⁽¹⁾ Certain facilities in the Wire & Cable business unit located in Argentina have been, on a non-continuous basis, partially reopened and the Brass Mills business unit facilities located in Argentina are operating at limited capacity. See “Item 4. Information on the Company – History and Development of the Company — History”.
⁽²⁾ See “Item 4. Information on the Company – History and Development of the Company — History”.

To facilitate an understanding of the Company’s activities and performance, information for a business unit may be presented by division. In each division, exports are defined as sales to customers in countries where the Company does not maintain operations for the corresponding business.

The Company uses the metric system of weights and measures in calculating its operating and financial data. A conversion table of the most common metric units used by the Company and their U.S. equivalent units is set forth below:
 

This Annual Report contains various estimates by the Company of industry size, market share data and related sales volume information. These estimates are based principally on the Company’s analysis of available information, which includes: (i) the Company’s internal production and sales data; (ii) import and export reports made available by customs authorities; (iii) copper sales reports from Corporación Chilena del Cobre (the Chilean Copper Corporation, or “Cochilco”); (iv) import and export reports from central banks of the countries where the Company has operations; (v) production reports from the Company’s suppliers of copper rods; (vi) sales information filed publicly by some of the Company’s competitors; and (vii) information informally obtained from market participants and the Company’s suppliers. No third parties or other independent companies have provided estimates or confirmed the Company’s market share calculations and estimates. Sources that use methodologies, which are not identical to the Company’s, may produce different results.

FORWARD LOOKING STATEMENTS

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This Annual Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements relate to analyses and other information, which are based on forecasts of future results and estimates of amounts not yet determinable. The statements also relate to the Company’s future prospects, development and business strategies.

These forward-looking statements are identified by the use of terms and phrases such as “anticipates”, “believes”, “could”, “designed to”, “estimates”, “expects”, “goal”, “intends”, “may”, “plans”, “predicts”, “projects”, “should”, “thinks”, “will” and similar terms and phrases. Actual results could differ materially from those expected by the Company, depending on the outcome of certain factors, including, without limitation:

Estimates Relating to the Company’s Capital Expenditures Plan. The Company reviews its capital investment program periodically and changes to the program are made as it believes is appropriate. Accordingly, there can be no assurance that the Company will fully implement its capital expenditures plan and the actual amount of future capital expenditures will depend on a variety of factors. See “Item 5. Operating and Financial Review and Prospects — Capital Expenditures” for a discussion of the Company’s expected future capital expenditures;

“Cost-plus” Pricing Policy. Although the Company intends to continue its cost-plus pricing policy, there can be no assurance that the Company will be able to increase its selling prices in response to increases in the cost of raw materials in the future. See “Item 3. Key Information — Risk Factors”, “Item 4. Information on the Company — Raw Materials” and “Item 5. Operating and Financial Review and Prospects — Fluctuations in LME Metal Prices and Exchange Rates between Currencies” for a discussion of the effects of fluctuations in the price of raw materials;

Competition. Although the Company believes it will continue to compete effectively in its markets and industries, no assurance can be given in this regard. See “Item 3. Key Information — Risk Factors” and “Item 4. Information on the Company — Business Overview” for a discussion of factors that could affect the Company’s ability to compete;

Dividends. The Company’s current dividend policy is subject to various factors, including those described under “Item 8. Financial Information — Dividend Policy” and “Item 4. Information of the Company – History and Developments of the Company — Nexans”;

Economic Developments in Argentina and other Latin America Countries. The economic deterioration in Argentina, which occurred in prior years, had materially adversely affected the Company. Adverse changes in any of the Latin American economies where the Company operates with respect to economic growth, currency devaluation, rates of inflation and other factors could have an adverse effect on the Company’s business and results of operations. See “Item 3. Key Information — Selected Financial Data — Risk Factors” and “Item 5. Operating and Financial Review and Prospects — Economic Overview”;

Political Developments in Latin America. Adverse changes in the political situations in countries where the Company operates, including, without limitation, political instability and reversal of market-oriented reforms or the failure of such reforms to achieve their goals, could have an adverse effect on the Company’s business and results of operations. See “Item 3. Key Information — Risk Factors”;

Developments in Domestic and International Markets. Adverse changes in the international markets for the Company’s products, including domestic markets where the Company maintains operations as well as other Latin American countries, Asia, the United States or Europe could have an adverse effect on the Company’s business and results of operations. See “Item 3. Key Information — Risk Factors”; and

Additional Factors. See “Item 3. Key Information — Risk Factors”, for a discussion of some of the additional factors that could cause actual results to differ materially from those expected by the Company.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this annual report. The Company undertakes no obligation to release publicly the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, including, without limitation, changes in the Company’s business strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events.

REQUESTS FOR INFORMATION

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Written requests for copies of this Annual Report should be directed to Madeco S.A., Ureta Cox 930, San Miguel, Santiago, Chile, Attention: Investor Relations. Facsimile requests may be directed to (56-2) 520-1545. Telephone requests may be directed to (56-2) 520-1388. E-mail requests may be directed to ir@madeco.cl. Additional information about the Company and its products can be found at http://www.madeco.cl/. The contents of this website are not incorporated into this Annual Report.

PART I

ITEM 1. Identity of Directors, Senior Management and Advisers

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Not applicable

ITEM 2. Offer Statistics and Expected Timetable

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Not applicable

ITEM 3. Key Information

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Selected Financial Data

The following table presents selected consolidated financial information for the Company as of the dates and for each of the periods indicated. This information should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements of the Company included elsewhere in this annual report. The Consolidated Financial Statements are prepared in accordance with Chilean GAAP, which differs in certain significant respects from U.S. GAAP. Note 32 to the Consolidated Financial Statements provides a description of the principal differences between Chilean GAAP and U.S. GAAP as they relate to the Company and includes a reconciliation of net income or loss for the years ended December 31, 2005, 2006 and 2007 and shareholders’ equity as of December 31, 2006 and 2007 to U.S. GAAP. For clarity of presentation, certain amounts represented in U.S. dollars and Chilean pesos, as well as percentages, have been rounded. As a result, certain totals may not directly reflect the sum of their components.

Financial information as of and for the years ended December 31, 2003, 2004, 2005, 2006 and 2007 is presented below in constant pesos as of December 31, 2007.

Chile has two currency markets, the Mercado Cambiario Formal ("the Formal Exchange Market"), and the Mercado Cambiario Informal (the "Informal Exchange Market"). The Formal Exchange Market is comprised of banks and other entities so authorized by the Chilean Central Bank. The Informal Exchange Market is comprised of entities that are not expressly authorized to operate in the Formal Exchange Market, such as certain foreign exchange houses and travel agencies, among others. The Chilean Central Bank is empowered to determine that certain purchases and sales of foreign currencies be carried out in the Formal Exchange Market. All payments and distributions with respect to the Company’s American Depositary Shares (“ADSs”) referred to in this Annual Report must be transacted in the Formal Exchange Market.

For purposes of the operation of the Formal Exchange Market, the Chilean Central Bank sets a “Dólar Acuerdo” ("Reference Exchange Rate"). The Reference Exchange Rate is reset daily by the Chilean Central Bank, taking into account internal and external inflation and variations in parities between the Chilean peso and each of the U.S. dollar, Euro and Japanese Yen at a ratio of 80:15:5, respectively. In order to keep the average exchange rate within certain limits, the Chilean Central Bank may intervene by buying or selling foreign currency on the Formal Exchange Market.

