrar, to credit or cause to be credited to a specified account of an Agent Member Transferee (which may but need not be an account with Euroclear or Clearstream, Luxembourg) a beneficial interest in the Unrestricted Global Note in a principal amount equal to the Restricted Global Transferred Amount, (2) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Member Transferee to be credited with, and the account of the Agent Member Transferor to be debited for, the Restricted Global Transferred Amount, and (3) a certificate in substantially the form set forth in Annex B given by the Owner Transferor, the Trustee, as -23- Security Registrar, shall instruct the Depositary to reduce the principal amount of the Restricted Global Note, and to increase the principal amount of the Unrestricted Global Note, by the Restricted Global Transferred Amount, and to credit, or cause to be credited to, the account of the Agent Member Transferee a beneficial interest in the Unrestricted Global Note, and to debit, or cause to be debited to, the account of the Agent Member Transferor a beneficial interest in the Restricted Global Note, in each case having a principal amount equal to the Restricted Global Transferred Amount. (iii) REGULATION S GLOBAL NOTE OR UNRESTRICTED GLOBAL NOTE TO RESTRICTED GLOBAL NOTE If an Owner Transferor wishes at any time to transfer a beneficial interest in a Regulation S Global Note or an Unrestricted Global Note to an Owner Transferee who wishes to take delivery thereof in the form of a beneficial interest in a Restricted Global Note, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 2.3.2(iii). Upon receipt by the Trustee, as Security Registrar, at the Corporate Trust Office of (1) written instructions given in accordance with the Applicable Procedures from the Agent Member Transferor, directing the Trustee, as Security Registrar, to credit, or cause to be credited to, a specified account of an Agent Member Transferee a beneficial interest in the Restricted Global Note in a principal amount equal to that of the beneficial interest in the Regulation S Global Note or Unrestricted Global Note to be so transferred, (2) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Member Transferee to be credited with, and the account of the Agent Member Transferor (which, in the case of beneficial interest in the Regulation S Global Note, must be an account with Euroclear or Clearstream or both) to be debited for, such beneficial interest, and (3) with respect to a transfer of a beneficial interest in the Regulation S Global Note (but not the Unrestricted Global Note), a certificate in substantially the form set forth in Annex C given by the Owner Transferor, the Trustee, as Security Registrar, shall instruct the Depositary to reduce the principal amount of the Regulation S Global Note or Unrestricted Global Note, as the case may be, and increase the principal amount of the Restricted Global Note, by the principal amount of the beneficial interest in the Regulation S Global Note or Unrestricted Global Note to be so transferred, and to credit, or cause to be credited to, the account of the Agent Member Transferee such beneficial interest in the Restricted Global Note, and to debit, or cause to be debited to, the account of the Agent Member Transferor such beneficial interest in the Regulation S Global Note or Unrestricted Global Note, as the case may be. 2.3.3 In case of any transfer or exchange the procedures and requirements for which are not addressed in detail in this Section 2.3, such transfer or exchange will be -24- subject to such procedures and requirements as may be reasonably prescribed by the Company from time to time and, in the case of a transfer or exchange involving a Global Note, the Applicable Procedures. 2.3.4 Notwithstanding the foregoing, during the period of two years after the issue date of the Notes, the Company shall not, and shall not permit any of its Affiliates that are Subsidiaries to, purchase or agree to purchase or otherwise acquire any Restricted Notes, whether as beneficial owner or otherwise (except as agent on behalf of and for the account of customers in the ordinary course of business as a securities broker in unsolicited broker's transactions) unless, immediately upon any such purchase, the Company or any such Affiliate shall submit such Restricted Notes to the Trustee for cancellation. The Company further agrees to ask its Affiliates that are not Subsidiaries to agree not to purchase or otherwise acquire any Restricted Notes, whether as beneficial owner or otherwise, except as permitted in the preceding sentence. 2.4 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION The Trustee's certificate of authentication shall be in substantially the following form: This is one of the Notes referred to in the within mentioned Indenture, as supplemented by the First Supplemental Indenture. Dated: JPMORGAN CHASE BANK as Trustee By: _____________________ Authorized Officer 2.5 MAINTENANCE OF OFFICE OR AGENCY With respect to any Notes that are not in the form of a Global Note, the Company will maintain (i) in the Borough of Manhattan, The City of New York and (ii) in Luxembourg, so long as the Notes are listed on the Luxembourg Stock Exchange and the rules and regulations of the Luxembourg Stock Exchange so require, an office or agency, in each case in accordance with Section 10.2 of the Original Indenture. 2.6 LUXEMBOURG LISTING The Company shall use all reasonable efforts to cause the Notes to be duly authorized for listing on the Luxembourg Stock Exchange or another recognized securities exchange and shall from time to time take such other actions as shall be necessary or advisable to maintain the listing of the Notes thereon. 2.7 REGISTRATION RIGHTS The Holders of the Notes are entitled to the benefits of a Registration Rights Agreement dated the date hereof among the Company, the Guarantor and the Initial Purchasers (the "REGISTRATION RIGHTS AGREEMENT"), which Registration Rights Agreement provides -25- for the registration of the Notes with the Commission or the issue of notes so registered in exchange for the outstanding Notes. 2.8 SUSPENSION OF PAYMENT OF PRINCIPAL OF GUARANTY In the event payment of principal and other amounts due under the Notes is accelerated due to an Event of Default of the Company pursuant to Section 5.1.5 or 5.1.6 of the Original Indenture, if the Guarantor is not also the subject of such an Event of Default and a Political Risk Event is then in existence, then payments of principal under the Guaranty shall be suspended until the earlier of (i) five Business Days after such Political Risk Event terminates, (ii) the date on which the funds in the Reserve Account or available under the Letters of Credit have been depleted and (z) 18 months after the date of acceleration. During such suspension, the Notes will continue to accrue interest and pay such accrued interest on the Interest Payment Dates at the rate of 8.625% per annum. 2.9 PRESCRIPTION PERIOD Claims for payment of principal in respect of the Notes shall be prescribed upon the expiration of 10 years, and claims for payment of interest in respect of the Notes shall be prescribed upon the expiration of 5 years, in each case from the Relevant Date thereof. 3 RESERVE ACCOUNT AND LETTERS OF CREDIT 3.1 RESERVE ACCOUNT AND LETTERS OF CREDIT 3.1.1 On the date hereof, the Company or the Guarantor shall deliver to the Trustee a Letter of Credit in the amount of the Political Risk Coverage, as determined on the date hereof. 3.1.2 The Company or the Guarantor may at any time substitute all or a portion of any Letters of Credit held by the Trustee for deposits in the Reserve Account, and deposits in the Reserve Account may also be so substituted for Letters of Credit; PROVIDED, HOWEVER, that before any Letter of Credit may be so substituted, the Trustee shall have received a confirmation in writing from Moody's that such substitution will not result in a downgrading of the then current rating assigned to the Notes. Any Letter of Credit so substituted or otherwise required to be disposed of under this First Supplemental Indenture shall be returned to its issuer for cancellation. 3.1.3 The Trustee shall establish and maintain in the United States a U.S. dollar account (Account No. 161600) designated as "JPMorgan Chase Bank, as Trustee FBO Holders of Vale Overseas Limited U.S.$300,000,000 8.625% Enhanced Guaranteed Notes Due 2007 Reserve Account" with the Securities Intermediary (the "RESERVE ACCOUNT"). All right, title and interest in and to the amounts on deposit from time to time in the Reserve Account and any property held therein or credited thereto, together with any Permitted Investment from time to time made pursuant to this Section, shall constitute part of the Collateral and shall be held for the benefit of the Holders of Notes and the Trustee as -26- their interests shall appear hereunder, and shall not constitute payment of the Obligations (or any other obligations to which such funds are provided hereunder to be applied) until applied thereto as hereinafter provided. Neither the Company nor the Guarantor shall have any right of withdrawal from the Reserve Account nor any interest therein. 3.1.4 Prior to the delivery to the Trustee of any such Letter of Credit, the Company shall deliver to the Trustee an Officers' Certificate to the effect that such Letter of Credit qualifies as such under this First Supplemental Indenture. 3.1.5 Amounts on deposit in the Reserve Account shall be invested and reinvested by the Trustee at the written direction of the Company from time to time in Permitted Investments, which Permitted Investments shall mature at least one Business Day prior to the next Interest Payment Date, which direction shall specify the particular investment to be made and shall certify that such investment constitutes a Permitted Investment hereunder. The Trustee shall have no liability for any losses resulting from any such Permitted Investments. Any income received by, or on behalf of, the Trustee with respect to the balance from time to time on deposit in the Reserve Account, including any interest or capital gains on Permitted Investments made with amounts on deposit in the Reserve Account, shall remain, or be deposited, in the Reserve Account and shall constitute part of the Reserve Account. 3.1.6 The Reserve Account shall be under the sole dominion and control of the Trustee and the Trustee shall have the sole right to make withdrawals and disbursements from the Reserve Account, to give any other instructions concerning the account to the respective bank or Securities Intermediary maintaining the account and to exercise all rights with respect to the Collateral from time to time deposited therein in accordance with the Original Indenture and this First Supplemental Indenture. All Collateral delivered to or held by or on behalf of the Trustee pursuant hereto shall be held in the Reserve Account in accordance with the terms hereof and any supplemental indenture, and shall be controlled solely by the Trustee. 3.2 WITHDRAWALS FROM THE RESERVE ACCOUNT AND DRAWDOWNS ON LETTERS OF CREDIT Funds on deposit in the Reserve Account and available under the Letters of Credit shall be applied by the Trustee at the following times and in the following amounts: 3.2.1 First, if on any Business Day prior to an Interest Payment Date, (i) a Political Risk Event is in effect as noticed to the Trustee by the Company or the Guarantor, (ii) the Company and the Guarantor have sent a notice to the Trustee in the form attached hereto as Annex E and (iii) the Company or the Guarantor has not deposited, or caused to be deposited, with the Trustee funds sufficient to pay the Trustee's fees and reasonable expenses for the next six months of service as Trustee, then the Trustee shall pay such amounts to itself from the Reserve Account or by drawing funds from any Letters of Credit within 30 days of such Interest Payment Date. -27- 3.2.2 Second, if on any Business Day prior to an Interest Payment Date, (i) a Political Risk Event is in effect as noticed to the Trustee by the Company or the Guarantor, (ii) the Company and the Guarantor have sent a notice to the Trustee in the form attached hereto as Annex E and (iii) the Company or the Guarantor has not deposited, or caused to be deposited, with the Trustee funds sufficient to pay the interest and/or Additional Amounts then due on the Notes, then the Trustee shall pay such amounts to the Holders of the Notes from the Reserve Account or by drawing funds from any Letters of Credit. 3.2.3 Third, if on any Interest Payment Date (i) the Company or the Guarantor has not deposited, or caused to be deposited, with the Trustee funds sufficient to pay the interest and/or Additional Amounts then due on the Notes, (ii) a Political Risk Event was in effect on that Interest Payment Date as noticed to the Trustee by the Company or the Guarantor after that Interest Payment Date and (iii) the Company and the Guarantor have sent a notice to the Trustee in the form attached hereto as Annex E then as soon as practicable after receiving that notice the Trustee shall pay such unpaid amounts together with default interest thereon at the applicable default rate to the Holders of the Notes from the Reserve Account or by drawing funds from any Letters of Credit. 3.2.4 Fourth, two Business Days after each Interest Payment Date the Trustee shall, to the extent the aggregate amount of funds in the Reserve Account and available under the Letters of Credit exceed the Political Risk Coverage on that date, (i) pay to the Company funds, if any, from the Reserve Account equal to such excess or (ii) notify the issuer(s) of the Letter of Credit requesting and allowing the reduction in the amount available under the Letters of Credit in an amount equal to such excess, or any combination of the foregoing; PROVIDED, HOWEVER, that where the Political Risk Coverage has been reduced to zero, such funds shall be payable to the Company and Letters of Credit delivered to the issuer(s) for cancellation, in each case as soon as practicable. 3.2.5 Fifth, all funds available under a Letter of Credit shall be drawn by the Trustee and deposited in the Reserve Account (i) not less than 30 days before the Letter of Credit expires if (x) the issuer of the Letter of Credit notifies the Trustee as beneficiary of the Letter of Credit that the Letter of Credit will not be automatically renewed and (y) the Company and the Guarantor have failed to substitute such Letter of Credit for another Letter of Credit or make a deposit in the Reserve Account at least 40 days before the existing Letter of Credit expires or (ii) if the issuer of the Letter of Credit suffers a reduction in its long-term unsecured U.S. dollar debt rating below Aa3 or its short-term debt rating below P-1 by Moody's. The Trustee shall not be charged with notice or knowledge of such a rating reduction unless it shall have received written notice thereof from the Company or the Guarantor. 3.2.6 If the Company provides for the substitution of any portion or all of the amount available under a Letter of Credit for cash deposits in the Reserve Account, the Trustee shall notify the issuer of the Letter of Credit that the amount available -28- thereunder shall be reduced by the amount of the cash deposit and shall, at the option of the issuer thereof either surrender the Letter of Credit to the issuer thereof in return for a Letter of Credit having a stated amount reduced by the amount of such cash or permit an amendment of the Letter of Credit providing for the reduction of the stated amount thereof by the amount of said cash deposit. If the Company provides for the substitution of cash deposits in the Reserve Account for a Letter of Credit having a stated amount equal to such cash, the Trustee shall return such cash to the Company promptly after receipt of such Letter of Credit and the effectiveness thereof and the receipt of the Officers' Certificate required by Section 3.1.4, subject to Section 3.1.2. 3.3 RELEASE OF COLLATERAL All funds paid from the Reserve Account in accordance with Sections 3.1 and 3.2 hereof shall be released from the Lien created hereby, and the Trustee shall, at the request and direction of the Company, take all reasonable steps and make all filings necessary to release the Collateral from the Liens created pursuant to this First Supplemental Indenture. 4 MISCELLANEOUS PROVISIONS 4.1 SEPARABILITY OF INVALID PROVISIONS In case any one or more of the provisions contained in this First Supplemental Indenture should be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions contained in this First Supplemental Indenture, and to the extent and only to the extent that any such provision is invalid, illegal or unenforceable, this First Supplemental Indenture shall be construed as if such provision had never been contained herein. 4.2 EXECUTION IN COUNTERPARTS This First Supplemental Indenture may be simultaneously executed and delivered in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. 5 REPRESENTATIONS AND WARRANTIES Each of the Company and the Guarantor, jointly and severally, represents and warrants to the Trustee, solely for the benefit of the holders of the Notes, that, except as otherwise provided herein and except as would not have a material adverse effect on the ability of the Guarantor to comply with its obligations under the Notes, on and as of the date hereof: 5.1 the Final Offering Memorandum, in the form used by the Initial Purchasers to confirm sales of the Securities and as of the Closing Date, did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at such dates, not misleading; PROVIDED, HOWEVER, that this representation and warranty shall not apply to any statements or -29- statements or omissions made in reliance upon and in conformity with information relating to any Initial Purchaser furnished to the Company and the Guarantor in writing by such Initial Purchaser through the Representative expressly for use therein; 5.2 the financial statements, and the related notes thereto, included in the Final Offering Memorandum present fairly the consolidated financial position of the Guarantor and its consolidated subsidiaries as of the dates indicated and the results of their operations and the changes in their consolidated cash flows for the periods specified; and said financial statements have been prepared in conformity with generally accepted accounting principles and practices of the United States applied on a consistent basis throughout the periods covered thereby; 5.3 since the respective dates as of which information is given in the Final Offering Memorandum, (i) there has not been (x) any change in the capital stock or long-term debt of the Guarantor or any of its Subsidiaries, or any dividend or distribution of any kind declared, set aside for payment, paid or made by the Company or the Guarantor on any class of capital stock, except to the extent that such change in capital stock or long-term debt or distribution or dividend do not, in the aggregate, have a material adverse effect on the general affairs, business, management, financial position, stockholders' equity or results of operations of the Guarantor and its Subsidiaries taken as a whole, or (y) any material adverse change in or affecting the general affairs, business, management, financial position, stockholders' equity or results of operations of the Guarantor and the Subsidiaries, taken as a whole; (ii) neither the Guarantor nor any of its Subsidiaries has entered into any transaction or agreement (whether or not in the ordinary course of business) material to the Guarantor and its Subsidiaries taken as a whole; and (iii) neither the Company, the Guarantor nor any of its Subsidiaries has sustained any material loss or interference with its business (x) from fire, explosion, flood or other calamity not covered by insurance or (y) from any action, order or decree of any court or arbitrator or governmental or regulatory authority material to the Guarantor and its Subsidiaries taken as a whole, except in each case described in this Section 5.3 as otherwise disclosed in the Final Offering Memorandum or as would not materially adversely affect the ability of the Guarantor to comply with its obligations under the Notes; 5.4 each of the Company and the Guarantor has been duly incorporated and is validly existing as a corporation under the laws of its jurisdiction of incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Final Offering Memorandum, and neither the Company nor the Guarantor is the subject of any bankruptcy, insolvency, liquidation, reorganization or other related insolvency proceeding in or order of a court of competent jurisdiction and neither the Company nor the Guarantor has petitioned or sought consent for a plan of reorganization, receivership or liquidation; 5.5 all of the outstanding shares of capital stock of the Company, Guarantor and Albras have been duly and validly authorized and issued, are fully paid and non-assessable, and in the case of the Company (except for any directors' qualifying shares and except as otherwise set forth in the Final Offering Memorandum or required pursuant hereto) -30- are owned directly or indirectly by the Guarantor, free and clear of all liens, charges, security interests, restriction on voting or transfer, encumbrances, equities or claims; 5.6 the Securities have been duly authorized, and when issued and delivered pursuant to the Purchase Agreement, will have been duly executed, authenticated, issued and delivered and will constitute valid and binding obligations of the Company or the Guarantor, as applicable, entitled to the benefits provided by this Indenture, enforceable in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium and other similar laws affecting the rights of creditors