Notes to the Consolidated Financial Statements At december 31, 2006 and 2005 (Translation of the original in Spanish)
NOTE 28 - CONTINGENCIES AND RESTRICTIONS • Direct guarantees: To guarantee Banco BICE full compliance with any and all current and future obligations incurred by Empresas CMPC S.A. and subsidiaries, the Company set up a first mortgage of ThCh$ 4.745.822 - ThUS$ 8,914 on the mezzanine and 2nd, 3rd, 4th and 5th floors of the building located at Agustinas 1343, per public deed dated March 16, 2001, before the Notary Enrique Morgan under digest number 1290. • Indirect guarantees The loans and bond issuances of the subsidiary Inversiones CMPC S.A., through its Agency in the Cayman Islands, were guaranteed by Empresas CMPC S.A. The UF bond issuance made by the subsidiary Inversiones CMPC S.A. in Chile, was guaranteed by Empresas CMPC S.A. In the case of indirect guarantees, the creditor of the guarantee backed by Empresas CMPC S.A., is the holder of the document, since such documents are transferable. Empresas CMPC S.A. guaranteed compliance by Grupo ABS Internacional S.A. de CV (subsidiary in Mexico) of the loan re-negotiated with Banamex. This guarantee was implemented by the issue of a letter of credit through Citibank N.A. Empresas CMPC S.A. guaranteed the compliance by La Papelera del Plata S.A. (subsidiary in Argentina), of a lease contract on the machinery this company subscribed with Citibank N.A. • Restrictions Empresas CMPC S.A., as a result of certain debt contracts entered into by its subsidiary, and guaranteed by them, has to comply with certain financial indicators (“covenants”). These are to maintain a minimum equity, a maximum indebtness level and a minimum level of financial expenses coverage. At December 31, 2006, such indicators are amply complied with. • Lawsuits a) At December 31, 2006, the subsidiaries Forestal Mininco S.A. and Forestal Crecex S.A. have participated in a number of proceedings involving growers and landholders regarding boundaries and other disputes. At December 31, 2006, Forestal Mininco S.A. has a provision of ThCh$ 150,000 – ThUS$ 282. b) In August 2001, the Supreme Court unanimously confirmed the rule that accepted the claim presented by the subsidiary CMPC Celulosa S.A. declaring that the Central Bank had to pay the promissory notes issued by that public body, pursuant to the calculation rules contained in them upon issuance and not under a new calculation formula subsequently established by the debtor. The Central Bank did not accept the rule, invoking a technical impossibility to arrive at the determination of the proper amount. In view of that refusal, CMPC has had to begin new legal procedures in which the Central Bank has continued presenting any kind of dilatory motions. • Other lawsuits a) Tax Lawsuit filed against CMPC Celulosa S.A. for a claim over tax settlement made by the S.I.I. on April 30, 2003, and related to the appraisal of the value of shares internally transferred. Due to weaknesses in procedures, the Company appealed to the Supreme Court (case N° 1767-3) which was accepted for consideration on August 5, 2005 and which would produce the invalidation of the judgment. The company lawyer’s have a favorable opinion therefore, no allowances have been made. b) As of December 31, 2006, the subsidiary Papelera del Plata S.A. in Argentina, has several lawsuits in a number of Argentine labor courts, which involve committed amounts of ThCh$ 1,297,570 -ThUS$ 2,437 (ThCh$ 814,876 en 2005 - ThUS$ 1,557).