The "Dólar Observado" (the "Observed Exchange Rate"), which is reported by the Chilean Central Bank and published daily in the Chilean newspapers, is computed by taking the weighted average of the previous business day’s transactions on the Formal Exchange Market. On September 2, 1999, the Chilean Central Bank eliminated the range within which the Observed Exchange Rate could fluctuate, in order to provide greater flexibility in the exchange market. Nevertheless, the Chilean Central Bank has the power to intervene by buying or selling foreign currency on the Formal Exchange Market in an attempt to maintain the Observed Exchange Rate within a desired range.

The Informal Exchange Market reflects transactions carried out at an informal exchange rate ("the Informal Exchange Rate"). There are no limits imposed on the extent to which the rate of exchange in the Informal Exchange Market can fluctuate above or below the Observed Exchange Rate.

Since 1993, the Observed Exchange Rate and the Informal Exchange Rate have typically been less than 1% from one another. On May 31, 2008, the average exchange rate in the Informal Exchange Market was Ch$480.20 per U.S. dollar and the U.S. dollar Observed Exchange Rate was Ch$479.54 per U.S. dollar.

The following table sets forth the low, high, average and period-end Observed Exchange Rates for U.S. dollars for each of the indicated periods starting in 2003 as reported by the Central Bank the following day. The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos.
 

_____________________
Source: Central Bank of Chile
(1) Rates shown are the low, high and period-end observed exchange rates, on a day-by-day basis, for each period.
(2) The average of monthly average rates during the period reported.

Madeco’s international activities include operations in Argentina, Brazil, Peru and Colombia. Beginning in the 1990’s, both Argentina and Brazil maintained fixed exchange rates. However, in 2002 and 1999, respectively, the Argentine and Brazilian central banks allowed their respective currencies to float freely against the U.S. dollar. In Peru, there have not been restrictions on companies’ ability to convert Peruvian currency into U.S. dollars, nor any associated fixed exchange rates since the 1990s. In Colombia, the Colombian peso has been allowed to float freely against the U.S. dollar since 1999, but the Colombian Central Bank can buy currencies in order to assure a steady currency rate. There can be no assurance that the countries where the Company has operations or interests will maintain their current currency exchange policies.

References to "R$", "AR$", "S$" and "COP$", are to Brazilian reais, Argentine pesos, Peruvian soles and Colombian pesos, respectively. While results of the Company’s foreign operations are converted to Chilean pesos on a periodic (daily, weekly or monthly) basis, low, high, average and year-end Brazilian real, Argentine peso, Peruvian sol and Colombian peso exchange rates for 2007 have been included below for reference:
 

Not applicable

Not applicable

The Company is subject to various changing competitive, economic, political, social and other risks and conditions, some of which are described below:

Certain Considerations Relating to Chile. The Company is engaged in its four businesses in Chile: Wire & Cable, Brass Mills, Flexible Packaging and Aluminum Profiles. For the year ended December 31, 2007, the Company had Ch$80,235 million, or 48.1% of its property, plant and equipment in Chile, and derived 39.1% of its revenues, from its Chilean operations. Consequently, the Company’s results of operations and financial condition are largely dependent on the overall level of economic activity in Chile. According to the Central Bank of Chile’s 2008 statistics, the Chilean economy has had GDP growth rates of 4.0%, 6.0%, 5.7%, 4.0% and 5.1% for the years 2003, 2004, 2005, 2006 and 2007, respectively. There can be no assurance regarding future rates of growth relating to the Chilean economy. Some of the factors that would be likely to have an adverse effect on the Company’s business and results of operations include future downturns in the Chilean economy, a return to the high inflation experienced by Chile in the 1970s and a devaluation of the Chilean peso relative to the U.S. dollar.

Effects of Argentine Gas Supply Restrictions and Price Increases on Chilean Operations. Chile is dependent on foreign supply of energy sources such as oil, natural gas and fuel derivatives. Since 2003, the Argentine government has restricted gas exports to Chile due to supply problems in Argentina. This has affected the supply of energy to the Chilean industries. The reduction in gas supply may affect the Company’s operations. While the Company has access to alternative energy sources, such as liquid gas or diesel oil, which reduce the impact of the restrictions imposed on the Company, the cost of such sources has been higher than natural gas and there can be no assurance that the Company will be able to increase its selling prices in response to this potential cost increase. In addition, there can be no assurance that gas prices will not continue to rise. Therefore, any additional cost increase from the use of gas and alternative energy sources could have an adverse effect on the Company’s financial condition and results of operations.

Developments in the Region May Affect the Company. Although the Company's principal businesses are in Chile, Madeco also maintains substantial assets and derives significant revenues from its operations in Brazil, Argentina, Colombia and Peru. For the year ended December 31, 2007, the Company had Ch$35,073 million, or, 21.0% of its property, plant and equipment in Brazil, and derived 24.9% of its revenues, from its Brazilian operations. In the case of Argentina, the Company had Ch$21,178 million, or 12.7% of its property, plant and equipment in Argentina, and derived 7.4% of its revenues from its Argentine operations. The Company had Ch$3,279 million, or 2.0% of its property, plant and equipment in Colombia, and derived 3.5% of its revenues from its Colombian operations. In the case of Peru, the Company had Ch$27,185 million, or 16.3% of its property, plant and equipment in Peru, and derived 25.1% of its revenues from its Peruvian operations.

Although consumption and investment in Brazil remained low in 2003, in 2004, the Brazilian economy grew by 5.7%. In 2005 and 2006, the Brazilian economy grew by 2.9% and 3.7%, respectively. In 2007, the Brazilian economy grew at a higher rate compared to the two previous years, reaching a rate of 5.4%, according to information released in 2008 by the Instituto Brasileiro de Geografia e Estadística (the Brazilian Institute of Geography and Statistics, or "IBGE"). This growth was due in large part, to an increase in exports, a favorable external economic scenario and strong domestic demand stimulated by the strengthening a Brazilian real against the U.S. dollar. There can be no assurance that economic growth in Brazil will continue in the future.

In recent years, Argentina suffered an economic recession which culminated in a political and economic crisis with significant currency devaluation in early 2002. The Argentine economy has since stabilized as a result of measures adopted by the Argentine government, including restrictions on bank deposits and withdrawals, exchange controls, suspension of payments of external debt and the abrogation of Argentine peso convertibility. The economic recession and crises materially affected Madeco, requiring the Company to close the majority of its operations in Argentina. In 2003, economic activity recovered across all sectors of the Argentine economy, and as a result, Madeco reopened certain of its operations at limited capacity. In 2006 and 2007, the Argentine economy grew by 8.5% and 8.7%, respectively. Although Argentina’s economy has improved, the country’s economic environment and political stability remain fragile.

The Colombian economy has achieved a steady GDP increase over the last few years. In 2004 and 2005, the Colombian economy grew 4.9% and 5.1%, respectively. In 2006 and 2007, the Colombian economy grew 6.8% and 6.5%, respectively, driven by a robust aggregate demand and investment, accompanied by a strong inflation scheme. However, there can be no assurance that economic growth in Colombia will continue in the future.

The Peruvian economy continues to develop at a steady pace. Economic growth is likely to continue, as the country profits from increased demand for commodities in the global economy. In 2006 and 2007, the Peruvian economy grew by 8.0% and 7.5%, respectively, as a result of strong domestic demand which outpaced GDP growth. Nonetheless, Peru remains a politically unstable country. This instability could have a material adverse effect on the Peruvian economy.