generally and the application of general equitable principles (the "Enforceability Exceptions"), this Indenture, the First Supplemental Indenture, the Exchange Securities and the Registration Rights Agreement have been duly authorized and, when executed, authenticated and delivered by the parties thereto, will constitute valid and binding instruments, enforceable in accordance with their terms, except as such enforceability may be limited by the Enforceability Exceptions and except that, with respect to the Registration Rights Agreement, the indemnity and contribution provisions thereunder may be limited by applicable law and public policy; and on the Closing Date, this Indenture will conform in all material respects to the requirements of the Trust Indenture Act, and the rules and regulations of the Commission applicable to an indenture that is qualified thereunder; 5.7 on the Closing Date, the Exchange Securities (including the related Guaranty) will have been duly authorized by the Company and the Guarantor and, when duly executed, authenticated, issued and delivered as contemplated by the Registration Rights Agreement, will be duly and validly issued and outstanding and will constitute valid and legally binding obligations of the Company, as issuer, and the Guarantor, as guarantor, enforceable against the Company and the Guarantor in accordance with their terms, subject to the Enforceability Exceptions, and will be entitled to the benefits of this Indenture; 5.8 neither the Company nor the Guarantor is, or with the giving of notice or lapse of time or both would be, in violation of its constitutive documents nor is the Company or the Guarantor in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any material contract, indenture, mortgage, loan agreement, note or any other material agreement or instrument to which it is a party or by which it is bound or to which any of its material properties or assets is subject; the issue and sale by the Company of the Notes and by the Guarantor of the Guaranty and the performance by each of the Company and the Guarantor of all its obligations under the Securities, the Exchange Securities, this Indenture, the First Supplemental Indenture, the Registration Rights Agreement and the Purchase Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach of any of the terms or provisions of any existing law applicable to the Company or the Guarantor or any of the terms or provisions of, or constitute a default under, the constitutive documents of the Company or the Guarantor, or any material indenture, trust deed, mortgage or other material agreement or instrument to which the Company or the Guarantor is a party or by which it is bound or to which the Company or the Guarantor or any of its properties or assets are subject or -31- contravene any existing applicable law, rule, regulation, judgment, order or decree of any government, governmental body or agency or court, domestic or foreign, having jurisdiction over the Company or the Guarantor or any of its material properties or assets; and no consent, approval (including, but not limited to, exchange control approval), authorization, order, registration or qualification of or with any Brazilian or Cayman Islands court, government or governmental agency or body or any third party is required for the issue, sale, delivery or performance of the Securities or the consummation of the other transactions contemplated hereby, except in each case described in this Section 5.8 (i) for those which have been obtained and are in full force and effect; (ii) as may be required under federal or state securities or Blue Sky Laws; (iii) as would not have a material adverse effect on the ability of the Guarantor to comply with its obligations under the Notes; or (iv) for the approval of Banco Central do Brazil (the "Central Bank") for remittance of any payment in U.S. dollars, in case the Guarantor is required to make any payment under the Guaranty (it being understood that the approval of the Central Bank for the Guarantor to issue the Guaranty has been obtained pursuant to Circular No. 1504 dated June 30, 1989 and Carta Circular No. 2619 dated February 14, 1996 of the Central Bank); 5.9 other than as set forth or contemplated in the Final Offering Memorandum, there are no legal or governmental investigations, actions, suits or proceedings pending or, to the knowledge of the Company and the Guarantor, threatened against or affecting the Guarantor or any of its Subsidiaries or any of their respective properties or to which the Guarantor or any of its Subsidiaries is or may be a party or to which any property of the Guarantor or any of its Subsidiaries is or may be the subject which could individually or in the aggregate reasonably be expected to have, a material adverse effect on the ability of the Guarantor to perform its obligations under this Indenture or the Securities, and, to the best of the Company's and the Guarantor's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; 5.10 the Guarantor and its Subsidiaries have good and marketable title, or have valid rights to lease or otherwise use, all items of real and personal property that are material to the respective businesses of the Guarantor and its Subsidiaries, in each case free and clear of all liens, encumbrances, claims and defects and imperfections of title except those that (i) do not materially interfere with the use made and proposed to be made of such property by the Guarantor and its Subsidiaries or (ii) could not reasonably be expected, individually or in the aggregate, to have a material adverse effect on the general affairs, business, prospects, management, financial position, stockholder's equity or results of operations of the Guarantor or its Subsidiaries taken as a whole; 5.11 on September 30, 2001, the capitalization of the Guarantor was as set forth in the Final Offering Memorandum under the caption "Capitalization"; 5.12 (i) the Company, the Guarantor and Albras have filed or caused to be filed all tax returns required to be filed and have paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its properties and all other taxes, assessments, fees or other charges imposed on them or any of their properties by any governmental authority (other than those the amount or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which -32- reserves in conformity with Brazilian generally accepted accounting principles have been provided on its books); unless failure to file or pay said returns or any other taxes, fees, assessments or charges would not, in the aggregate, have a material adverse effect on the ability of the Guarantor to comply with its obligations under the Notes; (ii) all such tax returns so filed are correct and complete in all material aspects; and (iii) no material tax liens or material liens with respect to any assessments, fees or other charges have been filed and, to such respective parties' knowledge, no claims are being, or could reasonably be expected to be, asserted against the Company, the Guarantor or Albras or any of their respective properties or assets with respect to any such taxes, assessments, fees or other charge with such exceptions in (ii) and (iii) as would not have a material adverse effect on the ability of the Guarantor to comply with its obligations under the Notes; 5.13 the Guarantor and its Subsidiaries (i) are in compliance with any and all applicable federal, provincial, local and foreign laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (collectively, "Environmental Laws"), and none of them has received notice of any outstanding violations of any Environmental Laws; (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses; and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except in any such case described in items (i), (ii) and (iii) for any such failure to comply or violations, or failure to receive required permits, licenses or approvals, as would not, individually or in the aggregate, have a material adverse effect on the general affairs, business, prospects, management, financial position, stockholder's equity or results of operations of the Guarantor and its Subsidiaries taken as a whole; 5.14 neither the Company nor the Guarantor nor any of their material properties or material assets has any immunity from the jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise), except for immunity under Brazilian law relating to public concessions granted by the Brazilian government to the Guarantor; 5.15 on the date hereof and on the Closing Date, to ensure the legality, validity, enforceability or admissibility into evidence of each of the Exchange Securities, this Indenture, the First Supplemental Indenture and the Registration Rights Agreement in Brazil and in the Cayman Islands, it is not necessary that any such document be submitted to, filed or recorded with any court or other authority in Brazil or the Cayman Islands or that any tax, imposition or charge be paid in Brazil or the Cayman Islands on or in respect of any such document except that (i) in order to be enforceable and admissible into evidence in the courts of Brazil (A) signatures of the parties to such documents affixed outside Brazil must be notarized by a notary public licensed to act as such under the laws of the place of signing and the signature of such notary public must be authenticated by a consular office of Brazil and (B) each such document must be translated into Portuguese by a sworn translator in Brazil; (ii) in order to be produced in evidence before a court in the Cayman Islands, stamp duty will be payable, being a nominal stamp duty in respect of the Exchange Securities, this Indenture, the First Supplemental Indenture, the -33- Registration Rights Agreement and the Purchase Agreement and stamp duty in an amount of CI$0.25 per CI$100 or part thereof of the face value of each Note, subject to a maximum of CI$250 being payable (the current rate of exchange being US$1.25 to CI$1.00) and (iii) the enforceability of such documents in the courts of Brazil is also subject to the payment of certain expenses and court fees in connection with enforcement thereof by the courts of Brazil; 5.16 the payment obligations of the Company under the Notes and of the Guarantor under the Guaranty will rank at least pari passu with all other present and future unsecured and unsubordinated obligations of the Company and the Guarantor, respectively, except those which rank higher because of applicable law; 5.17 the Guarantor maintains systems of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences; 5.18 the Guarantor and its Subsidiaries have insurance covering their respective properties, operations, personnel and businesses, including business interruption, which insurance is in amounts and insures against such losses and risks as are adequate to protect the Guarantor and its Subsidiaries and their respective businesses taken as a whole; and neither the Guarantor nor any of its Subsidiaries has (i) received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance or (ii) any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage at reasonable cost from similar insurers as may be necessary to continue its business except in each case (i) and (ii) as would not materially adversely affect the ability of the Guarantor to comply with its obligations under the Notes; and 5.19 the Company has not, prior to the issue of the Notes on the date hereof entered into any material transactions, entered into any material agreements, taken any material actions or otherwise done anything material, other than those things necessary to establish and maintain its corporate existence and issue the Notes. 6 COVENANTS OF THE COMPANY AND THE GUARANTOR The Company and the Guarantor agree with the Trustee, solely for the benefit of the holders of the Notes, to give prompt written notice to the Trustee of the occurrence or termination of a Political Risk Event, in no case later than five Business Days after such occurrence or termination. For so long as any of the Notes are listed on the Luxembourg Stock Exchange, a copy of any such notice shall be delivered to the Luxembourg Stock Exchange and published in a newspaper with general circulation in Luxembourg, which is expected to be the Luxembourg -34- Wort. The Company and the Guarantor also agree with the Trustee, solely for the benefit of the holders of the Notes, not to give a false notice of such occurrence or termination. 7 DISCLOSURE TO MOODY'S The Company and the Guarantor covenant and agree to provide to Moody's all financial statements, reports, notices, certificates, opinions and any other documents required to be delivered, or received, by the Company or the Guarantor to, or from, the Trustee or any of the Holders under the Original Indenture or this First Supplemental Indenture, in each case within one Business Day of the same being so received or delivered. In addition, the Company and the Guarantor covenant and agree to provide to Moody's, within 45 days of the end of each fiscal quarter of the Guarantor (or, in the case of Sections 7.2 and 7.3, within 60 days of the end of its first three fiscal quarters and within 90 days of the end of its final fiscal quarter), the following information as of the end of the most recent fiscal quarter: 7.1 a list detailing the principal amount, rate of interest, maturity, credit enhancement, if any (including a guarantee by the Guarantor), rating trigger, if any, and other significant features of any Indebtedness of a Subsidiary in excess of $25,000,000 (or its equivalent); 7.2 a list of all Significant Subsidiaries; 7.3 (i) for the final fiscal quarter of the fiscal year, the annual audited financial statements of the Guarantor, as well as the consolidated annual audited financial statements of the Guarantor, prepared in accordance with Brazilian generally accepted accounting principles and standards; (ii) the quarterly consolidated unaudited financial statements of the Guarantor, prepared in accordance with Brazilian generally accepted accounting principles and standards; (iii) for the fiscal quarter that it is made available to the Commission, the most recent quarterly consolidated financial statements of the Guarantor prepared in accordance with U.S. generally accepted accounting principles, translated into U.S. Dollars; and (iv) for the fiscal quarter that it is made available to the Commission, a copy of the Guarantor's Form 20-F, which will include consolidated annual audited financial statements of the Guarantor prepared in accordance with U.S. generally accepted accounting principles and translated into U.S. Dollars; 7.4 a list of all unencumbered liquid assets of the Company and the Guarantor; and 7.5 a list of any sale of assets during such fiscal quarter involving assets with a then current market value at the date of sale in excess of $100,000,000. -35- IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed on their respective behalves, all as of the day and year first written above. EXECUTED AS A DEED BY VALE OVERSEAS LIMITED, the Company By: /s/ Jorge Tadeu Moura Pinho --------------------------------------- Name: Jorge Tadeu Moura Pinho Title: Attorney By: /s/ Bernadeth Vieira de Souza --------------------------------------- Name: Bernadeth Vieira de Souza Title: Attorney COMPANHIA VALE DO RIO DOCE, as Guarantor By: /s/ Leonardo Moretzsohm de Andrade --------------------------------------- Name: Leonardo Moretzsohm de Andrade Title: Attorney By: /s/ Andrea Marques de Almeida --------------------------------------- Name: Andrea Marques de Almeida Title: Attorney JPMORGAN CHASE BANK, as Trustee By: /s/ Lesley Daley --------------------------------------- Name: Lesley Daley Title: Trust Officer Sworn to before me this 8th day of March, 2002 /s/ James M. Foley - ------------------------------------- Notary Public -36- ANNEX A FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM RESTRICTED GLOBAL NOTE TO REGULATION S GLOBAL NOTE (TRANSFERS PURSUANT TO SS. 2.3.2(I) OF THE SUPPLEMENTAL INDENTURE) JPMorgan Chase Bank, as Trustee RE: 8.625% SERIES A ENHANCED GUARANTEED NOTES DUE 2007 OF VALE OVERSEAS LIMITED (THE "NOTES") Reference is hereby made to the First Supplemental Indenture, dated March 8, 2002 (the "SUPPLEMENTAL INDENTURE"), among Vale Overseas Limited, Companhia Vale do Rio Doce, as Guarantor, and JPMorgan Chase Bank, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Supplemental Indenture. This letter relates to $[ ] principal amount of Notes which are evidenced by one or more Restricted Global Notes (CUSIP No. 91911TAA1) and held with the Depositary in the name of [INSERT NAME OF TRANSFEROR] (the "TRANSFEROR"). The Transferor has requested a transfer of such beneficial interest in the Notes to a person who will take delivery thereof in the form of an equal principal amount of Notes evidenced by one or more Regulation S Global Notes (CINS No. G9317UAA3), which amount, immediately after such transfer, is to be held with the Depositary through Euroclear or Clearstream, Luxembourg or both (Common Code: 14456856; ISIN: USG9317UAA37). In connection with such request and in respect of such Notes, the Transferor does hereby certify that such transfer has been effected pursuant to and in accordance with Rule 903 or Rule 904 (as applicable) or Rule 144 under the United States Securities Act of 1933 (the "SECURITIES ACT"), and accordingly the Transferor does hereby further certify that: (i) If the transfer is being effected pursuant to Rule 903 and Rule 904: (1) the offer of the Notes was not made to a person in the United States; (2) either: (A) at the time the buy order was originated, the transferee was outside the United States or the Transferor and any person acting on its behalf reasonably believed that the transferee was outside the United States, or (B) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any person acting on its behalf knows that the transaction was pre-arranged with a buyer in the United States; (3) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulations S, as applicable; -37- (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and (5) upon completion of the transaction, the beneficial interest being transferred as described above is to be held with the Depositary through Euroclear or Clearstream, Luxembourg or both. (ii) If the transfer is being effected pursuant to Rule 144, the Notes are being transferred in a transaction permitted by Rule 144. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the underwriters or initial purchasers, if any, of the initial offering of such Notes being transferred. Terms used in this certificate and not otherwise defined in the Supplemental Indenture have the meanings set forth in Regulation S or Rule 144 under the Securities Act. [INSERT NAME OF TRANSFEROR] By: ___________________ Name: Title: Date: _________________ cc: Vale Overseas Limited -38- ANNEX B FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM RESTRICTED GLOBAL NOTE TO UNRESTRICTED GLOBAL NOTE (TRANSFERS PURSUANT TO SS. 2.3.2(II) OF THE SUPPLEMENTAL INDENTURE) JPMorgan Chase Bank, as Trustee RE: 8.625% SERIES A ENHANCED GUARANTEED NOTES DUE 2007 OF VALE OVERSEAS LIMITED (THE "NOTES") Reference is hereby made to the First Supplemental Indenture, dated March 8, 2002 (the "SUPPLEMENTAL INDENTURE"), among Vale Overseas Limited, Companhia Vale do Rio Doce, as Guarantor, and JPMorgan Chase Bank, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Supplemental Indenture. This letter relates to $[ ] principal amount of Notes which are evidenced by one or more Restricted Global Notes (CUSIP No. 91911TAA1) and held with the Depositary in the name of [INSERT NAME OF TRANSFEROR] (the "TRANSFEROR"). The Transferor has requested a transfer of such beneficial interest in the Notes to a person that will take delivery thereof in the form of an equal principal amount of Notes evidenced by one or more Unrestricted Global Notes (CINS No. G9317UAA3). In connection with such request and in respect of such Notes, the Transferor does hereby certify that such transfer has been effected pursuant to and in accordance with either (i) Rule 903 or Rule 904 (as applicable) under the United States Securities Act of 1933 (the "SECURITIES ACT"), or (ii) Rule 144 under the Securities Act, and accordingly the Transferor does hereby further certify that: (i) If the transfer has been effected pursuant to Rule 903 and Rule 904: (1) the offer of the Notes was not made to a person in the United States; (2) either: (A) at the time the buy order was originated, the transferee was outside the United States or the Transferor and any person acting on its behalf reasonably believed that the transferee was outside the United States, or (B) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any person acting on its behalf knows that the transaction was pre-arranged with a buyer in the United States; (3) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. -39- (ii) If the transfer has been effected pursuant to Rule 144, the Notes have been transferred in a transaction permitted by Rule 144. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the underwriters or initial purchasers, if any, of the Notes being transferred. Terms used in this certificate and not otherwise defined in the Supplemental Indenture have the meanings set forth in Regulation S under the Securities Act. [INSERT NAME OF TRANSFEROR] By: ___________________ Name: Title Dated: _________________ cc: Vale Overseas Limited -40- ANNEX C FORM OF TRANSFER CERTIFICATES FOR TRANSFER FROM REGULATION S GLOBAL NOTE OR UNRESTRICTED GLOBAL NOTE TO RESTRICTED GLOBAL NOTE (TRANSFERS PURSUANT TO SS. 2.3.2(III) OF THE SUPPLEMENTAL INDENTURE) [TRANSFEROR CERTIFICATE] JPMorgan Chase Bank, as Trustee RE: 8.625% SERIES A ENHANCED GUARANTEED NOTES DUE 2007 OF VALE OVERSEAS LIMITED (THE "NOTES") Reference is hereby made to the First Supplemental Indenture, dated March 8, 2002 (the "SUPPLEMENTAL INDENTURE"), among Vale Overseas Limited, Companhia Vale do Rio Doce, as Guarantor, and JPMorgan Chase Bank, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Supplemental Indenture. This letter relates to $[ ] principal amount of Notes which are evidenced by one or more Regulation S Global Notes (CINS No. G9317UAA3) and held with the Depositary through [Euroclear] [Clearstream, Luxembourg] (Common Code: 14456856; ISIN: USG9317UAA37) in the name of [INSERT NAME OF TRANSFEROR] (the "TRANSFEROR"). The Transferor has requested a transfer of such beneficial interest in the Notes to a person that will take delivery thereof (the "TRANSFEREE") in the form of an equal principal amount of Notes evidenced by one or more Restricted Global Notes (CUSIP No. 91911TAA1). In connection with such request and in respect of such Notes, the Transferor does hereby certify that: (1) Such transfer is being effected in accordance with all applicable securities laws of any state of the United States or any other jurisdiction; (2) the Notes are being transferred in accordance with Rule 144A to a transferee whom the Transferor reasonably believes is a qualified institutional buyer within the meaning of Rule 144A(a)(1) and is purchasing the Notes for its own account or any account with respect to which the transferee exercises sole investment discretion, in each case in a transaction meeting the requirements of Rule 144A; and (3) it has notified the transferee that it has relied on Rule 144A as a basis for the exemption from the registration requirements of the Securities Act used in connection with the transfer. -41- This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the underwriters and initial purchasers, if any, of the Notes being transferred. [INSERT NAME OF TRANSFEROR] By: ___________________ Name: Title Dated: _________________ cc: Vale Overseas Limited -42- ANNEX D NOTICE OF OCCURRENCE OF A POLITICAL RISK EVENT To: JPMorgan Chase Bank (the "TRUSTEE") 450 West 33rd Street, 15th Floor New York, NY 10001 [Date] Ladies and Gentlemen, VALE OVERSEAS LIMITED (THE "ISSUER") U.S.$300,000,000 8.625% ENHANCED GUARANTEED NOTES DUE 2007 (THE "NOTES") UNCONDITIONALLY GUARANTEED BY COMPANHIA VALE DO RIO DOCE (THE "GUARANTOR") We refer to the indenture dated as of March 8, 2002, among the Issuer, the Guarantor and the Trustee (the "INDENTURE"), as supplemented by a first supplemental indenture dated as of March 8, 2002, among the Issuer, the Guarantor and the Trustee (the "FIRST SUPPLEMENTAL INDENTURE"). In compliance with the requirement in the First Supplemental Indenture to give notice of the occurrence or termination of a Political Risk Event, as defined in Section 1.2.5 of the First Supplemental Indenture, we hereby give notice that, as of [Date], a Political Risk Event [came into existence][has terminated]. As evidence of the [existence][termination] of the such Political Risk Event, we attach hereto copies of [law, regulation, resolution, official release, bona fide newspaper reports or any other material which demonstrates the [existence][termination] of the Political Risk Event or an alteration as to its existence]. Yours faithfully, VALE OVERSEAS LIMITED By: COMPANHIA VALE DO RIO DOCE By: -43- ANNEX E NOTICE OF NON-PAYMENT OF INTEREST DUE TO A POLITICAL RISK EVENT To: JPMorgan Chase Bank (the "TRUSTEE") 450 West 33rd Street, 15th Floor New York, NY 10001 [Date] Ladies and Gentlemen, VALE OVERSEAS LIMITED (THE "ISSUER") U.S.$300,000,000 8.625% ENHANCED GUARANTEED NOTES DUE 2007 (THE "NOTES") UNCONDITIONALLY GUARANTEED BY COMPANHIA VALE DO RIO DOCE (THE "GUARANTOR") We refer to the indenture dated as of March 8, 2002, among the Issuer, the Guarantor and the Trustee (the "INDENTURE"), as supplemented by a first supplemental indenture dated as of March 8, 2002, among the Issuer, the Guarantor and the Trustee (the "FIRST SUPPLEMENTAL INDENTURE"). Prior to or contemporaneously with this notice, we have notified you of the occurrence of a Political Risk Event, as defined in Section 1.2.5 of the First Supplemental Indenture, and have not notified you of the termination of the Political Risk Event. In connection with the payment of interest and/or Additional Amounts due on the Notes on [insert date] (the "PAYMENT"), we represent to you as follows: 1 The Issuer does not have the funds to make the Payment. 2 The Guarantor has sufficient local currency funds in Brazil to make the Payment. 3 The Guarantor is unable to convert local currency funds into Dollars or to transfer Dollars outside Brazil to make the Payment and has used its best efforts to do so. 4 Neither the Issuer nor the Guarantor has funds available outside Brazil to make the Payment. Yours faithfully, VALE OVERSEAS LIMITED By: COMPANHIA VALE DO RIO DOCE By: -44- EX-5.1 7 y58436ex5-1.txt OPINION OF DAVIS POLK & WARDWELL EXHIBIT 5.1 212-450-4000 March 21, 2002 Vale Overseas Limited P.O. Box 908 GT, Walker House Georgetown, Grand Cayman Cayman Islands Companhia Vale do Rio Doce Avenida Graca Aronha, 26 Rio de Janiero, RJ-Brazil 20005-900 Ladies and Gentlemen: We have acted as special counsel to Vale Overseas Limited, a Cayman Islands exempted company incorporated with limited liability (the "Company"), in connection with the Company's offer (the "Exchange Offer") to exchange its Series B 8.625% Enhanced Guaranteed Notes due 2007 (the "New Securities") for any and all of its outstanding Series A 8.625% Enhanced Guaranteed Notes due 2007 (the "Old Securities"). The New Securities are guaranteed by Companhia Vale do Rio Doce, a corporation (sociedade anonima) organized under the laws of the Federative Republic of Brazil (the "Guarantor"), in accordance with the terms of the Indenture and the First Supplemental Indenture thereto, each dated March 8, 2002 among the Company, the Guarantor and JPMorgan Chase Bank, as trustee. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments as we have deemed necessary or advisable for the purpose of rendering this opinion. Upon the basis of the foregoing, we are of the opinion that the New Securities, when duly authorized, executed, authenticated and delivered in exchange for the Old Securities in accordance with the terms of the Indenture and the Exchange Offer, will be valid and binding obligations of the Company and the Guarantor enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally and general principles of equity. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York and the federal laws of the United States of America. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement relating to the Exchange Offer. We also consent to the reference to us under the captions "Material Tax Consequences of the Exchange Offer" and "Validity of the New Notes" in the Prospectus contained in such Registration Statement. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by or furnished to any other person without our prior written consent except that JPMorgan Chase Bank, as Exchange Agent for the Exchange Offer, may rely upon this opinion as if it were addressed directly to it. Very truly yours, /s/ Davis Polk & Wardwell 2 EX-5.2 8 y58436ex5-2.txt OPINION OF PAULO FRANCISCO DE ALMEIDA LOPES EXHIBIT 5.2 March 21, 2002 Companhia Vale Do Rio Doce Avenida Graca Aranha, No. 26 20005-900, Rio de Janeiro RJ, Brazil Ladies and Gentlemen, I serve as general counsel of Companhia Vale do Rio Doce, a corporation (sociedade anonima) organized under the laws of the Federative Republic of Brazil (the "CVRD") and hereby render this opinion in connection with the Registration Statement on Form F-4 (the "REGISTRATION STATEMENT") filed with the United States Securities and Exchange Commission by CVRD and Vale Overseas Limited (the "COMPANY") for the purpose of registering under the United States Securities Act of 1933 (the "ACT") the Company's Series B 8.625% Enhanced Guaranteed Notes (the "NOTES"). The Notes are irrevocably and unconditionally guaranteed (the "GUARANTY") by CVRD. I have examined such matters of fact and law as I have deemed necessary or advisable for the purpose of this opinion. Based upon and subject to the foregoing, I am of the opinion that: 1. The Notes have been duly authorized, executed and delivered by the Company. 2. The Guaranty has been duly authorized, executed and delivered by CVRD. 3. The statements in the prospectus constituting part of the Registration Statement under the caption "Enforcement of Civil Liabilities Against Non-U.S. Persons -- CVRD" insofar as such statements constitute summaries of the legal Companhia Vale Do Rio Doce 2 March 21, 2002 matters, documents or proceedings under the laws of the Federative Republic of Brazil, fairly summarize the matters referred to therein. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement. I also consent to the reference to my name under the captions "Material Tax Consequences of the Exchange Offer", "Validity of the New Notes" and "Enforcement of Civil Liabilities Against Non-U.S. Persons -- CVRD" contained in the Prospectus in such Registration Statement. Very truly yours, /s/ Paulo Francisco de Almeida Lopes Paulo Francisco de Almeida Lopes EX-5.3 9 y58436ex5-3.txt OPINION OF WALKERS EXHIBIT 5.3 WALKERS ATTORNEYS-AT-LAW P.O. Box 265GT, Walker House, Grand Cayman, Cayman Islands Tel: (345) 949-0100 Fax: (345) 949-7886 Email: inffo@walkers.com.ky March 19, 2002 Our Ref: JC/kb/C1568-35314 COMPANHIA VALE DO RIO DOCE VALE OVERSEAS LIMITED JPMORGAN CHASE BANK Dear Sirs, We have been asked to provide this legal opinion to you with regard to the laws of the Cayman Islands in connection with the Registration Statement on Form F-4 (the "REGISTRATION STATEMENT") filed with the United States Securities and Exchange Commission by Companhia Vale do Rio Doce ("CVRD") and Vale Overseas Limited (the "COMPANY") for the purpose of registering under the United States Securities Act of 1933 (the "ACT") the Company's Series B 8.625% Enhanced Guaranteed Notes (the "NOTES"). The Notes are irrevocably and unconditionally guaranteed by CVRD. For the purposes of giving this opinion, we have examined the documents listed in Schedule 1 hereto. In giving this opinion we have relied upon the assumptions set out in Schedule 2 hereto, which we have not independently verified. We are Attorneys-at-Law in the Cayman Islands and express no opinion as to any laws other than the laws of the Cayman Islands in force and as interpreted at the date hereof. Except as explicitly stated herein, we express no opinion in relation to any representation or warranty contained in the Notes nor upon the commercial terms of the transactions contemplated by the Notes. Based upon the foregoing examinations and assumptions and upon such searches as we have conducted and having regard to legal considerations which we deem relevant, we are of the opinion that under the laws of the Cayman Islands: 1. The Notes have been duly authorised, executed and delivered by the Company. 2. The statements contained in the Prospectus constituting part of the Registration Statement under the caption "Enforcement of Civil Liabilities Against Non-U.S. Persons - Vale Overseas" insofar as such statements constitute summaries of the legal matters, -1- documents and procedures under the laws of the Cayman Islands fairly summarise the matters referred to therein. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. We also consent to the reference to us under the captions "Material Tax Consequences of the Exchange Offer", "Validity of the New Notes" and "Enforcement of Civil Liabilities Against Non-U.S. Persons -- Vale Overseas" contained in the Prospectus in such Registration Statement. This opinion is limited to the matters referred to herein and shall not be construed as extending to any other matter or document not referred to herein. This opinion is given solely for your benefit and the benefit of your legal advisers acting in that capacity in relation to this transaction and may not be relied upon by any other person without our prior written consent. This opinion shall be construed in accordance with the laws of the Cayman Islands. Yours faithfully, /s/ Walkers WALKERS -2- SCHEDULE 1 LIST OF DOCUMENTS EXAMINED (1) the Memorandum and Articles of Association of the Company; (2) a Certificate of Good Standing in respect of the Company dated 4 March 2002 issued by the Registrar of Companies; (3) a copy of minutes of a meeting of the Board of Directors of the Company dated 25 February 2002 (the "Resolutions"); (4) a copy of the Power of Attorney given by the Company in favour of the Attorneys named therein dated 25 February 2002 (the "Power of Attorney"); (5) (a) the Registration Statement; (b) the Registration Rights Agreement (the "Registration Rights Agreement") made between the Company, CVRD and the Initial Purchasers specified therein; and (6) such other documents as we have considered necessary for the purposes of rendering this opinion. -3- SCHEDULE 2 ASSUMPTIONS The opinions hereinbefore given are based upon the following assumptions: 1. There are no provisions of the laws of any jurisdiction outside the Cayman Islands which would be contravened by the execution or delivery of the F4 Registration Statement, the Notes or the Registration Rights Agreement. 2. The Registration Rights Agreement and the Notes are within the capacity and powers of and have been or will be duly authorised, executed and delivered by each of the parties thereto (other than the Company) and constitute or will, when executed and delivered, constitute the legal, valid and binding obligations of each of the parties thereto enforceable in accordance with their terms as a matter of the laws of all relevant jurisdictions (other than the Cayman Islands). 3. All original documents are authentic, that all signatures and seals are genuine, that all documents purporting to be sealed have been so sealed, that all copies are complete and conform to their original and that all documents examined conform in every material respect to the latest drafts of the same produced to us and that where documents have been provided to us in successive drafts marked-up to indicate changes to such documents all such changes have been so indicated. 4. The Minute Book of the Company examined by us on [ ] March 2002 at its Registered Office contains a complete and accurate record of the business transacted by it. 5. The copies of the Memorandum and Articles of Association, Register of Members, Register of Directors and Officers and Register of Mortgages and Charges viewed at the Registered Office of the Company are true and correct copies of the originals of the same and that all matters required by law to be recorded therein are so recorded. 6. The corporate records of the Company examined by us on [ ] March 2002 at its Registered Office constitute its complete and accurate corporate records and that all matters required by law to be recorded therein are so recorded. 7. The copy of the minutes of the meeting of the Board of Directors at which the Resolutions were duly adopted constitutes an accurate record of such meeting. 8. The Power of Attorney remains in full force and effect and has not been revoked. 9. None of the parties to the Documents or the Notes is a person, political faction or body resident in or constituted under the laws of any country currently the subject of United Nations Sanctions ("Sanctions") extended to the Cayman Islands by the Order of Her Majesty in Council. At this date Sanctions currently extend to Libya, Iraq, Kuwait, Haiti, The Federal Republic of Yugoslavia, Sierra Leone, Liberia, Somalia, Rwanda, Serbia & Montenegro, Angola, the Uniao Nacional para a Independencia Total de Angola ("UNITA"), Afghanistan, Eritrea or Ethiopia and the Taliban (an Afghan political faction which calls itself the Islamic Emirate of Afghanistan). -4- EX-10.1 10 y58436ex10-1.txt ACCOUNT CONTROL AGREEMENT EXHIBIT 10.1 Dated as of March 8, 2002 VALE OVERSEAS LIMITED, as Pledgor and JPMORGAN CHASE BANK, as Secured Party and JPMORGAN CHASE BANK, as Bank and Securities Intermediary ACCOUNT CONTROL AGREEMENT LINKLATERS 1345 Avenue of the Americas 19th Floor New York, NY 10105 Telephone: (212)424-9000 Facsimile: (212)424-9100 Ref: REO/REXW LINKLATEERS & ALLIANCE Linklates is a member firm of Linklaters & Alliance a non-partnership association This Account Control Agreement is dated as of March 8, 2002 among Vale Overseas Limited, a Cayman Islands exempted company incorporated with limited liability (the "Pledgor"), JPMorgan Chase Bank, a banking corporation organized under the laws of the State of New York, as Trustee under the Indenture (defined below) (in its capacity as such, the "Secured Party") and as bank and securities intermediary (in its capacity as such, the "Intermediary") (the "Agreement"). Recitals (A) The Pledgor has granted a security interest in the Collateral (as defined in the Supplemental Indenture) in favor of the Secured Party; and (B) In order to perfect the security interest granted by the Pledgor with respect to the Collateral, the parties hereto have entered into this Account Control Agreement. 1 Definitions Capitalized terms used herein but not otherwise defined herein shall have the meanings assigned in the Indenture dated as of March 8, 2002 (the "Base Indenture"), as supplemented by a first supplemental indenture dated as of March 8, 2002 (the "Supplemental Indenture," and collectively with the Base Indenture, the "Indenture") among the Pledgor, Companhia Vale Do Rio Doce, as guarantor, and the Secured Party, as Trustee. "UCC" means the Uniform Commercial Code as in effect from time to time in the State of New York. 2 Establishment of Reserve Account The Intermediary hereby agrees to act as securities intermediary and confirms and agrees that: 2.1 The Intermediary has established account number 161600 in the name "JPMorgan Chase Bank, as Trustee FBO Holders of Vale Overseas Limited U.S.$300,000,000 8.625% Enhanced Guaranteed Notes Due 2007 Reserve Account" (such account and any successor account thereto, the "Reserve Account") and the Intermediary shall not change the name or account number of the Reserve Account without the prior written consent of the Secured Party; 2.2 All securities and other property underlying any financial assets credited to the Reserve Account shall be in the name of the Intermediary and in no case will any funds credited to the Reserve Account be in the name of the Pledgor or payable to the order of the Pledgor except to the extent the foregoing have been specially indorsed to the Secured Party or in blank; 2.3 All property delivered to the Intermediary pursuant to the Indenture will be promptly credited to the Reserve Account, as specified; 2.4 The Reserve Account is an account to which financial assets are or may be credited, and the Intermediary shall treat the Pledgor as entitled to exercise the rights that comprise any financial assets credited to the Reserve Account; and 2.5 The Intermediary is a securities intermediary within the meaning of UCC Section 8-102(a)(14) or a bank within the meaning of UCC Section 9-104. -1- 3 "Financial Assets" Election The Intermediary hereby agrees that each item of property (whether including, without limitation, any investment property, financial assets, securities, instruments, general intangibles or cash) credited to the Reserve Account shall be treated as a "financial asset" within the meaning of Section 8-102(a)(9) of the UCC. 4 Entitlement Orders 4.1 The Secured Party exclusively may at any time in accordance with the Indenture (a) direct the transfer or redemption of, and give any entitlement orders (as defined in Section 8-102(a)(8) of the UCC) with respect to, any financial asset relating to the Reserve Account without further consent by the Pledgor or any other Person and (b) instruct the Intermediary to dispose of the funds in the Reserve Account without further consent by the Pledgor or any other Person. 4.2 Irrespective of any other provision herein or in any other agreement, the Intermediary agrees to comply with all (a) entitlement orders issued by the Secured Party with respect to the Reserve Account and any property held therein and (b) instructions originated by the Secured Party directing disposition of the funds in the Reserve Account, in each case without further consent by the Pledgor or any other Person 4.3 The Pledgor shall not have the right to issue any entitlement orders or originate any instructions directing disposition of the funds in the Reserve Account with respect to any financial assets or any other property held in or credited to the Reserve Account. 5 Subordination of Lien, Waiver of Set-Off In the event that the Intermediary has or subsequently obtains by agreement, by operation of law or otherwise a security interest in the Reserve Account or any security entitlement credited thereto, the Intermediary hereby agrees that such security interest shall be subordinate to the security interest of the Secured Party. The financial assets and other items deposited to the Reserve Account will not be subject to deduction, set-off, banker's lien, or any other right in favor of any person other than the Secured Party (except that the Intermediary may set off the face amount of any amounts which have been credited to the Reserve Account but are subsequently returned unpaid because of uncollected or insufficient funds). 6 Choice of Law Both this Agreement and the Reserve Account shall be governed by the laws of the State of New York. Regardless of any provision in any other agreement, for purposes of the UCC, New York shall be deemed to be the Intermediary's jurisdiction and the Reserve Account (as well as the securities entitlements related thereto) shall be governed by the laws of the State of New York. -2- 7 Conflict with Other Agreements 7.1 In the event of any conflict between this Agreement (or any portion thereof) and any other agreement now existing or hereafter entered into, the terms of this Agreement shall prevail. 