The economies to which Madeco exports the products it manufactures are also affected by social and political changes. There can be no assurance that political changes or political instability in the countries in which the Company operates or to which it exports its products will not materially adversely affect the Company in the future. Moreover, there can be no assurance that the economic system in Chile and the free trade agreements, which are expected to allow the Company to export its products more readily, will be maintained in the future.

Developments in Emerging Markets May Affect the Market Value of Chilean Securities. The market value of securities of Chilean companies is, to varying degrees, affected by economic and market conditions in other emerging market countries. Although economic conditions in such countries may differ significantly from economic conditions in Chile, investors’ reactions to developments in any of these other countries may have an adverse effect on the market value of securities of Chilean issuers. For example, in the second half of 1998 and early 1999, prices of Chilean securities were materially adversely affected by the economic crises in Russia and Brazil. Although the performance of the Chilean securities market has improved since 2003, there can be no assurance that the Chilean stock market will continue to grow or even sustain its gains and that the market value of the Company’s securities would not be adversely affected by events elsewhere, especially in emerging market countries.

Opportunities to Secure Financing Necessary to Operate the Company’s Businesses May Be Limited. In the future, the Company may need to raise funds for various purposes. Madeco was notified on July 1, 2002 that the Comisión Clasificadora de Riesgo (the “Risk Classification Commission”), which regulates the investment activities of pension funds in Chile, had ruled that as a result of the downgrading of the credit ratings of the Company’s securities and the deterioration of Madeco’s financial situation, Chilean pension funds were further limited in the amount of debt securities or common shares of Madeco that they could hold. Although the rating agencies have since upgraded the Company’s rating and Chilean pension funds are no longer limited in the amount of debt securities or common shares of Madeco that they can hold, there can be no assurance that the Company will not be downgraded, and the holding of Madeco’s securities by Chilean pension funds limited, in the future. See “Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources – Changes in the Company’s Risk Classification”. Given that Chilean pension funds together constitute the most significant investor group in Chilean securities, any action taken by the Risk Classification Commission has in the past affected and could in the future affect the price and liquidity of Madeco's common shares and bonds. There can be no assurance that capital will be available in the future as needed on reasonable terms in Chile or otherwise. An inability to obtain capital could constrain the Company’s ability to refinance debt, expand sales, improve productivity or take advantage of business opportunities and could have a material adverse effect on the Company’s financial condition and results of operations.

The Company is Controlled by One Majority Shareholder, whose Interests May Differ from Minority Shareholders. As of March 31, 2008, the Quiñenco Group owned 45.2% of the Company’s shares. Accordingly, the Quiñenco Group has the power to control the election of the majority of members of the Company’s board of directors (the “Board of Directors” or the “Board”) and its interests may differ from the interests of other holders of the Company’s shares. The Quiñenco Group has a significant influence in determining the outcome of any corporate transaction or other matter submitted to the shareholders for approval (and according to Rule 18.046 Ley de Sociedades Anónimas, Chilean Corporations Law), including mergers, consolidations, the sale of substantial Madeco's assets and going-private transactions, and also the power to prevent or cause a change in control.

We may be subject to the Investment Company Act. The Company may be deemed to be an investment company under the United States Investment Company Act of 1940, as amended (the “Investment Company Act”) and suffer adverse consequences as a result. A company may, among other reasons, be deemed to be an investment company if it owns investment securities with a value exceeding 40% of its total assets, subject to certain exclusions. If the Company consummates the sale of its Wire & Cables business unit to Nexans for 2,500,000 shares of Nexans’ capital stock and cash, as disclosed elsewhere in this annual report, the Nexans capital stock and any investments the Company may make with the cash proceeds received from the sale may constitute investment securities under the Investment Company Act. These investment securities could exceed 40% of the Company’s total assets. If this were to occur, and an exclusion from registration or a safe harbor were not available to the Company, the Company may be deemed an investment company and be subject to the requirements of the Investment Company Act. As a consequence, the Company may either be required to register as an investment company under the Investment Company Act be prohibited from issuing securities and accessing the U.S. capital or bank markets unless it took action to reduce its investment securities as a percentage of its total assets.

Although the Company does not believe it was a passive foreign investment company ("PFIC") for U.S. federal income tax purposes in years prior to 2008, this conclusion is subject to some uncertainty. Even if it was not previously a PFIC, the Company may become a PFIC if it consummates the sale of its Wire & Cables business unit to Nexans as disclosed elsewhere in this annual report. In general, the Company will be a PFIC if either (i) at least 75% of the gross income of the Company for the taxable year is passive income or (ii) at least 50% of the value (determined on the basis of a quarterly average) of the Company's assets is attributable to assets that produce or are held for the production of passive income. Cash and investment securities are passive assets. If the Company owns less than 25% by value of the stock of another corporation, that stock will constitute a passive asset. If the Company is treated as a PFIC, a U.S. Holder may be subject to materially adverse tax treatment with respect to gain realized on the sale or other disposition of Shares or ADSs or certain "excess distributions." Although a U.S. holder of shares or ADSs in a PFIC can sometimes avoid the rules described above by electing to treat the company as a "qualified electing fund," the Company does not intend to comply with the requirements necessary to permit a U.S. Holder to make this election. A U.S. Holder may be able to make a mark-to-market election if the Company's stock is treated as regularly traded on a registered national securities exchange or other exchange to the extent permitted by the Internal Revenue Service, or "IRS". See "Taxation-United States Tax Considerations." U.S. Holders are urged to consult their own tax advisors concerning the U.S. federal income tax consequences of holding Shares or ADSs if the Company is or becomes a PFIC.

The Company is Susceptible to Interest Rate Risk. Part of Madeco’s bank financial obligations has floating interest rates based on LIBOR or TAB (the Chilean Inter-bank rate). A substantial increase in interest rates would materially adversely affect Madeco’s financial position. There can be no assurance that such a rate increase will not occur.

The Price of Madeco’s ADSs and Any Dividends Will Be Affected by Fluctuations in Exchange Conditions. The Company’s ADSs trade in U.S. dollars. Fluctuations in the exchange rate between certain Latin American currencies and the U.S. dollar are likely to affect the market price of the ADSs. For example, since Madeco’s financial statements are reported in Chilean pesos and any dividend paid will be denominated in Chilean pesos, a decline in the value of the Chilean peso against the U.S. dollar would reduce the Company’s earnings as reported in U.S. dollars and would reduce the U.S. dollar equivalent of any dividend.

A devaluation of the Brazilian, Argentine, Peruvian or Colombian currency versus the U.S. dollar would also reduce the Company’s earnings in Chilean pesos and therefore the earnings reported in U.S. dollars. For example, given the relative importance of Brazilian operations to the Company’s consolidated results, a devaluation in Brazil’s currency could have a materially adverse impact on the Company’s earnings.

For a further discussion regarding the Company’s currency exchange rate risk, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk — Foreign Currency Exchange Rate Risk”.

Holders of ADSs May be Subject to Certain Risks. Due to the fact that holders of ADSs do not hold their shares directly, they are subject to the following additional risks:

In the event of a dividend or other distribution, if exchange rates fluctuate during any period of time when the ADS depositary cannot convert a foreign currency into dollars, the ADS holders may lose some or all of the value of the distribution. There can be no assurance that the ADS depositary will be able to convert any currency at a specific exchange rate or sell any property, rights, shares or other securities at a specific price, or that any of such transactions can be completed within a specific period of time.

In order to vote at shareholders’ meetings, ADS holders not registered on the books of the ADS depositary are required to transfer their ADSs for a certain number of days before a shareholders’ meeting into a blocked account established for that purpose by the ADS depositary. Any ADS transferred to this blocked account will not be available for transfer during that time. ADS holders who are registered on the books of the ADS depositary must give instructions to the ADS depositary not to transfer their ADSs during this period before the shareholders’ meeting. ADS holders must therefore receive voting materials from the ADS depositary sufficiently in advance in order to make these transfers or give these instructions. There can be no guarantee that ADS holders will receive voting materials in time to instruct the ADS depositary how to vote. It is possible that ADS holders, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote at all. Additionally, ADS holders may not receive copies of all reports from Madeco or the ADS depositary. Holders may have to go to the ADS depositary’s offices to inspect any reports issued.

In the event the Company fails to meet any of the continued listing requirements of the New York Stock Exchange, or “NYSE”, the Company’s ADSs may become subject to delisting at the option of NYSE. In 2002, the Company was not in compliance with NYSE’s minimum security price and minimum market capitalization continued listing requirements. On June 21, 2003, the Company regained compliance with both the minimum security price and the minimum market capitalization requirements. The Company has maintained its compliance status during 2007 and for the first quarter of 2008. There can be no assurance that the Company will not fail to meet the NYSE continued listing requirements in the future. See “Item 9. The Offer and Listing - Offer and Listing Details”.

Copper Supply and Price Levels. Copper is the primary raw material used by the Company, and the Company's results of operations are heavily dependent on its ability to buy an adequate supply of copper. Prices for copper are affected by numerous factors outside the Company's control and have historically fluctuated greatly.

The Corporación Chilena del Cobre (Chilean Copper Corporation, “Cochilco”), a governmental entity, guarantees and regulates the supply of copper to all domestic copper manufacturers in Chile according to the Ley de Reserva del Cobre, or the Copper Reserve Law. On an annual basis, all Chilean copper purchasers must inform Cochilco of their estimated copper requirements for the upcoming year. Cochilco assigns the domestic copper demand to the various mining companies and establishes conditions for the sale of copper including price levels, which reflect London Metal Exchange (“LME”) prices adjusted for reduced transportation and related insurance costs. Cochilco establishes the terms of the annual copper supply contracts between the copper producers and manufacturers such as the Company. Under this current system, copper purchases are made on a monthly basis, and payments are required prior to delivery. Over the past 10 years, the Company has not experienced any difficulty in obtaining adequate supplies of copper at satisfactory prices under these arrangements. There can be no assurances, however, that the Company will continue to be able to obtain its required copper at satisfactory prices, if at all.

In Peru, the Company obtains the majority of its copper needs from local mining companies. The copper obtained is used by Cobrecón S.A., a related company which produces copper rod for the Company’s requirements in Peru. In Colombia, the Company fulfills its copper rod requirements from its Chilean related copper rod production companies.

In Brazil, the Company purchases its copper rod requirements from its Chilean related copper rod production companies and from an unrelated third party, Caraiba Metais do Brasil. There can be no assurance that all the copper rod requirements in Brazil will be fulfilled at satisfactory prices, since a portion of the Company’s requirements is obtained from a third party and the rest is obtained from Chilean operations under the regulations of the Copper Reserve Law.

Copper Reserve Law. In 2006, the Chilean Congress set aside a long-standing initiative started in 1996 to abolish the Copper Reserve Law. Currently, there are no initiatives to change the existing law.

Fluctuations in London Metal Exchange Prices of Copper and Aluminum. Historically, international prices of both copper and aluminum have fluctuated greatly. The Company’s price policy is to sell its copper and aluminum products based on the quantity of metal contained in each of them, and the metal is valued at the London Metals Exchange, or “LME”, prices. The Company generally has been able to increase its selling prices in response to increases in costs of copper and/or aluminum. There can be no assurance, however, that the Company will be able to recover increases in the cost of copper and/or aluminum in the future.

There is also risk exposure associated with the copper and aluminum inventories that are not hedged kept by the Company exclusively for the fabrication of its products. Sharp drops in prices for these raw materials can cause the Company significant losses in its financial statements due to lower inventory value.

Company earnings can also be negatively affected by reductions in prices for copper and aluminum due to the difficulty in passing on the higher purchase prices of current metal inventories to the customer. In addition, there could be a decline in demand as customers wait for lower prices before issuing their purchase orders. The historical prices of these metals have experienced wide fluctuations, which are influenced by a great number of factors beyond the Company’s control.

Dependence on Several Raw Material Suppliers. The Company is dependent on a limited number of suppliers for the procurement of copper and aluminum. The Company believes that its contracts and other agreements with third-party suppliers contain standard and customary terms and conditions. During the past ten years, the Company has experienced no substantial difficulties in obtaining adequate supplies of necessary raw materials at satisfactory prices, since these raw materials are commodities that can be acquired from various multinational suppliers. If the Company experiences difficulties in obtaining raw materials from suppliers in the future it would adversely affect the Company’s ability to operate its business.

Demand for Copper Pipes has Persistently Decreased. In spite of the strong demand for copper pipes prior to the year 2000, plastics pipes have increasingly become competitive substitutes for copper pipes due to the increasing price of copper. As the market share for plastics pipes has increased, the sales volume of the Brass Mills business unit has decreased, see “Item 4. Information on the Company — Business Overview — Brass Mills — PBS – Summary of Sales”. The Company believes that this product substitution effect will not decline.

Concentration of Customer Base. Over the past decade, there has been consolidation within the various industries to which the Company sells its products. As a result, the Company’s larger customers are now both fewer in number and more powerful in their ability to demand favorable sales conditions from Madeco such as prices and payment terms. This development could potentially put downward pressure on the Company’s selling prices and margins. See “Item 4. Information on the Company — Business Overview”.

Demand for Telecommunications Cable has Significantly Decreased and is not Expected to Recover to Previous Levels. Despite significant demand in 2000 and 2001 by the telecommunications, or “telecom”, industry for both copper and fiber optic cable, demand for these products which are manufactured by the Company have since significantly diminished. For a further discussion of this decrease in demand, see “Item 4. Information on the Company — Business Overview — Wire & Cable —Wire & Cable - Summary of Sales.” The Company does not expect the demand for these products by the telecom industry to recover in the foreseeable future and there can be no assurance that the demand for these products will increase to previous levels or at all.

Operations are Subject to Environmental Laws and Regulations. Madeco’s operations are subject to laws and regulations relating to the protection of the environment in the various jurisdictions in which the Company operates, such as regulations regarding the release of copper, aluminum or plastics dust into the air. Stricter laws and regulations, or stricter interpretations of existing laws or regulations, may impose new restrictions on the Company or result in the need for additional investments in pollution control equipment, either of which could result in a material adverse effect on Madeco’s profitability.

The Purchase Price Nexans Will Pay for Madeco’s Wire Cable Unit is variable. As consideration for the purchase of Madeco's  Wire & Cable Business Units, Nexans will pay (i) US$ 448 million in cash (approximately Ch$227,024 million, historic value) subject to certain adjustments which are provisioned in the Purchase Agreement, such as minority interest, income tax, financial debt, change in working capital, exchange rates between EUR€, US$ and Ch$, copper and aluminum cost, and investments in fixed assets; and (ii) 2,500,000 shares of Nexans' stock the value of which must represent at least 7.5% of Nexans' outstanding capital stock, but which share are subject to Nexans' shares price and the exchange rate between Euros and Chilean pesos. Due to these external factors Madeco cannot state with any level of certainty a final transaction price. 