7.2 No amendment or modification of this Agreement or waiver of any right hereunder shall be binding on any party hereto unless it is in writing and is signed by all of the parties hereto. 7.3 The Intermediary hereby confirms and agrees that: 7.3.1 There are no other agreements entered into between the Intermediary and the Pledgor with respect to the Reserve Account except for the Indenture; 7.3.2 It has not entered into, and until the termination of this Agreement will not enter into, any agreement with any other person relating to the Reserve Account and/or any financial assets credited thereto pursuant to which it has agreed to comply with entitlement orders (as defined in Section 8-102(a)(8) of the UCC) of such other person; and 7.3.3 It has not entered into, and until the termination of this Agreement will not enter into, any agreement with the Pledgor or the Secured Party purporting to limit or condition the obligation of the Intermediary to comply with entitlement orders as set forth in Section 4 hereof. 8 Adverse Claims Except for the claims and interest of the Secured Party and of the Pledgor in the Reserve Account, the Intermediary does not know of any claim to, or interest in, the Reserve Account or in any "financial asset" (as defined in Section 8-102(a) of the UCC) credited thereto. If any person asserts any lien, encumbrance or adverse claim (including any writ, garnishment judgment, warrant of attachment, execution or similar process) against the Reserve Account or in any financial asset carried therein, the Intermediary will, after becoming aware thereof, promptly notify the Secured Party and the Pledgor thereof. 9 Maintenance of the Reserve Account In addition to, and not in lieu of, the obligation of the Intermediary to honor entitlement orders as agreed in Section 4 hereof, the Intermediary agrees to maintain the Reserve Account and promptly send copies of all statements, confirmations and other correspondence concerning the Reserve Account and/or any financial assets credited thereto to each of the Pledgor and the Secured Party at the address set forth for each in Section 13 of this Agreement. -3- 10 Representations, Warranties and Covenants of the Intermediary The Intermediary hereby makes the following representations, warranties and covenants: 10.1 The Reserve Account has been established as set forth in Section 2 above and the Reserve Account will be maintained in the manner set forth herein until termination of this Agreement. 10.2 This Agreement is the valid and legally binding obligation of the Intermediary. 11 Indemnification of Intermediary The Pledgor and the Secured Party hereby agree that (a) the Intermediary is released from any and all liabilities to the Pledgor and the Secured Party arising from the terms of this Agreement and the compliance of the Intermediary with the terms hereof (save for clause 5), except to the extent that such liabilities arise from the Intermediary's gross negligence and (b) the Pledgor, its successors and assigns shall at all times indemnify and save harmless the Intermediary from and against any and all claims, actions and suits of others arising out of the terms of this Agreement or the compliance of the Intermediary with the terms hereof, except to the extent that such arises from the Intermediary's gross negligence, and from and against any and all liabilities, losses, damages, costs, charges, counsel fees and other expenses of every nature and character arising by reason of the same. This Section 11 shall survive the termination of this Agreement. 12 Successors, Assignment The terms of this Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective corporate successors or heirs and personal representatives who obtain such rights solely by operation of law. 13 Notices Any notice, request or other communication required or permitted to be given under this Agreement shall be in writing and deemed to have been properly given when delivered in person, or when sent by telecopy or other electronic means and electronic confirmation of error free receipt is received or two days after being sent by certified or registered mail, return receipt requested, postage prepaid, addressed to the party at the address set forth below. Pledgor: Companhia Vale do Rio Doce Avenida Graca Aranha, 26 - 17th Floor Rio de Janeiro, RJ - Brazil 20005-900 Telephone no: 55-21-3814-4726 Fax no: 55-21-3814-4679 Attention: CVRD Financial Director -4- Secured Party: JPMorgan Chase Bank 450 West 33rd Street, 15th Floor New York, NY 10001-2697 Attention: Institutional Trust Services Intermediary: JPMorgan Chase Bank 450 West 33rd Street, 15th Floor New York, NY 10001-2697 Attention: Institutional Trust Services or at such other address or facsimile number as shall have been furnished in writing by any person described above to the party required to give notice hereunder. 14 Termination The obligations of the Intermediary to the Secured Party pursuant to this Agreement shall continue in effect until the security interests of the Secured Party in the Reserve Account have been terminated pursuant to the terms of the Indenture and the Secured Party has notified the Intermediary of such termination in writing. The Secured Party agrees to provide Notice of Termination in substantially the form of Exhibit A hereto to the Intermediary upon the request of the Pledgor on or after the termination of the Secured Party's security interest in the Reserve Account. The termination of this Agreement shall not terminate the Reserve Account or alter the obligations of the Intermediary and the Pledgor to each other pursuant to any other agreement with respect to the Reserve Account. 15 Jurisdiction; Waiver of Immunity; Appointment of Process Agent Each of the parties hereto irrevocably and unconditionally submits to the jurisdiction of any New York State or United States federal court sitting in the Borough of Manhattan, the City of New York and of any court of its own corporate domicile, with respect to any proceedings arising out of or relating to this Agreement. Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceedings brought in such a court and any claim that any such proceedings brought in such a court have been brought in an inconvenient forum. Each of the parties hereto hereby waives any rights to which it may be entitled on account of place of residence or domicile. To the extent that the Pledgor has or hereafter may acquire any immunity from the jurisdiction of any court or from any legal process with respect to itself or its property, the Pledgor irrevocably waives, to the fullest extent permitted by law, such immunity in respect of its obligations hereunder. The Pledgor agrees that final judgment in any such Proceedings brought in such a court shall be conclusive and binding on it and may be enforced in any court to the jurisdiction of which the Pledgor is subject by a suit upon such judgment or in any manner provided by law, provided that service of process is effected upon the Pledgor as permitted by law. The Pledgor hereby irrevocably waives, to the fullest extent permitted by law, -5- any requirement or other provision of law, rule, regulation or practice which requires or otherwise establishes as a condition to the institution, prosecution or completion of any proceedings (including appeals) arising out of or relating to this Agreement, the posting of any bond or the furnishing, directly or indirectly, of any Note. The Pledgor hereby designates and appoints Rio Doce America, Inc. ("RDA") located at 546 5th Avenue, 12th Floor, New York, New York, 10036, as its authorized agent upon which process may be served in any legal suit, action or proceeding arising out of or relating to this Agreement which may be instituted in any federal or state court in the Borough of Manhattan, The City of New York, New York, and agrees that service of process upon such agent, and written notice of said service to the Pledgor by the person serving the same, shall be deemed in every respect effective service of process upon the Pledgor in any such suit, action or proceeding and further designates the domicile of RDA specified above and any domicile RDA may have in the future as its domicile to receive service of process. If for any reason RDA (or any successor agent for this purpose) shall cease to act as agent for service of process as provided above, the Pledgor will promptly appoint a successor agent for this purpose reasonably acceptable to the Trustee. The Pledgor agrees to take any and all actions as may be necessary to maintain such designation and appointment of such agent in full force and effect. 16 Counterparts This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing and delivering one or more counterparts. -6- In Witness Whereof, the parties hereto have caused this Agreement to be executed by their duly elected officers duly authorized as of the date first above written. VALE OVERSEAS LIMITED, as Pledgor By: /s/ Jorge Tadeu Moura Pinho --------------------------------------- Name: Jorge Tadeu Moura Pinho Title: Attorney By: /s/ Bernadeth Vieira de Souza --------------------------------------- Name: Bernadeth Vieira de Souza Title: Attorney JPMORGAN CHASE BANK, as Secured Party By: /s/ Lesley Daley ---------------------------------------- Name: Lesley Daley Title: Trust Officer Sworn to before me this 8th day of March, 2002. /s/ James M. Foley - ------------------------------------------- Notary Public JPMORGAN CHASE BANK, as Intermediary By: /s/ Lesley Daley ---------------------------------------- Name: Lesley Daley Title: Trust Officer Sworn to before me this 8th day of March, 2002. /s/ James M. Foley - ------------------------------------------- Notary Public -7- Exhibit A [Letterhead of Secured Party] [Date] JPMorgan Chase Bank 450 West 33rd Street, 15th Floor New York, NY 10001-2697 Attention: Institutional Trust Services Ladies and Gentlemen: Re: Termination of Control Agreement You are hereby notified that the Account Control Agreement between you, Vale Overseas Limited and the undersigned dated March 8, 2002 (a copy of which is attached) is terminated and you have no further obligations to the undersigned pursuant to such Agreement. Notwithstanding any previous instructions to you, you are hereby instructed to accept all future directions with respect to the Reserve Account 161600 from Vale Overseas Limited. This notice terminates any obligations you may have to the undersigned with respect to such accounts; however, nothing contained in this notice shall alter any obligations which you may otherwise owe to Vale Overseas Limited pursuant to any other agreement. You are instructed to deliver a copy of this notice by facsimile transmission to Vale Overseas Limited. Very truly yours, JPMORGAN CHASE BANK By: _______________________ Name: Title: -8- EX-12 11 y58436ex12.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 CVRD CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
AT DECEMBER 31, AT SEPTEMBER 30, ------------------------------- ----------------- 1996 1997 1998 1999 2000 2000 2001 ---- ---- ---- ---- ---- ---- ---- Fixed charges Capitalized interest costs 11 30 23 12 12 12 9 Financial Expenses 230 238 243 233 315 204 240 Guaranteed preferred stock dividend (representing 6% of outstanding preferred capital stock) 40 36 40 33 31 32 32 ---------------------------------------------------- 281 304 306 278 358 248 281 ==================================================== Earnings Pre-tax income before minorities and income (loss) from equity investees 441 629 692 670 731 660 588 Fixed Charges 281 304 306 278 358 248 281 Amortization of capitalized interest 18 18 18 18 18 18 18 Distributed income of equity investees 101 114 116 64 133 94 112 ---------------------------------------------------- Subtotal 841 1,065 1,332 1,030 1,240 1,020 999 Less capitalized interest costs (11) (30) (23) (12) (12) (12) (9) ---------------------------------------------------- 830 1,035 1,309 1,018 1,228 1,008 990 ==================================================== Ratio of earnings to fixed charges .... 2.95x 3.40x 4.28x 3.66x 3.42x 4.06x 3.52x
EX-15.1 12 y58436ex15-1.txt AWARENESS LETTER OF PRICEWATERHOUSECOOPERS PRICEWATERHOUSECOOPERS Exhibit 15.1 PricewaterhouseCoopers Rua da Candelaria, 65 11(degree)-15(degree) 20091-020 Rio de Janeiro, RJ-Brazil Caixa Postal 949 Telefone (21) 3232-6112 Fax (21) 2516-6319 Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 Commissioners: We are aware that our report dated October 22, 2001 except for the accounting changes described in Note 19 and the subsequent event contained in Note 21, which are as of February 22, 2002 and as of March 8, 2002, on our review of interim consolidated financial information of Companhia Vale do Rio Doce and its subsidiaries as of September 30, 2001 and 2000, and for the nine-month periods then ended, is included in the Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce. Yours very truly, /s/ PricewaterhouseCoopers PricewaterhouseCoopers Auditores Independentes Rio de Janeiro, Brazil, March 21, 2002 EX-15.2 13 y58436ex15-2.txt AWARENESS LETTER OF DELOITTE TOUCHE TOHMATSU Exhibit 15.2 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22(degree) 20030-021 - Rio de Janeiro - RJ Brasil Telefone: (21) 524-1281 DELOITTE Fac-simile: (21) 220-3876 TOUCHE www.deloitte.com.br TOHMATSU Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 Commissioners: We are aware that our report dated October 23, 2001 on our review of interim financial information of ALBRAS-Aluminio Brasileiro S.A. as of September 30, 2001 and 2000, and for the nine-month periods then ended, is included in the Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce. Yours very truly, /s/ Deloitte Touche Tohmatsu DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 EX-15.3 14 y58436ex15-3.txt AWARENESS LETTER OF DELOITTE TOUCHE TOHMATSU Exhibit 15.3 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22(degree) 20030-021 - Rio de Janeiro - RJ Brasil Telefone: (21) 524-1281 DELOITTE Fac-simile: (21) 220-3876 TOUCHE www.deloitte.com.br TOHMATSU Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 Commissioners: We are aware that our report dated October 23, 2001 on our review of interim financial information of Alunorte-Alumina do Norte do Brasil S.A. as of September 30, 2001 and 2000, and for the nine-month periods then ended, is included in the Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce. Yours very truly, /s/ Deloitte Touche Tohmatsu DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 EX-15.4 15 y58436ex15-4.txt AWARENESS LETTER OF KPMG AUDITORES INDEPENDENTES Exhibit 15.4 [KPMG Logo] KPMG Auditores Independentes Mail address Office address Caixa Postal 2467 R. Dr. Renato Pues de Barros 33 01060-970 Sao Paulo SP 04330-904 Sao Paolo SP Brasil Brasil Central Tol 55 (11) 3067-3000 Fax National (11) 3079-3752 International 55 (11) 3079-2915 March 21, 2002 Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 Re: Registration Statement on Form F-4 With respect to the subject registration statement, we acknowledge our awareness of the use therein of our report dated October 18, 2000 related to our review of interim financial information of Bahia Sul Celulose S.A. Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is not considered part of a registration statement prepared or certified by an accountant, or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act. /s/ KPMG Auditores Independentes Sao Paulo, Brasil EX-15.5 16 y58436ex15-5.txt AWARENESS LETTER OF DELOITTE TOUCHE TOHMATSU Exhibit 15.5 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22(degree) 20030-021 - Rio de Janeiro - RJ Brasil Telefone: (21) 524-1281 DELOITTE Fac-simile: (21) 220-3876 TOUCHE www.deloitte.com.br TOHMATSU Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 Commissioners: We are aware that our report dated November 1, 2001 on our review of interim financial information of CENIBRA-Celulose Nipo-Brasileira S.A. as of September 30, 2001 and 2000, and for the nine-month periods then ended, is included in the Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce. Yours very truly, /s/ Deloitte Touche Tohmatsu DELOITTE TOUCHE TOHMATSU Independent Auditors Belo Horizonte, Brazil, March 21, 2002 EX-15.6 17 y58436ex15-6.txt AWARENESS LETTER OF DELOITTE TOUCHE TOHMATSU Exhibit 15.6 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22(degree) 20030-021 - Rio de Janeiro - RJ Brasil Telefone: (21) 524-1281 DELOITTE Fac-simile: (21) 220-3876 TOUCHE www.deloitte.com.br TOHMATSU Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 Commissioners: We are aware that our report dated October 22, 2001 on our review of interim financial information of Navegacao Vale do Rio Doce S.A. - DOCENAVE as of September 30, 2001 and 2000, and for the nine-month periods then ended, is included in the Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce. Yours very truly, /s/ Deloitte Touche Tohmatsu DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 EX-15.7 18 y58436ex15-7.txt AWARENESS LETTER OF DELOITTE TOUCHE TOHMATSU Exhibit 15.7 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22(degree) 20030-021 - Rio de Janeiro - RJ Brasil Telefone: (21) 524-1281 DELOITTE Fac-simile: (21) 220-3876 TOUCHE www.deloitte.com.br TOHMATSU Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 Commissioners: We are aware that our report dated October 22, 2001 on our review of interim financial information of DOCEPAR S.A. as of September 30, 2001 and 2000, and for the nine-month periods then ended, is included in the Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce. Yours very truly, /s/ Deloitte Touche Tohmatsu DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 EX-15.8 19 y58436ex15-8.txt AWARENESS LETTER OF ARTHUR ANDERSEN S/C Exhibit 15.8 Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 Commissioners: We are aware that our report dated October 19, 2001 on our review of interim financial information of Companhia Hispano-Brasileira de Pelotizacao-HISPANOBRAS, translated into US Dollars, as of September 30, 2001 and 2000, and for the nine-month period then ended, prepared in conformity with generally accepted principles in the United States, is included in the Registration Statement on Form F-4 filed on March 21, 2002 by Vale Overseas Limited and Companhia Vale do Rio Doce. Yours very truly, /s/ Arthur Andersen S/C ARTHUR ANDERSEN S/C Rio de Janeiro, Brazil March 21, 2002 EX-15.9 20 y58436ex15-9.txt AWARENESS LETTER OF ARTHUR ANDERSEN S/C Exhibit 15.9 Arthur Andersen S/C Praia de Botafogo 300 7 (degree) andar 22250 040 Rio de Janeiro RI www.andersen.com March 21, 2002 Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 Commissioners: We are aware that our report dated October 19, 2001 on our review of interim financial information of Companhia Italo-Brasileira De Pelotizacao-ITABRASCO, translated into US Dollars, as of September 30, 2001 and 2000, and for the nine-month period then ended, prepared in conformity with generally accepted principles in the United States, is included in the Registration Statement on Form F-4 filed on March 21, 2002, by Vale Overseas Limited and Companhia Vale do Rio Doce. Yours very truly, /s/ ARTHUR ANDERSEN S/C ARTHUR ANDERSEN S/C Rio de Janeiro, Brazil, March 21, 2002 EX-15.10 21 y58436ex15-10.txt AWARENESS LETTER OF DELOITTE TOUCHE TOHMATSU Exhibit 15.10 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22(degree) 20030-021 - Rio de Janeiro - RJ Brasil Telefone: (21) 524-1281 DELOITTE Fac-simile: (21) 220-3876 TOUCHE www.deloitte.com.br TOHMATSU Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 Commissioners: We are aware that our report dated October 19, 2001 on our review of interim financial information of Companhia Coreano-Brasileira de Pelotizacao-KOBRASCO as of September 30, 2001 and 2000, and for the nine-month periods then ended, is included in the Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce. Yours very truly, /s/ Deloitte Touche Tohmatsu DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 EX-15.11 22 y58436ex15-11.txt AWARENESS LETTER OF ARTHUR ANDERSEN S/C Exhibit 15.11 [LOGO] ANDERSEN Arthur Andersen S/C Praia de Botatogo 300 7 (degree) andar 22250 040 Rio de Janeiro RJ www.andersen.com Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 Commissioners: We are aware that our report dated October 22, 2001 on our review of interim financial information of Mineracao Rio do Norte S.A., as of September 30, 2001 and 2000, and for the nine-month periods then ended, prepared in conformity with generally accepted principles in the United States, is included in the Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce. Yours very truly, /s/ ARTHUR ANDERSEN S/C ARTHUR ANDERSEN S/C Rio de Janeiro, Brazil, March 21, 2002 EX-15.12 23 y58436ex15-12.txt AWARENESS LETTER OF DELOITTE TOUCHE TOHMATSU Exhibit 15.12 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22(degree) 20030-021 - Rio de Janeiro - RJ Brasil Telefone: (21) 524-1281 DELOITTE Fac-simile: (21) 220-3876 TOUCHE www.deloitte.com.br TOHMATSU Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 Commissioners: We are aware that our report dated October 19, 2001 on our review of interim financial information of Companhia Nipo-Brasileira de Pelotizacao - NIBRASCO as of September 30, 2001 and 2000, and for the nine-month periods then ended, is included in the Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce. Yours very truly, /s/ Deloitte Touche Tohmatsu DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 EX-15.13 24 y58436ex15-13.txt AWARENESS LETTER OF KPMG AUDITORES INDEPENDENTES Exhibit 15.13 [KPMG LOGO] KPMG Auditores Independentes Mail address Office address Central Tel Caixa Postal 2888 Av. Almiranta Barros. 55(21)2272-2700 20001-970 Rio de Janeiro, RJ 52-17[degree] Fax Brazil 20031-000 Rio de Janeiro, RJ 55 (21) 2544-1338 Brazil www.kpmg.com.br March 21, 2002 Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 Re: Registration Statement on Form F-4 of Vale Overseas Limited and Companhia Vale do Rio Doce With respect to the registration statement, we acknowledge our awareness of the use therein of our report dated October 19, 2001, except for notes 4 and 8 for which the date is as of January 17, 2002, related to our review of interim financial information of Valesul Aluminio S.A. as of September 30, 2000 and 2001 and for each of the nine month periods then ended included in the Vale Overseas Limited and Companhia Vale do Rio Doce Registration Statement on Form F-4. Our report dated October 19, 2001, except for notes 4 and 8 for which the date is as of January 17, 2002 contains an explanatory paragraph that states that, as more fully described in notes 4 and 8 to the interim financial statements, the company has adjusted its property, plant and equipment and deferred income taxes balances as a result of corrections of errors. Consequently, CVRD's interim financial statements for 2000 and 2001 have been restated to conform with these adjustments. Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is not considered part of a registration statement prepared or certified by an accountant, or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act. KPMG Auditores Independentes Rio de Janeiro, Brazil /s/ KPMG Auditores Independentes EX-15.14 25 y58436ex15-14.txt AWARENESS LETTER OF ARTHUR ANDERSEN S/C Exhibit 15.14 [Andersen LOGO] Securities and Exchange Commission 450 Fifth Street, NW Washington, D.C. 20549 Commissioners: We are aware that our report dated October 20, 2000 (dual dated January 11, 2001) on our review of interim financial information of Companhia Siderurgica Nacional, translated into US dollars, as of September 30, 2000, and for the nine-month period then ended, prepared in conformity with generally accepted principles in the United States, is included in the Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce. Yours very truly, /s/ Arthur Andersen S/C Rio de Janeiro, Brazil March 21, 2002 EX-23.1 26 y58436ex23-1.txt CONSENT OF PRICEWATERHOUSECOOPERS Exhibit 23.1 PricewaterhouseCoopers Letterhead PricewaterhouseCoopers Rua da Candelaria, 65 11(degree)-15(degree) 20091-020 Rio de Janeiro, RI - Brasil Caixa Postal 949 Telefone (21) 3232-6112 Fax (21) 2516-6319 Consent of Independent Accountants ---------------------------------- We hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated February 21, 2001, except for the accounting changes described in Note 21 and the subsequent events contained in Note 22 which are as of February 22, 2002 and March 8, 2002, respectively, relating to the consolidated financial statements of Companhia Vale do Rio Doce and its subsidiaries, which appears in such Registration Statement. We also consent to the references to us under the headings "Experts" and "Selected Consolidated Financial Data" in such Registration Statement. /s/ PricewaterhouseCoopers Auditores Independentes Rio de Janeiro, Brazil March 21, 2002 EX-23.2 27 y58436ex23-2.txt CONSENT OF DELOITTE TOUCHE TOHMATSU Exhibit 23.2 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22(degree) Deloitte 20030-024 - Rio de Janeiro - RJ Touche Brasil Tohmatsu Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated January 19, 2001, relating to the financial statements of ALBRAS-Aluminio Brasileiro S.A. for the years ended December 31, 2000 and 1999 which appears in such Registration Statement. /s/ DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 Deloitte Touche Tohmatsu Av. Presidente Wilson, 231-22 20030-021 - Rio de Janeiro - RJ Brasil Telefone: (212)524-1281 Facsimile: (212) 220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated January 19, 2000, relating to the financial statements of ALBRAS - Aluminio Brasileiro S.A. for the years ended December 31, 1999 and 1998 which appears in such Registration Statement. /s/ Deloitte Touche Tohmatsu DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 EX-23.3 28 y58436ex23-3.txt CONSENT OF DELOITTE TOUCHE TOHMATSU Exhibit 23.3 Deloitte Touche Tohmatsu DELOITTE Av. Presidente Wilson 231-22 (degree) TOUCHE 20030-021 - Rio de Janeiro - RJ TOHMATSU Brasil Telefone: (21)524-1281 Fac-simile: (21)220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated January 17, 2001, relating to the financial statements of ALUNORTE-Alumina do Norte do Brasil S.A. for the years ended December 31, 2000 and 1999 which appears in such Registration Statement. /s/ DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 Deloitte Touche Tohmatsu Av. Presidente Wilson, 231-22 20030-021 - Rio de Janeiro - RJ Brasil Telefone: (212)524-1281 Facsimile: (212) 220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated January 17, 2000, relating to the financial statements of ALUNORTE - Alumina de Norte do Brasil S.A. for the years ended December 31, 1999 and 1998 which appears in such Registration Statement. /s/ Deloitte Touche Tohmatsu DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 EX-23.4 29 y58436ex23-4.txt CONSENT OF DELOITTE TOUCHE TOHMATSU Exhibit 23.4 Deloitte Touche Tohmatsu Au. Presidente Wilson 231-22(degree) Deloitte 20030-021 - Rio de Janeiro - RJ Touche Brasil Tohmatsu Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated January 19, 2001, relating to the financial statements of Vale do Rio Doce Aluminio S.A.-ALUVALE for the years ended December 31, 2000 and 1999 which appears in such Registration Statement. /s/ DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 Deloitte Touche Tohmatsu Av. Presidente Wilson, 231-22 20030-021 - Rio de Janeiro - RJ Brasil Telefone: (212)524-1281 Facsimile: (212) 220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated January 20, 2000, relating to the financial statements of Vale do Rio Doce Aluminio S.A. - ALUVALE for the years ended December 31, 1999 and 1998 which appears in such Registration Statement. /s/ Deloitte Touche Tohmatsu DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 EX-23.5 30 y58436ex23-5.txt CONSENT OF KPMG Exhibit 23.5 [KPMG Logo] KPMG Auditores Independentes Mail address Office address Caixa Postal 2467 R. Dr. Renato Pues de Barros 33 01060-970 Sao Paulo SP 04330-904 Sao Paolo SP Brasil Brasil Central Tol 55 (11) 3067-3000 Fax National (11) 3079-3752 International 55 (11) 3079-2915 Independent Auditors' Consent The Board of Directors Bahia Sul Celulose S.A.: We consent to the use of our report dated February 6, 2001, included herein in this Registration Statement on Form F-4 of Companhia Vale do Rio Doce and Vale Overseas Limited, relating to the financial statements of Bahia Sul Celulose S.A. for the years ended December 31, 2000, 1999 and 1998. /s/ KPMG Auditores Independentes KPMG Auditores Independentes Sao Paulo, Brazil March 21, 2002 EX-23.6 31 y58436ex23-6.txt CONSENT OF KPMG LLP Exhibit 23.6 INDEPENDENT AUDITORS' REPORT The Board of Directors California Steel Industries, Inc.: We consent to the use of our report dated January 19, 2001 with respect to the consolidated balance sheets of California Steel Industries, Inc. and subsidiary as of December 31, 2000 and 1999 and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three year period ended December 31, 2000, which report appears in the Registration Statement on Form F-4 of Vale Overseas Limited and Companhia Vale do Rio Doce. /s/ KPMG LLP Orange County, California March 20, 2002 EX-23.7 32 y58436ex23-7.txt CONSENTS OF DELOITTE TOUCHE TOHMATSU Exhibit 23.7 Deloitte Touche Tohmatsu Deloitte Av. Presidente Wilson, 231 - 22 (degree) Touche 20030-021 - Rio de Janeiro-RJ Tohmatsu Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated January 19, 2001, relating to the financial statements of CENIBRA-Celulose Nipo-Brasileira S.A. for the years ended December 31, 2000 and 1999 which appears in such Registration Statement. /s/ DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Independent Auditors Belo Horizonte, Brazil, March 21, 2002 EX-23.8 33 y58436ex23-8.txt CONSENTS OF DELOITTE TOUCHE TOHMATSU Exhibit 23.8 Deloitte Touche Tohmatsu DELOITTE Av. Presidente Wilson, 231-22(degree) TOUCHE 20030-021 - Rio de Janeiro - RJ TOHMATSU Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated February 8, 2001, relating to the financial statements of Navegacao Vale do Rio Doce S.A.-DOCENAVE for the years ended December 31, 2000 and 1999 which appears in such Registration Statement. /s/ DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 Deloitte Touche Tohmatsu DELOITTE Av. Presidente Wilson, 231-22(degree) TOUCHE 20030-021 - Rio de Janeiro - RJ TOHMATSU Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated February 12, 1999, relating to the financial statements of Navegacao Vale do Rio Doce S.A.-DOCENAVE for the years ended December 31, 1998 which appears in such Registration Statement. /s/ DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 EX-23.9 34 y58436ex23-9.txt CONSENT OF DELOITTE TOUCHE TOHMATSU Exhibit 23.9 Deloitte Touche Tohmatsu DELOITTE Av. Presidente Wilson, 231-22(degree) TOUCHE 20030-021 - Rio de Janeiro - RJ TOHMATSU Brasil Telefone: (21) 524-1281 Facsimile: (21) 220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated January 19, 2001, relating to the financial statements of DOCEPAR S.A. for the years ended December 31, 2000 and 1999 which appears in such Registration Statement. /s/ DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 EX-23.10 35 y58436ex23-10.txt CONSENT OF ARTHUR ANDERSEN S/C Exhibit 23.10 [LOGO] ANDERSEN Arthur Andersen S/C Praia de Botafogo 300 7 ander 22250 040 Rio de Janeiro RJ www.andersen.com Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated January 15, 2001, relating to the financial statements of COMPANHIA HISPANO-BRASILEIRA DE PELOTIZACAO-HISPANOBRAS, translated into US Dollars, for the years ended December 31, 2000, 1999 and 1998, prepared in conformity with generally accepted principles in the United States, which appears in such Registration Statement. /s/ ARTHUR ANDERSEN S/C Rio de Janeiro, Brazil March 21, 2002 EX-23.11 36 y58436ex23-11.txt CONSENT OF ARTHUR ANDERSEN S/C Exhibit 23.11 [LOGO] ANDERSEN Arthur Andersen S/C Praia de Botatogo 300 7 (degree) andar 22250 040 Rio de Janeiro RJ www.andersen.com Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated January 15, 2001, relating to the financial statements of COMPANHIA ITALO-BRASILEIRA DE PELOTIZACAO-ITABRASCO, translated into US Dollars, for the years ended December 31, 2000, 1999 and 1998, prepared in conformity with generally accepted principles in the United States, which appears in such Registration Statement. /s/ ARTHUR ANDERSEN S/C Rio de Janeiro, Brazil March 21, 2002 EX-23.12 37 y58436ex23-12.txt CONSENT OF DELOITTE TOUCHE TOHMATSU Exhibit 23.12 Deloitte Touche Tohmatsu DELOITTE Av. Presidente Wilson, 231-22(degree) TOUCHE 20030-021 - Rio de Janeiro - RJ TOHMATSU Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated January 29, 2001, relating, to the financial statements of Companhia Coreano-Brasileira de Pelotizacao-KOBRASCO for the year ended December 31, 2000 which appears in such Registration Statement. /s/ DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 EX-23.13 38 y58436ex23-13.txt CONSENTS OF ARTHUR ANDERSEN S/C Exhibit 23.13 [LOGO] ANDERSEN Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Companhia Vale do Rio Doce of our reports dated January 18, 2001 and January 17, 2000, relating to the financial statements of Mineracao Rio do Norte, for the years ended December 31, 2000, 1999 and 1998, which appear in such Registration Statement. /s/ ARTHUR ANDERSEN S/C Rio de Janeiro, Brazil March 21, 2002 EX-23.14 39 y58436ex23-14.txt CONSENT OF DELOITTE TOUCHE TOHMATSU Exhibit 23.14 Deloitte Touche Tohmatsu Deloitte Av. Presidente Wilson 231-22(degrees) Touche 20030-021 - Rio de Janeiro - RJ Tohmatsu Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated January 29, 2001, relating to the financial statements of Companhia Nipo-Brasileira de Pelotizacao-NIBRASCO for the years ended December 31, 2000 and 1999 which appears in such Registration Statement. /s/ DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 Deloitte Touche Tohmatsu Av. Presidente Wilson, 231-22 20030-021 - Rio de Janeiro - RJ Brasil Telefone: (212)524-1281 Facsimile: (212) 220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated January 19, 2000, relating to the financial statements of Companhia Nipo-Brasileira de Peloizacao - NIBRASCO for the years ended December 31, 1999 and 1998 which appears in such Registration Statement. /s/ Deloitte Touche Tohmatsu DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 EX-23.15 40 y58436ex23-15.txt CONSENT OF KPMG Exhibit 23.15 Consent of Independent Accountants We consent to the use of our audit report dated January 19, 2001, except for notes 4 and 8 for which the date is as of January 17, 2002, included herein in this Registration Statement on Form F-4 of Vale Overseas Limited and Companhia Vale do Rio Doce, relating to the Financial Statements of Valesul Aluminio S.A. as of December 31, 1999 and 2000 and for each of the years then ended. Our audit report dated January 19, 2001, except for notes 4 and 8 for which the date is as of January 17, 2002, contains an explanatory paragraph that states that, as more fully described in notes 4 and 8 to the financial statements, the company has adjusted its property, plant and equipment and deferred income taxes balances as a result of corrections of errors. Consequently, The company's financial statements for 1999 and 2000 have been restated to conform with these adjustments. /s/ KPMG Auditores Independentes Rio de Janeiro, Brazil March 21, 2002 EX-23.16 41 y58436ex23-16.txt CONSENT OF DELOITTE TOUCHE TOHMATSU Exhibit 23.16 Deloitte Touche Tohmatsu DELOITTE Av, Presidente Wilson, 231-22(degree) TOUCHE 20030-021 - Rio de Janeiro - RJ TOHMATSU Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated January 20, 1999, relating to the financial statements of Valesul Aluminio S.A. for the years ended December 31, 1998 and 1997 which appears in such Registration Statement. /s/ DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 EX-23.17 42 y58436ex23-17.txt CONSENT OF ARTHUR ANDERSEN Exhibit 23.17 (LOGO) ANDERSEN Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated February 19, 2001 (dual dated June 19, 2001) relating to the financial statements of Companhia Siderurgica Nacional, translated into US dollars, for the years ended December 31, 2000 and 1999, prepared in conformity with generally accepted principles in the United States, which appears in such Registration Statement. /s/ Arthur Andersen S/C Rio de Janeiro, Brazil March 21, 2002 EX-23.18 43 y58436ex23-18.txt CONSENT OF DELOITTE TOUCHE TOHMATSU Exhibit 23.18 Deloitte Touche Tohmatsu Deloitte Av. Presidente Wilson 231-22(degree) Touche 20030-021 - Rio de Janeiro - RJ Tohmatsu Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated February 2, 2001, relating to the financial statements of TVV - Terminal de Vila Velha S.A. for the years ended December 31, 2000 and 1999 which appears in such Registration Statement. /s/ DELOITTE TOUCHE TOHMATSU Deloitte Touche Tohmatsu Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 Deloitte Touche Tohmatsu Av. Presidente Wilson 231-22(degree) Deloitte 20030-021 - Rio de Janeiro - RJ Touche Brasil Tohmatsu Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated April 28, 2000, relating to the financial statements of TVV - Terminal de Vila Velha S.A. for the years ended December 31, 1999 and 1998 which appears in such Registration Statement. /s/ DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 EX-23.19 44 y58436ex23-19.txt CONSENT OF DELOITTE TOUCHE TOHMATSU Deloitte Touche Tohmatsu Exhibit 23.19 Av. Presidente Wilson 231-22(degree) 20030-021 - Rio de Janeiro - RJ Deloitte Brasil Touche Tohmatsu Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Companhia Vale do Rio Doce of our report dated January 19, 2001, relating to the financial statements of Nova Era Silicon S.A. for the year ended December 31, 2000 which appears in such Registration Statement. /s/DELOITTE TOUCHE TOHMATSU Deloitte Touche Tohmatsu Independent Auditors Belo Horizonte, Brazil, March 21, 2002 EX-23.20 45 y58436ex23-20.txt CONSENT OF TREVISAN Exhibit 23.20 Trevisan [LOGO] The Global Solution Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated January 18th, 2000, except for the subject mentioned on the paragraph 3 that is dated on January 31st, 2002, relating to the financial statements of Nova Era Silicon S.A. for the years ended December 31, 1999 and 1998 which appears in such Registration Statement. /s/ Luiz Claudio Fontes Luiz Claudio Fontes Accountant CRC 1RJ032470/0-9 "T" PR "S" MG Trevisan Auditores Independentes CRC 2 SP 013439/0-5 "S" MG Belo Horizonte, Brazil, March 21, 2002 EX-23.21 46 y58436ex23-21.txt CONSENT OF DELOITTE TOUCHE THOMATSU Exhibit 23.21 Deloitte Touche Tohmatsu Deloitte Av. Presidente Wilson 231-22(degree) Touche 20030-021 - Rio de Janeiro - RJ Tohmatsu Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br (Registration No. 333-82136) Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated January 19, 2001, relating to the financial statements of CELMAR S.A. - Industria de Celulose e Papel for the year ended December 31, 2000 which appears in such Registration Statement. /s/ DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Independent Auditors Rio de Janeiro, Brazil, March 21, 2002 EX-23.22 47 y58436ex23-22.txt CONSENT OF DELOITTE TOUCHE TOHMATSU EXHIBIT 23.22 Deloitte Touche Tohmatsu Deloitte Av. Presidente Wilson 231-22(degree) Touche 20030-021 - Rio de Janeiro - RJ Tohmatsu Brasil Telefone: (21) 524-1281 Fac-simile: (21) 220-3876 www.deloitte.com.br Consent of Independent Public Accountants As Independent Public Accountants, we hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated January 22, 2001, relating to the financial statements of SIBRA-Eletrosiderurgica Brasileira S.A. for the year ended December 31, 2000 which appears in such Registration Statement. /s/ DELOITTE TOUCHE TOHMATSU DELOITTE TOUCHE TOHMATSU Auditores Independentes Salvador, Brazil, March 21, 2002 EX-23.23 48 y58436ex23-23.txt CONSENT OF MINERAL RESOURCES DEVELOPMENT, INC. Exhibit 23.23 mrdi March 21, 2002 San Mateo Companhia Vale do Rio Doce Avenida Graca Aranha, 26 20005-900 Rio de Janiero, RJ Brasil Gentlemen, Mineral Resources Development, Inc. (MRDI) hereby consents to being named in this Form F-4, filed by Vale Overseas Limited and Companhia Vale do Rio Doce, in reference to MRDI's review of CVRD reserves as of December 31, 2000. Very truly yours, /s/ Larry B. Smith Larry B. Smith Vice President, Exploration & Geology MRDI USA Mineral Resources Development, Inc. 2001 W. Camelback Road, Suite 430 Phoenix, Arizona USA 85015 Tel +1 602 995 3916 amec Fax +1 602 995 3921 An Amec Company www.amec.com EX-23.24 49 y58436ex23-24.txt CONSENT OF PRICEWATERHOUSECOOPERS Exhibit 23.24 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form F-4 filed by Vale Overseas Limited and Companhia Vale do Rio Doce of our report dated October 22, 2001, except for the subsequent event contained in Note 4 which is as of March 8, 2002, relating to the financial statements of Vale Overseas Limited, which appears in such Statement. /s/ PricewaterhouseCoopers - --------------------------- PricewaterhouseCoopers Auditores Independentes Rio de Janeiro, Brazil March 21, 2002 EX-25.1 50 y58436ex25-1.txt STATEMENT OF ELIGIBILITY ON FORM T-1 EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________ JPMORGAN CHASE BANK (Exact name of trustee as specified in its charter) NEW YORK 13-4994650 (State of incorporation (I.R.S. employer if not a national bank) identification No.) 270 PARK AVENUE NEW YORK, NEW YORK 10017 (Address of principal executive offices) (Zip Code) William H. McDavid General Counsel 270 Park Avenue New York, New York 10017 Tel: (212) 270-2611 (Name, address and telephone number of agent for service) VALE OVERSEAS LIMITED (Exact name of obligor as specified in its chapter) CAYMAN ISLANDS NOT APPLICABLE (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) WALKER HOUSE, P.O. BOX 908 GT, MARY STREET, GEORGETOWN, GRAND CAYMAN, CAYMAN ISLANDS (Address of principal executive offices) 8.625% Enhanced Guaranteed Notes due 2007 Unconditionally Guaranteed by Companhia Vale do Rio Doce (Title of the indenture securities) GENERAL Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. New York State Banking Department, State House, Albany, New York 12110. Board of Governors of the Federal Reserve System, Washington, D.C., 20551 Federal Reserve Bank of New York, District No. 2, 33 Liberty Street, New York, N.Y. Federal Deposit Insurance Corporation, Washington, D.C., 20429. (b) Whether it is authorized to exercise corporate trust powers. Yes. Item 2. Affiliations with the Obligor and Guarantors. If the obligor or any Guarantor is an affiliate of the trustee, describe each such affiliation. None. -2- Item 16. List of Exhibits List below all exhibits filed as a part of this Statement of Eligibility. 1. A copy of the Restated Organization Certificate of the Trustee and the Certificate of Amendment dated November 9, 2001. (see Exhibit 1 to form T-1 filed in connection with Registration Statement No. 333-76894, which is incorporated herein by reference). 2. A copy of the Certificate of Authority of the Trustee to Commence Business (see Exhibit 2 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference). On November 11, 2001 in connection with the merger of The Chase Manhattan Bank and Morgan Guaranty Trust Company of New York, the surviving corporation was renamed JPMorgan Chase Bank. 3. None, authorization to exercise corporate trust powers being contained in the documents identified above as Exhibits 1 and 2. 4. A copy of the existing By-Laws of the Trustee. (see Exhibit 4 to form T-1 filed in connection with Registration Statement No. 333-76894, which is incorporated herein by reference). 5. Not applicable. 6. The consent of the Trustee required by Section 321(b) of the Act (see Exhibit 6 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference). On November 11, 2001, in connection with the merger of The Chase Manhattan Bank and Morgan Guaranty Trust Company of New York, the surviving corporation was renamed JPMorgan Chase Bank. 7. A copy of the latest report of condition of the Trustee, published pursuant to law or the requirements of its supervising or examining authority. (see Exhibit 7 to form T-1 filed in connection with Registration Statement No. 333-76894, which is incorporated herein by reference). 8. Not applicable. 9. Not applicable. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee, JPMorgan Chase Bank, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York and State of New York, on the 20th day of March, 2002. JPMORGAN CHASE BANK By /s/ Lesley Daley ------------------------------------------ EX-99.1 51 y58436ex99-1.txt FORM OF LETTER OF TRANSMITTAL EXHIBIT 99.1 LETTER OF TRANSMITTAL VALE OVERSEAS LIMITED OFFER TO EXCHANGE ITS SERIES B 8.625% ENHANCED GUARANTEED NOTES DUE 2007 (REGISTERED UNDER THE SECURITIES ACT OF 1933) FOR ANY AND ALL OF ITS OUTSTANDING SERIES A 8.625% ENHANCED GUARANTEED NOTES DUE 2007 PURSUANT TO THE PROSPECTUS DATED MARCH , 2002 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [EXPIRATION DATE] UNLESS THE OFFER IS EXTENDED. THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS: JPMORGAN CHASE BANK By Registered or Certified Mail: By Overnight Delivery or Hand: JPMorgan Chase Bank JPMorgan Chase Bank 450 West 33rd Street, 15th Floor 450 West 33rd Street, 15th Floor New York, New York 10001 New York, New York 10001 Attn: Institutional Trust Services Attn: Institutional Trust Services To Confirm by Telephone Facsimile Transmissions: or for Information: (212) 946-8177 or (212) 946-3028 (212) 946-8178