Foreign Currency Exchange Rate Risk. Exposure to foreign currency exchange rate risk relates to the Company’s positions held in cash and cash equivalents, bank debt, bonds and other assets and liabilities indexed to currencies other than Chilean pesos.

In accordance with Technical Bulletin 64 issued by the Chilean Association of Accountants (“BT64”), most investments in foreign companies, as well as various liabilities associated with these foreign investments, should be considered as a net U.S. dollar exposure.

With respect to the Company’s foreign investment exposure, gains and losses from exchange rate variations are recorded directly to the cumulative adjustment from foreign currency translation account included in other reserves in shareholders’ equity, without impacting the Company’s income statement. For further information, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk — Foreign Currency Exchange Rate Risk.”

General

Madeco S.A. (formerly known as “Manufacturas de Cobre S.A., Madeco”), was incorporated in the Republic of Chile in 1944 as a sociedad anónima abierta, or open stock corporation, and operates under the laws of Chile. The Company also has operations in Argentina, Brazil, Peru and Colombia.

The Company’s head office and principal business address is located at Ureta Cox 930, San Miguel, Santiago, Chile. The telephone number at the Company’s head office is (56-2) 520-1000, and the facsimile number is (56-2) 520-1545. Its authorized representative in the United States is CT Corporation System, located at 111 Eighth Avenue, 13^th Floor, New York, NY 10011, U.S.A. CT Corporation’s phone number is (1-212) 894-8500.

Madeco’s operations are organized into four principal operating segments or business units based on production processes. The Company’s current business units are:

• Wire & Cable;

• Brass Mills;

• Flexible Packaging; and

• Aluminum Profiles.

Madeco’s principal products include:

• in the Wire & Cable business: copper and aluminum power cables (thermo-plastic, thermo-stable and bare wire), mining cables, building wire, magnetic wires, optical fiber telecommunication cables, copper telecom cables and copper rods;

• in the Brass Mills business: pipes, sheets, coils, busbars, bars and coin blanks made from copper, aluminum and related alloys;

• in the Flexible Packaging business: rotogravure and flexo laminated flexible packaging (plastics, foil, paper); and

• in the Aluminum Profiles business: extruded profiles used mainly in residential and non- residential construction (windows and patio doors, curtain walls), and diverse industrial applications. In 2008, the Company began the production and commercialization of PVC profiles.

In 2007, the Company’s consolidated net revenues amounted to Ch$639,011 million, of which 64.5% was derived from Madeco’s Wire & Cable unit, 16.1% from the Brass Mills unit, 13.9% from the Flexible Packaging unit and 5.5% from the Aluminum Profiles unit.

History

Madeco S.A. was incorporated as an open stock corporation in Chile in 1944 and has expanded over the years into Brazil, Peru, Argentina and Colombia. Today, the Company is a leading Latin American manufacturer of finished and semi-finished non-ferrous products based on copper, aluminum and related alloys as well as a manufacturer of flexible packaging products for use in the mass consumer market for food, snacks and cosmetics products.

In 1944, Madeco was founded by Mademsa to manufacture copper and copper-alloy based products. The original principal shareholders were the Simonetti brothers and Corporación de Fomento de la Produccion (Corfo). In 1954, the Company initiated fabrication of aluminum based products (profiles, sheets and foil).

The company Alusa S.A. was created in 1961 in conjunction with the Zecchetto and Arduini families to manufacture flexible packaging for use in the mass consumer market for food, snacks and cosmetics products.

During the period of political turmoil (1971-1973), Madeco was forcibly nationalized and remained under government control during the administration of President Salvador Allende Gossens.

In 1975, operating control of the Company was returned to the Board of Directors during the military government presided by General Augusto Pinochet Ugarte.

In 1980, through Quiñenco S.A., the Luksic Group (one of the largest diversified companies engaged in the financial services, industrial and telecommunications sectors in multiple countries within Latin America) made a substantial investment in the Company. In 1983, the Luksic Group acquired a majority share and control of the Company.

In 1987, Colada Continua Chilena S.A. was created in Chile in order to ensure the opportune production and delivery of the Company's principal raw material for wire and cable production, copper rod.

In 1988, the Company acquired Armat S.A., a Chilean manufacturer of coin blanks and minted coins made of copper and copper - based alloys.

In 1990, Madeco commenced its wire & cable operations in Argentina, through the acquisition of Indelqui S.A. (a producer of telecom and energy cables).

In 1991, the Company acquired Indalum S.A., a Chilean aluminum profiles manufacturer. In conjunction with this acquisition, Ingewall S.A., was created that same year to participate in the curtain wall fabrication and installation business.

In 1993, Madeco made a capital increase whereby 57,750,000 shares were placed on the Santiago Stock Exchange and on the NYSE in the form of ADRs, raising approximately Ch$35,538 million (historic value) or US$83 million. In addition, the Company acquired Triple - C (a cable producer) in Peru and continued its expansion in Argentina through the acquisition of a power cable plant in Llavallol. The Company also expanded its flexible packaging business into Argentina with the construction of a plant in San Luis (Aluflex S.A.).

In 1994, Madeco acquired the Argentine company Decker S.A., a copper and brass pipes and sheets manufacturer. In Peru, the Company's subsidiary (Triple -C) merged with another large Peruvian cable manufacturer (Indeco S.A.); the new combined operation kept the name Indeco S.A.

In 1996, the Company acquired, through its subsidiary Alusa, a 25% and 25.6% share in two flexible packaging firms in Peru, Peruplast and Tech Pak, respectively.

In 1997, Madeco acquired a 67% share of Ficap S.A., then the second largest cable company in Brazil. In July, the Company made a second international capital increase on the Santiago Stock Exchange and in the form of ADRs on the NYSE; a total of 33,167,661 shares were subscribed and paid, raising approximately Ch$33,168 million (historic value) or approximately US$76 million.

In 1998, the Company acquired the remaining 33% of Ficap S.A.. In Argentina, the Company merged its two operating subsidiaries; the new entity, Decker-Indelqui S.A., incorporated both Cable and Brass Mills operations.

In 1999, the Company and Corning International Corporation (“Corning”) created Ficap Optel, a joint venture in which the Company initially had a 75% interest and Corning the remaining 25%. This joint venture was established to produce, sell and distribute optical fiber cables.

In 2000, Madeco successfully raised Ch$38,651 million (historic value, approximately US$75 million) in a local bond issuance. During April of that same year, the Company raised Ch$6,485 million (historic value), or approximately US$13 million, on the Chilean stock market through the issuance of 15,082,339 unsubscribed shares from a previous 1997 capital increase.

In 2001, the Company modified its Ficap Optel Joint Venture Agreement with Corning. Corning increased its interest in Ficap Optel from 25% to 50% by acquiring a 25% interest from the Company. As part of the new Joint Venture arrangement, Ficap Optel changed its name to Optel S.A. and purchased 99.9% of Corning Argentina S.A.

On December 31, 2001, as a result of the economic crisis in Argentina, Madeco decided to temporarily suspend production for the Wire & Cable and Brass Mills operations of its Argentine subsidiary Decker-Indelqui.

In October 2002, a new team led by Mr. Tiberio Dall'Olio took over the management of the Company. The new administration has extensive experience in the cable manufacturing industry, with a collective average of 30 years experience.

In March 2003, Madeco completed its debt restructuring process, which involved:

• a capital increase of approximately Ch$95,114 million (historic value) including a Ch$3,717 million (historic value) bond equitization, approximately US$181 million, through an offering of 3,714,577,380 shares;
• the payment of 30% of the Company’s outstanding bank debt equal to Ch$28,019 million (historic value, approximately US$38.3 million) and an additional payment of 10.3% of the outstanding debt equal to Ch$7,242 million (historic value, approximately US$9.9 million); and
• a seven year extension on the remaining bank debt equivalent to Ch$54,282 million (historic value, approximately US$74.2 million) with a three year grace period.

In September 2003, as a result of increased demand in Argentina for the Company’s products, Madeco reopened its Decker-Indelqui’s copper pipes plant (Barracas) with a limited production capacity. In November 2003, the Company reopened, also at limited capacity, its brass mills foundry plant (Llavallol) in Argentina.

In 2002, Madeco asked that a request by Corning to terminate the Joint Venture Agreement be decided through arbitration. During the second half of 2003, the arbitration proceedings resulted in a binding decision in Corning’s favor and the Joint Venture Agreement was lawfully terminated. As a result, in March 2005, Madeco bought Corning’s 50% interest in Optel Ltda., bringing its own ownership interest in Optel Ltda. to 100%.

In May 2004, the C Series Bonds were paid (UF1.4 million) and in December the A Series Bonds were paid in advance (UF1.9 million), financed mainly by the proceeds of the issuance of the D Series Bonds (UF1.8 million). A capital increase of Ch$10,240 million (historic value, approximately US$16.1 million) was completed by placing 321 million shares in the Chilean Stock Market.

In 2004, in Brazil the production capacity of magnetic cables was increased by 20% and the introduction of an Enterprise Resources Planning software (ERP), called SAP, was initiated. In November 2004, Madeco reopened partially and, on a non-continuous basis, its wire & cable plants (Llavallol and Quilmes) located in Argentina.

In July 2005, Ficap began operating on the SAP system. In September, Madeco prepaid all the Credit Rescheduling Agreements subscribed by the Company with its creditor banks on December 18, 2002. In November, the Company launched a successful capital increase, raising approximately Ch$43,565 million (historic value, approximately US$84 million), which was used to pay debt. In addition, in the same month, the Argentine subsidiary Decker-Indelqui won public bids to supply over Ch$7,779 million (historic value, approximately US$15 million) of aluminum transmission cables.

During 2006, SAP implementation began in Indeco and Madeco Chile. During the last quarter of 2007, the application of SAP also started in Decker-Indelqui, a process that ended successfully at the end of 2007, along with the Chilean and Peruvian implementations. Furthermore, SAP is being deployed throughout the Company with the aim of achieving high standards of corporate governance and fulfilling international requirements (Sarbanes Oxley and IFRS).

On May 5, 2006, the remaining shares issued and registered on October 17, 2005, were placed on the Santiago Stock Exchange. The offering raised proceeds of approximately Ch$9,463 million (historic value, approximately US$18 million). In June 2006, the Company refinanced a total of Ch$26,972 million (historic value, approximately US$50 million) of its financial debt by means of a 5-year club deal loan (Ch$6,473 million (historic value, approximately US$12 million) to repay debt to Quiñenco, Ch$7,013 million (historic value, approximately US$13 million) to repay a short-term bridge loan, and Ch$13,486 million (historic value, approximately US$25 million) was used for financing working capital). In addition, during 2006, Performance by Skills was introduced at Madeco Chile in order to retain and develop the talent of its employees, and had been fully implemented by the end of 2007.

On February 12, 2007, 80% of Cedsa S.A. (“Cedsa”, a Colombian wire & cable manufacturer) was acquired by the Company for Ch$2,022 million (historic value, approximately US$3.7 million); moreover, Cedsa´s shareholders agreed to a capital increase of Ch$3,279 million (historic value, approximately US$6.0 million), to be subscribed and paid proportionally to their respective shares in two steps. At the first stage, the Company increased its manufacturing capacity from approximately 3,200 tons to 5,400 tons. The second stage is scheduled to be completed by the end of 2008. The Colombian acquisition was made in order to expand the Company’s presence in South America and to take advantage of recent growth opportunities presented by the expansion of the Colombian economy.

In mid February 2007, the Company signed an agreement whereby it increased its holding in Peruplast from 25% to 39.5% and in Tech Pak from 25.6% to 50%. The cash payment was made in the beginning of March 2007, as a disbursement of approximately Ch$1,725 million (historic value, approximately US$ 3.2 million) in the case of Peruplast and Ch$2,857 million (historic value, approximately US$ 5.3 million) in the case of Tech Pak. The Peruvian investor, Nexus Group, also signed contracts by which the same shareholding were acquired in both companies. In addition, both companies agreed to purchase the remaining shareholdings in Peruplast with Shintec S.A. in equal parts, thus permitting shareholdings of 50% in each. In July 2007, the Company increased its shareholding in Peruplast to 50% with the payment of Ch$742 million (historic value, approximately US$ 1.43 million) for the 10.5% interest agreed to earlier in the year. Finally, on October 1, 2007, both Peruvian subsidiaries were merged under the name of Peruplast S.A.

At the Annual Shareholders’ Meeting held on April 24, 2007, the Board of Directors informed shareholders that a change in the dividend policy, reducing the dividend rate from 50% to 30% of net income, had been approved by the Board on March 28, 2007. In addition, the Board called an Extraordinary Shareholders’ Meeting to decide whether to absorb the accumulated losses through a reduction of the share capital. This proposal was accepted and approved at the Extraordinary Shareholders’ Meeting held on April 24, 2007.

On November 8, 2007, Mr. Tiberio Dall'Olio and Julio Córdoba exercised their individual stock options right and purchased 100,000,000 and 20,000,000 shares, respectively. As the five year term, which was established at the Extraordinary Shareholders' Meeting held in 2002, within which to exercise any stock options granted pursuant to compensation plans has expired, there are no such stock options outstanding. For further information about the compensation plans, see "Item 6. Directors, Senior Management and Employees - Senior Management - Compensation".

On November 15, 2007, Madeco and the French cable manufacturing company, Nexans, entered into a framework agreement whereby Madeco would transfer all the assets of its Wire & Cable unit located in Colombia, Peru, Brazil, Argentina and Chile, to Nexans, in exchange for a cash payment of Ch$227,024 million (historic value) or US$448 million, and 2.5 million shares of Nexans' stock (approximately an 8.9% shareholding in Nexans). If completed, this transaction would not only make the Company a major shareholder of Nexans but also affords it an opportunity to elect a representative of Madeco as a member of the Nexans' board of directors.

Nexans is the worldwide leader in the Cable industry, with sales over Ch$5,366 billion or US$10.8 billion in 2007, with a presence in five continents and a broad mix of products, including specialized and high-tech cables such as submarines and umbilicals. On the day this transaction was announced, the net profit from the transaction was estimated at approximately Ch$143,410 million (historic value) or approximately US$283 million and the enterprise value of the Wire & Cable unit at Ch$417,055 million (historic value) or approximately US$823 million. The transaction is expected to be completed before September 30, 2008, following the approval of both Madeco and Nexans shareholders and the pertinent legal authorizations are obtained.

By the end of November 2007, the Board, in order to facilitate the reorganization of the Company, agreed to the creation of three new subsidiaries (closely-held corporations) to be held 100% directly and indirectly by the Company. The first was created to be related to the Wire & Cable business, the second was created to be related to the Brass Mills business and the last one was created as an investment subsidiary. Each of these companies was formed with 100 shares of no par value and initial capital of Ch$1,000,000. This capital will be increased once the business units’ investments and/or assets are contributed, as determined by the Board accordance with current legislation.