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. Capitalized terms used but not defined herein shall have the same meaning given them in the Prospectus (as defined below). This Letter of Transmittal is to be completed by holders of Old Securities (as defined below) if Old Securities are to be forwarded herewith and, unless your Old Securities are held through The Depository Trust Company ("DTC"), should be accompanied by the certificates for the Old Securities. If tenders of Old Securities are to be made by book-entry transfer to an account maintained by JPMorgan Chase Bank (the "Exchange Agent") at DTC pursuant to the procedures set forth in "The Exchange Offer -- Book-Entry Transfer" in the Prospectus and in accordance with the Automated Tender Offer Program ("ATOP") established by DTC, a tendering holder will become bound by the terms and conditions hereof in accordance with the procedures established under ATOP. Holders of Old Securities whose certificates (the "certificates") for such Old Securities are not immediately available or who cannot deliver their certificates and all other required documents to the Exchange Agent on or prior to the expiration date (as defined in the Prospectus) or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Old Securities according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures" in the Prospectus. SEE INSTRUCTION 1. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY ALL TENDERING HOLDERS COMPLETE THIS BOX: - --------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF OLD SECURITIES TENDERED - --------------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) OLD SECURITIES TENDERED (PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY) - --------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT OF OLD SECURITIES PRINCIPAL TENDERED CERTIFICATE AMOUNT (IF LESS THAN NUMBER(S)* OF OLD SECURITIES ALL)** --------------------------------------------------- --------------------------------------------------- --------------------------------------------------- --------------------------------------------------- --------------------------------------------------- TOTAL AMOUNT TENDERED - --------------------------------------------------------------------------------------------------------------------- * Need not be completed by book-entry holders. ** Old Securities may be tendered in whole or in part in denominations of $1,000 and multiples thereof. All Old Securities held shall be deemed tendered unless a lesser number is specified in this column. - ---------------------------------------------------------------------------------------------------------------------
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY) [ ] CHECK HERE IF TENDERED OLD SECURITIES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution ---------------------------------------------------------------------------- DTC Account Number ---------------------------------------------------------------------------- Transaction Code Number ---------------------------------------------------------------------------- [ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED OLD SECURITIES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name of Registered Holder(s) ---------------------------------------------------------------------------- Window Ticket Number (if any) ---------------------------------------------------------------------------- Date of Execution of Notice of Guaranteed Delivery ------------------------------------------------------------------------ Name of Institution which Guaranteed ---------------------------------------------------------------------------- IF GUARANTEED DELIVERY IS TO BE MADE BY BOOK-ENTRY TRANSFER: Name of Tendering Institution ---------------------------------------------------------------------------- DTC Account Number ---------------------------------------------------------------------------- Transaction Code Number ---------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD SECURITIES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE. [ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD SECURITIES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ---------------------------------------------------------------------------- Address: ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 2 Ladies and Gentlemen: The undersigned hereby tenders to Vale Overseas Limited, a Cayman Islands exempted company incorporated with limited liability (the "Company"), the principal amount of the Company's Series A 8.625% Enhanced Guaranteed Notes due 2007 (the "Old Securities") specified above in exchange for a like aggregate principal amount of the Company's Series B 8.625% Enhanced Guaranteed Notes due 2007 (the "New Securities"), upon the terms and subject to the conditions set forth in the Prospectus dated March , 2002 (as the same may be amended or supplemented from time to time, the "Prospectus"), receipt of which is acknowledged, and in this Letter of Transmittal (which, together with the Prospectus, constitute the "Exchange Offer"). The Exchange Offer has been registered under the Securities Act of 1933, as amended (the "Securities Act"). Subject to and effective upon the acceptance for exchange of all or any portion of the Old Securities tendered herewith in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to or upon the order of the Company all right, title and interest in and to such Old Securities as are being tendered herewith. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as its agent and attorney-in-fact (with full knowledge that the Exchange Agent is also acting as agent of the Company in connection with the Exchange Offer) with respect to the tendered Old Securities, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), subject only to the right of withdrawal described in the Prospectus, to (i) deliver certificates for Old Securities to the Company together with all accompanying evidences of transfer and authenticity to, or upon the order of, the Company, upon receipt by the Exchange Agent, as the undersigned's agent, of the New Securities to be issued in exchange for such Old Securities, (ii) present certificates for such Old Securities for transfer, and to transfer the Old Securities on the books of the Company, and (iii) receive for the account of the Company all benefits and otherwise exercise all rights of beneficial ownership of such Old Securities, all in accordance with the terms and conditions of the Exchange Offer. THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD SECURITIES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD SECURITIES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD SECURITIES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER. The name(s) and address(es) of the registered holder(s) of the Old Securities tendered hereby should be printed above, if they are not already set forth above, as they appear on the certificates representing such Old Securities. The certificate number(s) and the Old Securities that the undersigned wishes to tender should be indicated in the appropriate boxes above. If any tendered Old Securities are not exchanged pursuant to the Exchange Offer for any reason, or if certificates are submitted for more Old Securities than are tendered or accepted for exchange, certificates for such unaccepted or non exchanged Old Securities will be returned (or, in the case of Old Securities tendered by book-entry transfer, such Old Securities will be credited to an account maintained at DTC), without expense to the tendering holder, promptly following the expiration or termination of the Exchange Offer. The undersigned understands that tenders of Old Securities pursuant to any one of the procedures described in "The Exchange Offer -- Procedures for Tendering Old Securities" in the Prospectus and in the instructions hereto will, upon the Company's acceptance for exchange of such tendered Old Securities, constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. In all cases in which a participant in the book-entry transfer facility of Old Securities (a "Participant") elects to accept the Exchange Offer by transmitting an express acknowledgment in accordance with the established ATOP procedures, 3 such Participant shall be bound by all of the terms and conditions of this Letter of Transmittal. The undersigned recognizes that, under certain circumstances set forth in the Prospectus, the Company may not be required to accept for exchange any of the Old Securities tendered hereby. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, the undersigned hereby directs that the New Securities be issued in the name(s) of the undersigned or, in the case of a book-entry transfer of Old Securities, that such New Securities be credited to the account indicated above maintained at DTC. If applicable, substitute certificates representing Old Securities not exchanged or not accepted for exchange will be issued to the undersigned or, in the case of a book-entry transfer of Old Securities, will be credited to the account indicated above maintained at DTC. Similarly, unless otherwise indicated under"Special Delivery Instructions," please deliver New Securities to the undersigned at the address shown below the undersigned's signature. Under existing interpretations of the staff of the Division of Corporation Finance of the Securities and Exchange Commission contained in several no-action letters to third parties, the new securities would in general be freely transferable after the exchange offer without further registration under the Securities Act. The relevant no-action letters include the Exxon Capital Holdings Corporation letter, which was made available by the SEC on May 13, 1988, and the Morgan Stanley & Co. Incorporated letter, made available on June 5, 1991. However, any purchaser of old securities who is an "affiliate" of Vale Overseas or CVRD or who intends to participate in the exchange offer for the purpose of distributing the new securities (1) will not be able to rely on the interpretation of the staff of the SEC, (2) will not be able to tender its old securities in the exchange offer and (3) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the securities unless that sale or transfer is made using an exemption from those requirements. By tendering Old Securities and executing, or otherwise becoming bound by, this letter of transmittal, the undersigned hereby represents and agrees that (i) the undersigned is not an "affiliate" of the Company or CVRD, (ii) any New Securities to be received by the undersigned are being acquired in the ordinary course of its business, and (iii) the undersigned has no arrangement or understanding with any person to participate, and is not engaged and does not intend to engage, in a distribution (within the meaning of the Securities Act) of such New Securities. By tendering Old Securities pursuant to the exchange offer and executing, or otherwise becoming bound by, this letter of transmittal, a holder of Old Securities which is a broker-dealer represents and agrees, consistent with the above-mentioned interpretive letters issued by the staff of the Division of Corporation Finance of the Securities and Exchange Commission to third parties, that (a) such Old Securities held by the broker-dealer are held only as a nominee, or (b) such Old Securities were acquired by such broker-dealer for its own account as a result of market-making activities or other trading activities and it will deliver the prospectus (as amended or supplemented from time to time) meeting the requirements of the Securities Act in connection with any resale of such New Securities (provided that, by so acknowledging and by delivering a prospectus, such broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act). The Company and CVRD have agreed that, subject to the provisions of the Registration Rights Agreement, the prospectus, as it may be amended or supplemented from time to time, may be used by a participating broker-dealer (as defined below) in connection with resales of New Securities received in exchange for Old Securities, where such Old Securities were acquired by such participating broker-dealer for its own account as a result of market-making activities or other trading activities, for a period ending 180 days after the expiration date (subject to extension under certain limited circumstances) or, if earlier, when all such New Securities have been disposed of by such participating broker-dealer. In that regard, each broker dealer who acquired Old Securities for its own account as a result of market-making or other trading activities (a "participating broker-dealer"), by tendering such Old Securities and 4 executing, or otherwise becoming bound by, this letter of transmittal, agrees that, upon receipt of notice from the Company of the occurrence of any event or the discovery of any fact which makes any statement contained in the prospectus untrue in any material respect or which causes the prospectus to omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading or of the occurrence of certain other events specified in the Registration Rights Agreement, such participating broker-dealer will suspend the sale of New Securities pursuant to the prospectus until the Company has amended or supplemented the prospectus to correct such misstatement or omission and has furnished copies of the amended or supplemented prospectus to the participating broker-dealer or the Company has given notice that the sale of the New Securities may be resumed, as the case may be. If the Company gives such notice to suspend the sale of the New Securities, it shall extend the 90-day period referred to above during which participating broker-dealers are entitled to use the prospectus in connection with the resale of New Securities by the number of days during the period from and including the date of the giving of such notice to and including the date when participating broker-dealers shall have received copies of the supplemented or amended prospectus necessary to permit resales of the New Securities or to and including the date on which the Company has given notice that the sale of New Securities may be resumed, as the case may be. All authority herein conferred or agreed to be conferred in this Letter of Transmittal shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, personal representatives, trustees in bankruptcy, legal representatives successors and assigns of the undersigned. Except as stated in the Prospectus, this tender is irrevocable. 5 HOLDER(S) SIGN HERE (SEE INSTRUCTIONS 2, 5 AND 6) (NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2) Must be signed by registered holder(s) exactly as name(s) appear(s) on certificate(s) for the Old Securities hereby tendered or on a security position listing, or by any person(s) authorized to become the registered holder(s) by endorsements and documents transmitted herewith. If signature is by an attorney-in-fact, executor, administrator, trustee, guardian, officer of a corporation or another acting in a fiduciary or representative capacity, please set forth the signer's full title. See Instruction 5. - -------------------------------------------------------------------------------- (SIGNATURE(S) OF HOLDER(S)) Date - --------------------------- , 200 Name(s) ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- (PLEASE PRINT) Capacity: ------------------------------------------------------------------------ (INCLUDE FULL TITLE) Address------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number ----------------------------------------------------- - -------------------------------------------------------------------------------- (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S)) GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 2 AND 5) Authorized Signature ---------------------------------------------------------------- Name -------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT) Date - --------------------------- , 200 Capacity or Title ------------------------------------------------------------------- Name of Firm --------------------------------------------------------------------- Address------------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number ----------------------------------------------------- 6 - --------------------------------------------------------- SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 1, 5 AND 6) To be completed ONLY if the New Securities are to be issued in the name of someone other than the registered holder of the Old Securities whose name(s) appear(s) above. Issue New Securities to: Name (PLEASE PRINT) Address (INCLUDE ZIP CODE) (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) ----------------------------------------------------------- - --------------------------------------------------------- SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5 AND 6) To be completed ONLY if New Securities are to be sent to someone other than the registered holder of the Old Securities whose name(s) appear(s) above, or to such registered holder(s) at an address other than that shown above. Mail New Securities To: Name (PLEASE PRINT) Address (INCLUDE ZIP CODE) (TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER) ----------------------------------------------------------- 7 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed if certificates are to be forwarded herewith and, unless your Old Securities are held through DTC, should be accompanied by the certificates for the Old Securities. If tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth in "The Exchange Offer -- Book-Entry Transfer" in the Prospectus and in accordance with ATOP established by DTC, a tendering holder will become bound by the terms and conditions hereof in accordance with the procedures established under ATOP. Certificates, or timely confirmation of a book-entry transfer of such Old Securities into the Exchange Agent's account at DTC, as well as this Letter of Transmittal (or facsimile thereof), if required, properly completed and duly executed, with any required signature guarantees, must be received by the Exchange Agent at one of its addresses set forth herein on or prior to the expiration date. Old Securities may be tendered in whole or in part in the principal amount of $1,000 and multiples of $1,000. Holders who wish to tender their Old Securities and (i) whose Old Securities are not immediately available or (ii) who cannot deliver their Old Securities and this Letter of Transmittal to the Exchange Agent on or prior to the expiration date or (iii) who cannot complete the procedures for delivery by book-entry transfer on a timely basis, may tender their Old Securities by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures" in the Prospectus. Pursuant to such procedures: (i) such tender must be made by or through an Eligible Institution (as defined below); (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by the Company, must be received by the Exchange Agent on or prior to the expiration date; and (iii) the certificates (or a book-entry confirmation (as defined in the Prospectus)) representing all tendered Old Securities, in proper form for transfer together with the Letter of Transmittal and any other document required by the Letter of Transmittal or an agent's message in lieu thereof, must be received by the Exchange Agent within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in "The Exchange Offer -- Guaranteed Delivery Procedures" in the Prospectus. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, telex, facsimile or mail to the Exchange Agent, and must include a guarantee by an Eligible Institution in the form set forth in such Notice. For Old Securities to be properly tendered pursuant to the guaranteed delivery procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to the expiration date. As used herein and in the Prospectus, "Eligible Institution" means a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States. THE METHOD OF DELIVERY OF OLD SECURITIES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD SECURITIES SHOULD BE SENT TO THE COMPANY. The Company will not accept any alternative, conditional or contingent tenders. Each tendering holder, by execution of a Letter of Transmittal (or facsimile thereof), or any Agent's Message in lieu thereof, waives any right to receive any notice of the acceptance of such tender. 2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of Transmittal is required if: (i) this Letter of Transmittal is signed by the registered holder (which term, for purposes of this document, shall include any participant in DTC whose name appears on a security position listing as the owner of the Old Securities) of Old Securities tendered herewith, unless such holder(s) has completed either the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" above, or (ii) such Old Securities are tendered for the account of a firm that is an Eligible Institution. 8 In all other cases, an Eligible Institution must guarantee the signature(s) on this Letter of Transmittal. See Instruction 5. 3. INADEQUATE SPACE. If the space provided in the box captioned "Description of Old Securities Tendered" is inadequate, the certificate number(s) and/or the principal amount of Old Securities and any other required information should be listed on a separate signed schedule which is attached to this Letter of Transmittal. 4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Securities will be accepted only in the principal amount of $1,000 and multiples thereof. If less than all the Old Securities evidenced by any certificate submitted are to be tendered, fill in the principal amount of Old Securities which are to be tendered in the box entitled "Principal Amount of Old Securities Tendered (if less than all)." In such case, new certificate(s) for the remainder of the Old Securities that were evidenced by your old certificate(s) will only be sent to the holder of the Old Security, promptly after the expiration date. All Old Securities represented by certificates delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. Except as otherwise provided herein, tenders of Old Securities may be withdrawn at any time on or prior to the expiration date. In order for a withdrawal to be effective on or prior to that time, a written notice of withdrawal must be timely received by the Exchange Agent at one of its addresses set forth above or in the Prospectus on or prior to the expiration date. Any such notice of withdrawal must specify the name of the person who tendered the Old Securities to be withdrawn, identify the Old Securities to be withdrawn (including the principal amount of such Old Securities) and (where certificates for Old Securities have been transmitted) specify the name in which such Old Securities are registered, if different from that of the withdrawing holder. If certificates for the Old Securities have been delivered or otherwise identified to the Exchange Agent, then prior to the release of such certificates, the withdrawing holder must submit the serial numbers of the particular certificates for the Old Securities to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution, unless such holder is an Eligible Institution. If Old Securities have been tendered pursuant to the procedures for book-entry transfer set forth in the Prospectus under "The Exchange Offer -- Book-Entry Transfer," any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawal of Old Securities and otherwise comply with the procedures of such facility. Old Securities properly withdrawn will not be deemed validly tendered for purposes of the Exchange Offer, but may be retendered at any time on or prior to the expiration date by following one of the procedures described in the Prospectus under "The Exchange Offer -- Procedures for Tendering Old Securities." All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Securities which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Old Securities tendered by book-entry transfer into the Exchange Agent's account at DTC pursuant to the book-entry procedures described in the Prospectus under "The Exchange Offer -- Book-Entry Transfer," such Old Securities will be credited to an account maintained with DTC for the Old Securities) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. 5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Old Securities tendered hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If any of the Old Securities tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Old Securities are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal (or facsimiles thereof) as there are different registrations of certificates. If this Letter of Transmittal or any certificates or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and, unless waived by the Company, proper evidence satisfactory to the Company of such persons' authority to so act must be submitted. 9 When this Letter of Transmittal is signed by the registered holder(s) of the Old Securities listed and transmitted hereby, no endorsement(s) of certificate(s) or written instrument or instruments of transfer or exchange are required unless New Securities are to be issued in the name of a person other than the registered holder(s). Signature(s) on such certificate(s) or written instrument or instruments of transfer or exchange must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Old Securities listed, the certificates must be endorsed or accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company in its sole discretion and executed by the registered holder(s), in either case signed exactly as the name or names of the registered holder(s) appear(s) on the certificates. Signatures on such certificates or written instrument or instruments of transfer or exchange must be guaranteed by an Eligible Institution. 6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Securities are to be issued in the name of a person other than the signer of this Letter of Transmittal, or if New Securities are to be sent to someone other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Certificates for Old Securities not exchanged will be returned by mail or, if tendered by book-entry transfer, by crediting the account indicated above maintained at DTC. See Instruction 4. 7. IRREGULARITIES. The Company will determine, in its sole discretion, all questions as to the form, validity, eligibility (including time of receipt) and acceptance for exchange of any tender of Old Securities, which determination shall be final and binding. The Company reserves the absolute right to reject any and all tenders of any particular Old Securities not properly tendered or to not accept any particular Old Securities which acceptance might, in the judgment of the Company or its counsel, be unlawful. The Company also reserves the absolute right, in its sole discretion, to waive any defects or irregularities or conditions of the Exchange Offer as to any particular Old Securities either before or after the expiration date (including the right to waive the ineligibility of any holder who seeks to tender Old Securities in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer as to any particular Old Securities either before or after the expiration date (including the Letter of Transmittal and the instructions thereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with the tender of Old Securities for exchange must be cured within such reasonable period of time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of Old Securities for exchange, nor shall any of them incur any liability for failure to give such notification. 8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and requests for assistance may be directed to the Exchange Agent at its address and telephone number set forth on the front of this Letter of Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the Letter of Transmittal may be obtained from the Exchange Agent or from your broker, dealer, commercial bank, trust company or other nominee. 9. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate(s) representing Old Securities have been lost, destroyed or stolen, the holder should promptly notify the Exchange Agent. The holder will then be instructed as to the steps that must be taken in order to replace the certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, destroyed or stolen certificate(s) have been followed. 10. SECURITY TRANSFER TAXES. Holders who tender their Old Securities for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct the Company to register New Securities in the name of or request that Old Securities not tendered or not accepted in the Exchange Offer to be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax thereon. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF), OR AN AGENT'S MESSAGE IN LIEU THEREOF, AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE. 10 EX-99.2 52 y58436ex99-2.txt FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SERIES A 8.625% ENHANCED GUARANTEED NOTES DUE 2007 OF VALE OVERSEAS LIMITED This Notice of Guaranteed Delivery or one substantially equivalent hereto must be used to accept the Exchange Offer (as defined below) if (i) certificates for the Company's (as defined below) Series A 8.625% Enhanced Guaranteed Notes due 2007 (the "Old Securities") are not immediately available, (ii) Old Securities and the Letter of Transmittal cannot be delivered to JPMorgan Chase Bank (the "Exchange Agent") on or prior to the Expiration Date (as defined in the Prospectus referred to below) or (iii) the procedures for book-entry transfer cannot be completed on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile transmission, overnight courier, telex, telegram or mail to the Exchange Agent. See "The Exchange Offer -- Guaranteed Delivery Procedures" in the Prospectus dated March , 2002 (which, together with the related Letter of Transmittal, constitutes the "Exchange Offer") of Vale Overseas Limited, a Cayman Islands corporation (the "Company"). THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS: JPMORGAN CHASE BANK
By Hand or Overnight Delivery: Facsimile Transmissions: By Registered Or Certified Mail: (Eligible Institutions Only) JPMorgan Chase Bank JPMorgan Chase Bank 450 West 33rd Street, 15th Floor (212) 946-8177 or 450 West 33rd Street, 15th Floor New York, New York 10001 (212) 946-8178 New York, New York 10001 Attn: Institutional Trust Attn: Institutional Trust Services To Confirm by Telephone or for Services Information Call: (212) 946-3028
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED ON THE LETTER OF TRANSMITTAL. THE FOLLOWING GUARANTEE MUST BE COMPLETED GUARANTEE OF DELIVERY (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States, hereby guarantees to deliver to the Exchange Agent, at one of its addresses set forth above, either the certificates for all physically tendered Old Securities, in proper form for transfer, or confirmation of the book-entry transfer of such Old Securities to the Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to the procedures for book-entry transfer set forth in the Prospectus, in either case together with the Letter of Transmittal and any other documents required by the Letter of Transmittal or an agent's message in lieu thereof, within three New York Stock Exchange trading days after the date of execution of this Notice of Guaranteed Delivery. The undersigned acknowledges that it must deliver the Old Securities tendered hereby to the Exchange Agent within the time period set forth above and that failure to do so could result in a financial loss to the undersigned. ----------------------------------------------------- Name of Firm: ------------------------------------- (AUTHORIZED SIGNATURE) Address: -------------------------------------------- Title: ----------------------------------------------- - ----------------------------------------------------- (ZIP CODE) Name: ---------------------------------------------- (PLEASE TYPE OR PRINT) Area Code and Telephone Number: -------------------------------- Date: -----------------------------------------------
NOTE: DO NOT SEND OLD SECURITIES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL SURRENDER OF OLD SECURITIES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND FULLY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS. 2 EX-99.3 53 y58436ex99-3.txt FORM OF LETTER TO CLIENTS EXHIBIT 99.3 OFFER TO EXCHANGE SERIES B 8.625% ENHANCED GUARANTEED NOTES DUE 2007 (REGISTERED UNDER THE SECURITIES ACT OF 1933) FOR ANY AND ALL OUTSTANDING SERIES A 8.625% ENHANCED GUARANTEED NOTES DUE 2007 OF VALE OVERSEAS LIMITED To Our Clients: Enclosed is a Prospectus, dated March , 2002, of Vale Overseas Limited, Cayman Islands (the "Company"), and a related Letter of Transmittal (which together constitute the "Exchange Offer") relating to the offer by the Company to exchange its Series B 8.625% Enhanced Guaranteed Notes due 2007 (the "New Securities"), pursuant to an offering registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of its issued and outstanding Series A 8.625% Enhanced Guaranteed Notes due 2007 (the "Old Securities") upon the terms and subject to the conditions set forth in the Exchange Offer. PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [EXPIRATION DATE] UNLESS EXTENDED. The Exchange Offer is not conditioned upon any minimum number of Old Securities being tendered. We are the holder of record and/or participant in the book-entry transfer facility of Old Securities held by us for your account. A tender of such Old Securities can be made only by us as the record holder and/or participant in the book-entry transfer facility and pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Old Securities held by us for your account. We request instructions as to whether you wish to tender any or all of the Old Securities held by us for your account pursuant to the terms and conditions of the Exchange Offer. We also request that you confirm that we may on your behalf make the representations contained in the Letter of Transmittal. Pursuant to the Letter of Transmittal, each holder of Old Securities will represent to the Company that (i) the holder is not an "affiliate" of the Company, (ii) any New Securities to be received by the holder are being acquired in the ordinary course of its business, and (iii) the holder has no arrangement or understanding with any person to participate, and is not engaged and does not intend to engage in a distribution (within the meaning of the Securities Act) of such New Securities. If the tendering holder is a broker-dealer that will receive New Securities for its own account in exchange for Old Securities, we will represent on behalf of such broker-dealer that the Old Securities to be exchanged for the New Securities were acquired by it as a result of market-making activities or other trading activities, and acknowledge on behalf of such broker-dealer that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Securities. By acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Securities, such broker- dealer is not deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Very truly yours, EX-99.4 54 y58436ex99-4.txt FORM OF LETTER TO NOMINEES EXHIBIT 99.4 OFFER TO EXCHANGE SERIES B 8.625% ENHANCED GUARANTEED NOTES DUE 2007 (REGISTERED UNDER THE SECURITIES ACT OF 1933) FOR ANY AND ALL OUTSTANDING SERIES A 8.625% ENHANCED GUARANTEED NOTES DUE 2007 OF VALE OVERSEAS LIMITED To Registered Holders and The Depository Trust Company Participants: Enclosed are the materials listed below relating to the offer by Vale Overseas Limited, a Cayman Islands corporation (the "Company"), to exchange its Series B 8.625% Enhanced Guaranteed Notes due 2007 (the "New Securities"), pursuant to an offering registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of its issued and outstanding Series A 8.625% Enhanced Guaranteed Notes due 2007 (the "Old Securities") upon the terms and subject to the conditions set forth in the Company's Prospectus, dated March , 2002, and the related Letter of Transmittal (which together constitute the "Exchange Offer"). Enclosed herewith are copies of the following documents: 1. Prospectus dated March , 2002; 2. Letter of Transmittal; 3. Notice of Guaranteed Delivery; 4. Instruction to Registered Holder and/or Book-Entry Transfer Participant from Owner; and 5. Letter which may be sent to your clients for whose account you hold Old Securities in your name or in the name of your nominee, to accompany the instruction form referred to above, for obtaining such client's instruction with regard to the Exchange Offer. WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [EXPIRATION DATE] UNLESS EXTENDED. The Exchange Offer is not conditioned upon any minimum number of Old Securities being tendered. Pursuant to the Letter of Transmittal, each holder of Old Securities will represent to the Company that (i) the holder is not an "affiliate" of the Company, (ii) any New Securities to be received by it are being acquired in the ordinary course of its business, and (iii) the holder has no arrangement or understanding with any person to participate, and is not engaged and does not intend to engage, in a distribution (within the meaning of the Securities Act) of such New Securities. If the tendering holder is a broker-dealer that will receive New Securities for its own account in exchange for Old Securities, you will represent on behalf of such broker-dealer that the Old Securities to be exchanged for the New Securities were acquired by it as a result of market-making activities or other trading activities, and acknowledge on behalf of such broker-dealer that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Securities. By acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Securities, such broker-dealer is not deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The enclosed Instruction to Registered Holder and/or Book-Entry Transfer Participant from Owner contains an authorization by the beneficial owners of the Old Securities for you to make the foregoing representations. The Company will not pay any fee or commission to any broker or dealer or to any other persons (other than the Exchange Agent) in connection with the solicitation of tenders of Old Securities pursuant to the Exchange Offer. The Company will pay or cause to be paid any transfer taxes payable on the transfer of Old Securities to it, except as otherwise provided in Instruction 10 of the enclosed Letter of Transmittal. Additional copies of the enclosed material may be obtained from the undersigned. Very truly yours, JPMORGAN CHASE BANK NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE AGENT OF VALE OVERSEAS LIMITED OR JPMORGAN CHASE BANK OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 2 EX-99.5 55 y58436ex99-5.txt FORM OF INSTRUCTIONS TO REGISTERED HOLDER EXHIBIT 99.5 INSTRUCTION TO REGISTERED HOLDER AND/OR BOOK-ENTRY TRANSFER PARTICIPANT FROM OWNER OF VALE OVERSEAS LIMITED SERIES A 8.625% ENHANCED GUARANTEED NOTES DUE 2007 (THE "OLD SECURITIES") TO REGISTERED HOLDER AND/OR PARTICIPANT OF THE BOOK-ENTRY TRANSFER FACILITY: The undersigned hereby acknowledges receipt of the Prospectus dated [Date of Prospectus] (the "Prospectus") of Vale Overseas Limited, a Cayman Islands corporation (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's offer (the "Exchange Offer"). Capitalized terms used but not defined herein have the meanings as ascribed to them in the Prospectus or the Letter of Transmittal. This will instruct you, the registered holder and/or book-entry transfer facility participant, as to the action to be taken by you relating to the Exchange Offer with respect to the Old Securities held by you for the account of the undersigned. The aggregate face amount of the Old Securities held by you for the account of the undersigned is (fill in amount): $ of the Series A 8.625% Enhanced Guaranteed Notes due 2007 With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate box): [ ] To TENDER the following Old Securities held by you for the account of the undersigned (insert principal amount of Old Securities to be tendered, if any): $ of the Series A 8.625% Enhanced Guaranteed Notes due 2007 [ ] NOT to TENDER any Old Securities held by you for the account of the undersigned. If the undersigned instructs you to tender the Old Securities held by you for the account of the undersigned, it is understood that you are authorized to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to the representations, that (i) the holder is not an "affiliate" of the Company, (ii) any New Securities to be received by the holder are being acquired in the ordinary course of its business, and (iii) the holder has no arrangement or understanding with any person to participate, and is not engaged and does not intend to engage, in a distribution (within the meaning of the Securities Act) of such New Securities. If the undersigned is a broker-dealer that will receive New Securities for its own account in exchange for Old Securities, it represents that such Old Securities were acquired as a result of market-making activities or other trading activities, and it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Securities. By acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Securities, such broker-dealer is not deemed to admit that it is an "underwriter" within the meaning of the Securities Act of 1933, as amended. SIGN HERE Name of beneficial