The Company’s Board, at its meeting held on December 18, 2007, and in accordance with Circular 660 of the Superintendency of Securities and Insurance, agreed to distribute an interim dividend of Ch$2.65 per share as a charge to net income for 2007. This dividend was paid on January 18, 2008 to all shareholders of the Company as recorded on the Company’s official registrar on January 12, 2008.

Nexans

On November 15, 2007, Madeco entered into a Framework Agreement with the French company, Nexans, whereby Madeco agreed the transfer all of the assets of its Wire & Cable unit in Chile, Argentina, Peru, Brazil and Colombia to Nexans, at a preliminary price of US$448 million or approximately Ch$227,024 million (historic value) plus 2.5 million shares of Nexans, totaling approximately US$823 million or approximately Ch$417,055 million (historic value). Pursuant to this Framework Agreement, the parties must perform reciprocal due diligence and sign a final contract before the completition of this transaction.

On February 21, 2008, Madeco and Nexans entered into a Purchase Agreement by which Madeco will transfer all of the assets and liabilities of its Wire & Cable unit in Chile, Peru, Brazil, Argentina and Colombia, subject to certain conditions (as discussed below).

At Nexans' Annual Shareholders' Meeting held on April 10, 2008, Nexans' shareholders approved the transaction with the Company and also agreed to elect Madeco's representative to its board of directors.

On April 23, 2008, the Board of Directors of the Company agreed to ask shareholders at the next Annual Shareholders’ Meeting, which is scheduled to be held no later than April 30, 2009, to approve the distribution of an extraordinary dividend of up to US$ 165 million or approximately Ch$73,504 million (historic value) , or 76% of the net profit expected from the transaction between Madeco and Nexans (as estimated on February 21, 2008), which is dependent on the completion of this transaction. For further information about Madeco´s dividend policy, see “Item 8. Financial Information – Consolidated Statements and Other Financial Information – Dividend Policy”

At Madeco's Extraordinary Shareholders' Meeting held on April 25, 2008, Madeco's shareholders approved the transaction with Nexans as described in the Purchase Agreement. This transaction involves the sale of approximately 51% of the Company's assets, according to its Consolidated Financial Statements as of December 31, 2007. At this Extraordinary Shareholders' Meeting, the Company provided certain information regarding Nexans and the Purchase Agreement:

(a) Information as to Nexans and the Transaction. According to Nexans, Nexans is the largest cable company in the world with an industrial and commercial presence in Europe, North America, Asia, Africa, Oceania, South America and Brazil. Its sales in 2007 exceeded EUR€ 7,400 million equivalent to US$11,548 million (approximately Ch$5,738 billion), which is 45% higher than those of its nearest competitor Prysmian and a 120% greater than those of the third largest global participant in this industry, General Cable.

In 2007, Nexans had an EBITDA of EUR€ 510 million, equivalent to US$796 million (approximately Ch$395,524 million), and a profit of almost EUR€ 190 million, equivalent to US$296 million (approximately Ch$147,079 million). Additionally, Nexans has an important market capitalization on the Paris Stock Exchange, which as of April, 2008 exceeded EUR€ 2,180 million equivalent to US$3,401 million (approximately Ch$1,690 billion), and a significant volume of daily transactions. With regard to the proposed sale of Madeco's Wire & Cable unit, Nexans will pay:(i) Ch$227,024 million (historic value) or US$ 448 million in cash, subject to certain adjustments described in the Purchase Agreement, including minority interest, tax, financial debt, change in working capital and investments in fixed assets; and (ii) 2,500,000 shares of Nexans´ common stock. Moreover, subject to the completion of the transaction, Mr. Guillermo Luksic Craig as a representative of Madeco, will be elected to Nexans´ board of Directors.

(b) Completion Date of the Transaction (the "Closing Date"). The Closing Date for this transaction is dependent on the fulfillment of certain conditions required to complete this transaction, or conditions for closing, which are explained further below. The Closing Date is to occur on the last day of the month in which these conditions for closing are fully accomplished. The Purchase Agreement also provides that the Closing Date should be no later than September 30, 2008.

(c) Representations & Warranties. The Company believes that the Representations & Warranties (the "R&W") in the Purchase Agreement are typical of those representations and warranties usually found in agreements involving similar transactions. All of the R&W made by Madeco are to remain in force until December 2009, with the exception of the following: (i) the labor and tax R&W, which shall survive until such time as the applicable statutes of limitations expire, including any extensions provided thereto; (ii) the environmental R&W,  which shall expire three years after the Closing Date; and (iii) those R&W, containing statements regarding the ownership of the shares and titles to properties being sold under the agreement, which shall expire 10 years after the Closing Date.

(d) Ancillary Agreements by Madeco. Under the Purchase Agreement, the Company will agree that, for a period of 12 months after the Closing Date, it will not sell to third parties the Nexans shares it receives as part of this transaction, and, for a period of 12 to 18 months after the Closing Date, it will not sell more than 50% of such shares.

(e) Covenants. Under the Purchase Agreement, the Company will agree to be obligated by certain covenants contained therein, which include, but are not limited to, the following: the Company (i) will undergo a corporate reorganization; (ii) will exercise its best efforts to obtain those permits and government authorizations required to complete the corporate reorganization; (iii) will operate the Company in its ordinary course of its business; (iv) will, prior to the Closing Date, report to Nexans any relevant issues of which it becomes aware; (v) will maintain a shareholders' equity of at least US$250 million  (historic value), approximately Ch$117,073 million, until all of the R&W expire; (vi) will compensate Nexans for any breach to the Purchase Agreement or other transaction documents for which Madeco is responsible; (vii) will, grant to Nexans the same security interests (or "garantías reales") it may grant in the future to a creditor of the Company; (viii) will not compete with Nexans in the Wire & Cable business for a period of three years from the Closing Date;  and (ix) will maintain as confidential any information, of which the Company becomes aware as a result of its involvement in this transaction, which is not already publicly known.

(f) Conditions for Closing. The Purchase Agreement contains certain conditions for closing, which include, among others, that: (i) an event shall not have occurred which may cause a decrease of more than US$ 18 million (historic value) approximately Ch$8,429 million in the value of the Company’s assets which are to be acquired by Nexans or which will result in a material adverse change in the business, operations, properties, assets or condition of the companies whose shares are to be transferred to Nexans; (ii) an event shall not have occurred which may cause a decrease in Nexans’ shareholders’ equity in excess of €150,000,000; (iii) the 2.5 million shares of Nexans which are to be used as a form of payment in this transaction, must represent at least 7.5% of Nexans’ outstanding share capital; (iv) the corporate reorganization of Madeco must be completed and any approvals from antitrust and government authorities obtained; (v) Madeco's shareholders must have authorized the transaction; and (vi) if, for the period that is 30 days prior to the Closing Date, the average price of copper shall have come to US$ 5,000 per ton, approximately ThCh$2,341 per ton, or exceeded US$9,000 per ton, approximately ThCh$4,215 per ton, then Nexans and Madeco shall have negotiated a new value for working capital as defined in the Purchase Agreement.