owner(s): - -------------------------------------------------------------------------------- Signature(s): - -------------------------------------------------------------------------------- Name(s) (please print): - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Telephone Number: - -------------------------------------------------------------------------------- Taxpayer Identification or Social Security Number: - ---------------------------------------------------------------- - -------------------------------------------------------------------------------- Date: - -------------------------------------------------------------------------------- 2 EX-99.6 56 y58436ex99-6.txt FORM OF EXCHANGE AGENT AGREEMENT Exhibit 99.6 __________________________ , 2002 Exchange Agent Agreement ------------------------ JPMorgan Chase Bank 450 West 33rd Street 15th Floor New York, NY 10001 Attention: Ladies and Gentlemen: Vale Overseas Limited (the "Company") proposes to make an offer (the "Exchange Offer") to exchange an aggregate principal amount of up to $300,000,000 of its Series B 8.625% Enhanced Guaranteed Notes due 2007 (the "Registered Notes"), which have been registered under the Securities Act of 1933, as amended, for a like principal amount of the Company's outstanding Series A 8.625% Enhanced Guaranteed Notes due 2007 (the "Private Notes"). The terms and conditions of the Exchange Offer as currently contemplated are set forth in a prospectus dated March __, 2002 (the "Prospectus"), proposed to be distributed to all record holders of the Private Notes as of March __, 2002. The Private Notes and the Registered Notes are collectively referred to herein as the "Notes". The Company hereby appoints JPMorgan Chase Bank to act as exchange agent (the "Exchange Agent") in connection with the Exchange Offer. References hereinafter to "you" shall refer to JPMorgan Chase Bank. The Exchange Offer is expected to be commenced by the Company on or about March __, 2002. The Letter of Transmittal accompanying the Prospectus is to be used by the holders of the Private Notes to accept the Exchange Offer, and contains instructions with respect to the delivery of certificates for Private Notes tendered. The Exchange Offer shall expire at 5:00 P.M., New York City time, on April __, 2002, or on such later date or time to which the Company may extend the Exchange Offer (the "Expiration Date"). Subject to the terms and conditions set forth in the Prospectus, the Company expressly reserves the right to extend the Exchange Offer at any time and from time to time and may extend the Exchange Offer by giving oral (promptly confirmed in writing) or written notice to you before 9:00 A.M., New York City time, on the business day following the previously scheduled Expiration Date. The Company expressly reserves the right to amend or terminate the Exchange Offer, and not to accept for exchange any Private Notes not theretofore accepted for exchange, upon the occurrence of any of the events specified in the Prospectus under the caption "The Exchange Offer - Conditions to the Exchange Offer." The Company will give oral (promptly confirmed in writing) or written notice of any amendment, termination or nonacceptance to you as promptly as practicable. In carrying out your duties as Exchange Agent, you are to act in accordance with the following instructions: 1. You will perform such duties and only such duties as are specifically set forth in the section of the Prospectus entitled "The Exchange Offer" and as specifically set forth herein and such duties which are necessarily incidental thereto. 2. You will establish an account with respect to the Private Notes at The Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of the Exchange Offer within two business days after the date of the Prospectus, or, if you already have established an account with the Book-Entry Transfer Facility suitable for the Exchange Offer, you will identify such pre-existing account to be used in the Exchange Offer, and any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of the Private Notes by causing the Book-Entry Transfer Facility to transfer such Private Notes into your account in accordance with the Book-Entry Transfer Facility's procedure for such transfer. 3. You are to examine each of the Letters of Transmittal and certificates for Private Notes (or confirmation of book-entry transfer into your account at the Book-Entry Transfer Facility) and any other documents delivered or mailed to you by or for holders of the Private Notes to ascertain whether: (i) the Letters of Transmittal and any such other documents are duly executed and properly completed in accordance with instructions set forth therein and (ii) the Private Notes have otherwise been properly tendered. In each case where the Letter of Transmittal or any other document has been improperly completed or executed or any of the certificates for Private Notes are not in proper form for transfer or some other irregularity in connection with the acceptance of the Exchange Offer exists, you will endeavor to inform the presenters of the need (i) for fulfillment of all requirements and (ii) to take any other action as may be necessary or advisable to cause such irregularity to be corrected. 4. With the approval of the Chairman of the Board, President or any Vice President of the Company (such approval, if given orally, to be promptly confirmed in writing) or any other party designated by such an officer in writing, you are authorized to waive any defects, irregularities or conditions of tender in connection with any tender of Private Notes pursuant to the Exchange Offer. 5. Tenders of Private Notes may be made only as set forth in the Letter of Transmittal and in the section of the Prospectus captioned "The Exchange Offer - Procedures for Tendering Old Securities," and Private Notes shall be considered properly tendered to you only when tendered in accordance with the procedures set forth therein. Notwithstanding the provisions of this paragraph 5, Private Notes which the Chairman of the Board, President or any Vice President of the Company or any other party designated by such officer in writing shall approve as having been properly tendered shall be considered to be properly tendered (such approval, if given orally, shall be promptly confirmed in writing). 6. You shall advise the Company with respect to any Private Notes delivered subsequent to the Expiration Date and accept its instructions with respect to disposition of such Private Notes. 7. You shall accept tenders: (a) in case where the Private Notes are registered in two or more names only if signed by all named holders; (b) in cases where the signing person (as indicated on the Letter of Transmittal) is acting in a fiduciary or a representative capacity only when proper evidence of his or her authority so to act is submitted; and (c) from persons other than the registered holder of Private Notes provided that customary transfer requirements, including any applicable transfer taxes, are fulfilled. You shall accept partial tenders of Private Notes where so indicated and as permitted in the Letter of Transmittal and deliver certificates for Private Notes to the transfer agent for split-up and return any untendered Private Notes to the holder (or such other person as may be designated in the Letter of Transmittal) as promptly as practicable after expiration or termination of the Exchange Offer. 8. Upon satisfaction or waiver of all of the conditions to the Exchange Offer, the Company will notify you (such notice, if given orally, to be promptly confirmed in writing) of its acceptance, promptly after the Expiration Date, of all Private Notes properly tendered and you, on behalf of the Company, will exchange such Private Notes for Registered Notes and cause such Private Notes to be canceled. Delivery of Registered Notes will be made on behalf of the Company by you at the rate of $1,000 principal amount of Registered Notes for each $1,000 principal amount of Private Notes tendered promptly after notice (such notice, if given orally, to be promptly confirmed in writing) of acceptance of such Private Notes by the Company; provided, however, that in all cases, Private Notes tendered pursuant to the Exchange Offer will be exchanged only after timely receipt by you of certificates for such Private Notes (or confirmation of book-entry transfer into your account at the Book-Entry Transfer Facility), a properly completed and duly executed Letter of Transmittal (or facsimile thereof or an Agent's Message (as defined in the Prospectus) in lieu thereof) with any required signature guarantees and any other required document. You shall issue Registered Notes only in denominations of $1,000 or any integral multiple thereof. 9. Tenders pursuant to the Exchange Offer are irrevocable, except that, subject to the terms and upon the conditions set forth in the Prospectus and the Letter of Transmittal, Private Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date. 10. The Company shall not be required to exchange any Private Notes tendered if any of the conditions set forth in the Exchange Offer are not met. Notice of any decision by the Company not to exchange any Private Notes tendered shall be given (such notice, if given orally, shall be promptly confirmed in writing) by the Company to you. 11. If, pursuant to the Exchange Offer, the Company does not accept for exchange all or part of the Private Notes tendered because of an invalid tender, the occurrence of certain other events set forth in the Prospectus under the caption "The Exchange Offer - Conditions to the Exchange Offer" or otherwise, you shall as soon as practicable after the expiration or termination of the Exchange Offer return those certificates for unaccepted Private Notes (or effect appropriate book-entry transfer), together with any related required documents and the Letters of Transmittal relating thereto that are in your possession, to the persons who deposited them. 12. All certificates for reissued Private Notes, unaccepted Private Notes or for Registered Notes shall be forwarded by (a) first-class mail, postage prepaid under a blanket surety bond protecting you and the Company from loss or liability arising out of the nonreceipt or nondelivery of such certificates or (b) by registered mail insured separately for the replacement value of each of such certificates. 13. You are not authorized to pay or offer to pay any concessions, commissions or solicitation fees to any broker, dealer, bank or other persons or to engage or utilize any person to solicit tenders. 14. As Exchange Agent hereunder you: (a) will be regarded as making no representations and having no responsibilities as to the validity, sufficiency, value or genuineness of any of the certificates or the Private Notes represented thereby deposited with you pursuant to the Exchange Offer, and will not be required to and will make no representation as to the validity, value or genuineness of the Exchange Offer ; (b) shall not be obligated to take any action hereunder which might in your reasonable judgment involve any expense or liability, unless you shall have been furnished with reasonable indemnity; (c) may rely on and shall be protected in acting in good faith in reliance upon any certificate, instrument, opinion, notice, letter, facsimile or other document or security delivered to you and reasonably believed by you to be genuine and to have been signed by the proper party or parties; (d) may act upon any tender, statement, request, comment, agreement or other instrument whatsoever not only as to its due execution and validity and effectiveness of its provisions, but also as to the truth and accuracy of any information contained therein, which you in good faith reasonably believe to be genuine or to have been signed or represented by a proper person or persons; (e) may rely on and shall be protected in acting upon written or oral instructions from any officer of the Company with respect to the Exchange Offer; (f) shall not advise any person tendering Private Notes pursuant to the Exchange Offer as to the wisdom of making such tender or as to the market value or decline or appreciation in market value of any Private Notes ; (g) may consult with your counsel and the written opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by you hereunder in good faith and in accordance with such written opinion of such counsel; and 15. You shall take such action as may from time to time be requested by the Company or its counsel (and such other action as you may reasonably deem necessary) to furnish copies of the Prospectus, the Letter of Transmittal and the Notice of Guaranteed Delivery, as defined in the Prospectus, or such other forms as may be approved from time to time by the Company, to all persons requesting such documents and to accept and comply with telephone requests for information relating to the Exchange Offer, provided that such information shall relate only to the procedures for accepting (or withdrawing from) the Exchange Offer. The Company will furnish you with copies of such documents as you may request. All other requests for information relating to the Exchange Offer shall be directed to the Company, Attention: ________. 16. You shall advise by facsimile transmission or telephone, and promptly thereafter confirm in writing to ___________, ______ of the Company, __________, Esq. of _________, counsel for the Company, and such other person or persons as the Company may request, daily on each business day, and more frequently if reasonably requested, up to and including the Expiration Date, as to the number of Private Notes which have been tendered pursuant to the Exchange Offer and the items received by you pursuant to this Agreement, separately reporting and giving cumulative totals as to items properly received and items improperly received; provided, however, that if, on a particular business day, no additional Private Notes have been tendered, no additional items have been received by you and such totals have not changed since you last provided such information as required above, you need not provide the information referred to above in this paragraph 16 on such day. In addition, you will also confirm, and cooperate in making available to, the Company or any such other person or persons as the Company requests from time to time prior to the Expiration Date of such other information as it or he or she reasonably requests. Such cooperation shall include, without limitation, the granting by you to the Company and such person as the Company may request of access to those persons on your staff who are responsible for receiving tenders, in order to ensure that immediately prior to the Expiration Date the Company shall have received information in sufficient detail to enable it to decide whether to extend the Exchange Offer. You shall prepare a final list of all persons whose tenders were accepted, the aggregate principal amount of Private Notes tendered and the aggregate principal amount of Private Notes accepted and deliver said list to the Company. 17. Letters of Transmittal and Notices of Guaranteed Delivery shall be stamped by you as to the date and the time of receipt and shall, except as provided in paragraph 11, be preserved by you for a period of time at least equal to the period of time you preserve other records pertaining to the transfer of securities (or, if earlier, until such time as such documents are delivered to the Company upon termination of this Agreement, pursuant to paragraph 29). 18. You hereby expressly waive any lien, encumbrance or right of set-off whatsoever that you may have with respect to funds deposited with you for the payment of transfer taxes by reason of amounts, if any, borrowed by the Company, or any of its subsidiaries or affiliates pursuant to any loan or credit agreement with you or for compensation owed to you hereunder. 19. For services rendered as Exchange Agent hereunder, you shall be entitled to compensation of $_______and you shall be entitled to reimbursement of your reasonable out-of-pocket expenses (including reasonable attorneys' fees and expenses of your counsel, which fees are expected under normal circumstances to be not in excess of $5,000) incurred in connection with your services hereunder. 20. You hereby acknowledge receipt of the Prospectus, the Letter of Transmittal and the other documents associated with the Exchange Offer attached hereto and further acknowledge that you have examined each of them to the extent necessary to perform your duties hereunder. Any inconsistency between this Agreement, on the one hand, and the Prospectus and the Letter of Transmittal (as they may be amended from time to time), on the other hand, shall be resolved in favor of the latter two documents, except with respect to the duties, liabilities and indemnification of you as Exchange Agent which shall be controlled by this Agreement. 21. The Company agrees to indemnify and hold harmless you, in your capacity as Exchange Agent hereunder, and your officers, employees and agents, against any liability, cost or expense, including reasonable attorneys' fees, arising out of or in connection with any act, omission, delay or refusal made by you in reliance upon any signature, endorsement, assignment, certificate, order, request, notice, instruction or other instrument or document believed by you in good faith to be valid and genuine and in accepting any tender or effecting any transfer of Private Notes believed by you in good faith to be authorized, and in delaying or refusing in good faith to accept any tenders or effect any transfer of Private Notes or otherwise arising out of or in connection with your acting as Exchange Agent hereunder; provided, however, that the Company shall not be liable for indemnification or otherwise for any loss, liability, cost or expense to the extent arising out of your negligence, wilful misconduct or bad faith. In no case shall the Company be liable under this indemnity with respect to any claim against you unless the Company shall be notified by you, by letter or cable or by facsimile confirmed by letter, of the written assertion of a claim against you or of any other action commenced against you, promptly after you shall have received any such written assertion or written notice of the commencement of any such action. The Company shall be entitled to participate at its own expense in the defense of any such claim or other action, and, if the Company so elects, the Company shall assume the defense of any suit brought to enforce any such claim. In the event that the Company shall assume the defense of any such suit, the Company shall not be liable for the fees and expenses of any additional counsel thereafter retained by you so long as the Company shall retain counsel reasonably satisfactory to you to defend such suit. 22. You shall arrange to comply with all requirements under the tax laws of the United States, including those relating to missing Tax Identification Numbers, and shall file any appropriate reports with the Internal Revenue Service. 23. You shall deliver or cause to be delivered, in a timely manner to each governmental authority to which any transfer taxes are payable in respect of the exchange of Private Notes, your check in the amount of all transfer taxes so payable, and the Company shall reimburse you for the amount of any and all transfer taxes payable in respect of the exchange of Private Notes; provided, however, that, subject to such reimbursement by the Company, you shall reimburse the Company for amounts refunded to you in respect of your payment of any such transfer taxes, at such time as such refund is received by you. 24. This Agreement and your appointment as Exchange Agent hereunder shall be construed and enforced in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such state, and without regard to conflicts of law principles, and shall inure to the benefit of, and the obligations created hereby shall be binding upon, the successors and assigns of each of the parties hereto. 25. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 26. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be effected or impaired thereby. 27. This Agreement shall not be deemed or construed to be modified, amended, rescinded, canceled or waived, in whole or in part, except by a written instrument signed by a duly authorized representative of the party to be charged. This Agreement may not be modified orally. 28. Unless otherwise provided herein, all notices, requests and other communications to any party hereunder shall be in writing (including facsimile) and shall be given to such party, addressed to it, at its address or telecopy number set forth below: If to the Company: Facsimile: Attention: With a copy to: Facsimile: Attention: If to the Exchange Agent: JPMorgan Chase Bank 450 West 33rd Street (15th Floor) New York, New York 10001 Facsimile: Attention: 29. Unless terminated earlier by the parties hereto, this Agreement shall terminate 90 days following the Expiration Date. Notwithstanding the foregoing, Paragraphs 14(c), 18, 19, 21 and 23 shall survive the termination of this Agreement. Upon any termination of this Agreement, you shall promptly deliver to the Company any certificates for Notes, funds or property (including, without limitation, Letters of Transmittal and any other documents relating to the Exchange Offer) then held by you as Exchange Agent under this Agreement. 30. This Agreement shall be binding and effective as of the date hereof. Please acknowledge receipt of this Agreement and confirm the arrangements herein provided by signing and returning the enclosed copy. VALE OVERSEAS LIMITED By: _________________________ Name: Title: Accepted as of the date first above written: JPMORGAN CHASE BANK By:________________________ Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----