(g) Indemnification of Nexans by Madeco. Nexans will be compensated upon any breach by Madeco of its representations and warranties and other obligations under the Purchase Agreement. Also, Nexans will be entitled to reimbursement for: (i) those tax payments that it is required to make, which arise from incidents occurring prior to the Closing Date, except those incidents involving Chile, Peru and Colombia, for which the Company has provided representations and warranties in the Purchase Agreement, (ii) civil and labor proceedings in Brazil, (iii) environmental unreported liabilities; and (iv) the obligations of the companies that Nexans will acquire which are not related to the Wire & Cable business.

(h) Liability of Madeco. The Purchase Agreement provides that Madeco will not be liable for damages caused by an individual event, where such event does not exceed US$ 73,000 (historic value) approximately Ch$34 million, or for damages caused by cumulative events, not counting damages resulting from an individual event, where such damages do not exceed US$ 1.46 million (historic value) approximately Ch$684 million. Additionally, under the Purchase Agreement, Madeco's liability is limited to US$ 347 million (historic value) approximately Ch$162,497 million of tax contingences, and to US$ 146 million (historic value) approximately Ch$68,370 million for breach of its representations and warranties and other obligations under the Purchase Agreement.

Capital Expenditures and Divestitures

In recent years, capital expenditures have been primarily used to eliminate bottlenecks in the production process, replace and update equipment, increase Madeco’s production capacity and to analyze and look for new asset acquisitions that added favorable synergies to the Company’s different business units. The Company’s capital expenditures for 2005, 2006 and 2007 totaled approximately Ch$45,523 million. In 2007, investments reached Ch$18,727 million. Madeco’s investment policy is focused on the acquisition of assets necessary for the Company to sustain its businesses and operations in the long term and to improve its operational efficiencies, in order to increase value for its shareholders. For further information related to capital expenditure plans, see “Item 5. Operating and Financial Review and Prospects – Capital Expenditures”.

Wire & Cable Unit. In 2007, capital expenditures amounted to Ch$9,613 million, which was equivalent to 132.7% of the unit’s depreciation. Of this amount, approximately 64%, 22% and 9% was invested in Ficap, Indeco and Cedsa, respectively. In Brazil, the Company’s investments were oriented toward increasing the production capacity for aluminum and copper cables. In Peru, resources were mainly allocated for the acquisition of new cabling machines, and to a lesser degree, for the installation of ERP SAP software. In Colombia, investments included the increase of installed production capacity. In Chile and Argentina, capital expenditures were not material.

In 2006, capital expenditures amounted to Ch$4,612 million, which was equivalent to 57.7% of the unit’s depreciation. Of this amount, approximately 61%, 23% and 15% was invested in Ficap, Indeco and Madeco, respectively. In Brazil, the Company’s investments included the acquisition of wire-related machinery and equipment to increase production. In Peru, resources were mainly allocated towards improvements in drawing and cabling machines. In Chile, investments primarily included the acquisition of a wire drawing machine. In Argentina, capital expenditures were not material.

In 2005, capital expenditures amounted to Ch$2,756 million, equivalent to 42.5% of the unit’s depreciation. In Brazil, investments included the acquisition of wire-related machinery and equipment, and information technology improvements, including the implementation of Enterprise Resources Planning software (ERP), SAP. In Peru, the Company invested in machinery to increase production. In Chile, investments primarily included the acquisition of a continuous copper casting line for the Lo Espejo facility, and machinery to increase production. In Argentina, capital expenditures were not material.

Brass Mills Unit. In 2007, capital expenditures amounted to Ch$950 million, which was equivalent to 38.1% of the unit’s depreciation. Of this amount, 50%, 26% and 24% was invested in Chile (tubes & pipes), Armat (coin blanks) and Argentina, respectively. The unit’s significant investment was the acquisition of an induction furnace for the purpose of reducing production costs.

In 2006, capital expenditures amounted to Ch$553 million, which was equivalent to 21.7% of the unit’s depreciation. The unit’s significant investment was the acquisition of a new copper tube washing machine for the Chilean facility. In Argentina, capital expenditures were not material.

In 2005, capital expenditures amounted to Ch$889 million, which was equivalent to 32.4% of the unit’s depreciation. Most of the unit’s investments were related to the acquisition of a new copper tube washing machine in Chile. In Argentina, capital expenditures were not material.

Flexible Packaging Unit. In 2007, capital expenditures amounted to Ch$4,178 million, which was equivalent to 87.8% of the unit’s depreciation. The unit’s investments were mainly allocated to the acquisition of new extruding machines and flexographic printers for its operations in Chile, Peru and Argentina.

In 2006, capital expenditures amounted to Ch$7,100 million, which was equivalent to 262.4% of the unit’s depreciation. The unit’s investments were allocated to the Chilean subsidiary mainly for the purchase of a nearby property and a rotogravure printing machine. In Argentina, funds were used towards the purchase of an extruding machine and other related printing process machinery.

In 2005, capital expenditures amounted to Ch$5,792 million, which was equivalent to 237.9% of the unit’s depreciation. Investments were primarily related to the acquisition of machinery and equipment for the production facilities in Chile and Argentina, including two extruding machines, a cutter machine, a cylinder engraving machine and some cylinders.

Aluminum Profiles Unit. In 2007, capital expenditures amounted to Ch$3,986 million, which was equivalent to 308.3% of the unit’s depreciation. Most of the unit’s investments were related to the new PVC profiles extruding facilities (PVTEC). These expenditures were made in order to diversify the unit’s product base. Other investments were related to the expansion of manufacturing capacity and cost efficiencies.

In 2006, capital expenditures amounted to Ch$3,129 million, which was equivalent to 274.7% of the unit’s depreciation. Most of the unit’s investments were related to the new PVC subsidiary (PVTEC).

In 2005, capital expenditures amounted to Ch$1,964 million, equivalent to 187.6% of the units depreciation. Investments were made to improve the manufacturing process and capacity.

Strategy

For the period from 2003 through 2005, a Strategic Operational Business Plan (“Business Plan”) was created to make improvements in the marketing, production and administrative areas of the Company, with special emphasis on the Wire & Cable business unit and its largest operation, Ficap S.A. in Brazil.

After successfully implementing the 2003 - 2005 Business Plan, in late 2005, Madeco used it as a basis to define the 2006 - 2008 Business Plan. This new Business Plan was developed in order to focus efforts to grow, increase profitability, consolidate its current position and to develop the skills of its employees. The main objectives of the new Business Plan are the following:

• consolidate the activities of the Wire and Cable unit;

• diversify and search for growth and profit opportunities for the Brass Mills unit;

• make the Flexible Packaging unit profitable;

• maintain leadership in the Aluminum Profiles unit;

• achieve operational excellence by searching for process homologation options and best practices in the different business units;

• implement a strategic management policy in human resources; and

• consolidate the Company’s financial position.

Progress is being made in meeting the objectives of the 2006-2008 strategic plan, such as consolidation of the performance of the Wire and Cables and Flexible Packaging units and maintenance of the Aluminum Profiles unit’s market leadership position. In addition, the Company’s financial position has improved and it is reducing its leverage. Furthermore, the Company implemented SAP throughout several of its subsidiaries, achieving higher standards of corporate governance and management control. Finally, the Company put into practice the “Skills Management Program” in order to standardize processes and best practices, thus encouraging the development of the Madeco group employees.

In accordance with its 2006-2008 Business Plan, the Company will develop a new Business Plan by the end of 2008 that will set strategic guidelines for the Company in order to increase profitability, regional leadership and value addition to its shareholders, based on the future outlook of the Company, taking into consideration whether at such time the proposed transaction with Nexans has been completed.