UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM 8-A
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(B) OR 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934
DESC, S.A. DE C.V.
--------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
United Mexican States 52-1106564
-------------------------------------------- ----------------------------
(State of Incorporation or Organization) (I.R.S. Employer
Identification no.)
Paseo de los Tamarindos 400-B
Bosque de las Lomas
Mexico, D.F.
Mexico 05120
-------------------------------------------- ----------------------------
(Address of Principal Executive Offices) (Zip Code)
If this form relates to the If this form relates to the
registration of a class of registration of a class of
securities pursuant to Section securities pursuant to Section
12(b) of the Exchange Act and 12(g) of the Exchange Act and
is effective pursuant to General is effective pursuant to General
Instruction A.(c), please Instruction A.(d), please
check the following box. [X] check the following box. [ ]
Securities Act registration statement file number to which this form
relates: 33-80126
--------
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
------------------- ------------------------------
Series B shares, without New York Stock Exchange
expression of par value
Securities to be registered pursuant to Section 12(g) of the Act:
None
EXPLANATORY NOTE
----------------
At Shareholders Meetings held on March 8, 2004, the applicable
shareholders of Desc, S.A. de C.V. approved a mandatory conversion of all the
issued and outstanding series C shares of Desc into series B shares of Desc on a
one-to-one basis (the "Reclassification"). The effective date of the
Reclassification is March 16, 2004. Upon the effective date of the
Reclassification, each Series C share will be reclassified as a Series B Share
and each American Depositary Share ("ADS") of Desc, which formerly represented
twenty series C shares, will represent twenty series B shares. The holders of
series C shares and ADSs had limited voting rights that entitled them to vote
only upon certain limited matters designated in Desc's bylaws. The series B
shares, however, have full voting rights.
ITEM 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
Set forth below is certain information concerning Desc, S.A. de
C.V.'s ("Desc") capital structure and a description of certain provisions of
Desc's bylaws as they currently exist and of applicable Mexican law regarding
Desc's Series B common stock, without expression of par value ("Series B
shares"). This description does not purport to be complete and is qualified in
its entirety by reference to Desc's bylaws and the applicable provisions of
Mexican law. An English translation of Desc's bylaws has been filed as an
exhibit to this Form 8-A.
SHARE CAPITAL
Desc's capital stock consists of 2 classes of common stock: Series A
common stock and Series B common stock. Desc's bylaws require that the Series A
shares represent at all times at least 51% of the outstanding capital stock.
VOTING RIGHTS
Each Series A share and Series B share has full voting rights and
entitles the holder to one vote at any meeting of Desc's stockholders. The
holders of the Series A shares have the right to elect one more than half of the
board of directors. The holders of the Series B shares have the right to elect
the remaining members of the board of directors. Stockholders or groups of
stockholders holding shares of any one class of shares which represent at least
10% of Desc's total equity capitalization are entitled to designate one director
of the relevant series for each 10% held. Desc bylaws require that the A Shares
represent at all times at least 51% of the outstanding capital stock.
Under Mexican law, the holders of shares of any series are also
entitled to vote as a class at a special meeting on any action that would
prejudice the rights of holders of such series, and a holder of such series
would be entitled to judicial relief against any such action taken without such
a vote. The determination whether an action requires a class vote on these
grounds would initially be made by Desc's board of directors or other party
calling for stockholder action. Any determination that an action does not
require a vote at a special meeting would be subject to judicial challenge by an
affected stockholder, and the need for a vote at a special meeting would
ultimately be determined by a court. There are no other procedures for
determining whether a proposed stockholder action requires a class vote, and
Mexican law does not provide extensive guidance on the criteria to be applied in
making such a determination.
2
STOCKHOLDERS' MEETINGS
Under Mexican law and Desc's bylaws, Desc may hold three types of
stockholders' meetings: ordinary, extraordinary and special. Ordinary
stockholders' meetings are those called to discuss any issue specified in
Article 181 of the Ley General de Sociedades Mercantiles (the "Mexican Companies
Law") and other issues not reserved for extraordinary stockholders' meetings. An
ordinary stockholders' meeting must be held at least annually during the four
months following the end of each fiscal year to consider certain matters
specified in Article 181, including, among other things, the approval of the
report prepared by the board of directors on Desc's financial statements for the
preceding fiscal year, the appointment of members of Desc's board of directors
and statutory examiners and the determination of compensation for members of
Desc's board of directors and statutory examiners.
Extraordinary stockholders' meetings are those called to consider the
matters specified in Article 182 of the Mexican Companies Law, including:
o extension of Desc's duration or voluntary dissolution;
o an increase or decrease in Desc's minimum fixed capital;
o change in Desc's corporate purpose or nationality;
o any transformation, merger or spin-off of Desc;
o any stock redemption or issuance of preferred stock or bonds;
o the cancellation of the listing of Desc's shares with the
Registro Nacional de Valores;
o amendments to Desc's bylaws; and
o other matters for which applicable Mexican law or the bylaws
specifically require an extraordinary meeting.
Special stockholders' meetings are those called and held by
stockholders of the same series or class to consider any matter particularly
affecting the relevant series or class of shares.
Under Mexican law, holders of 20% of Desc's outstanding capital stock
may have any stockholder action set aside by filing a complaint with a Mexican
court of competent jurisdiction within 15 days after the close of the meeting at
which the action was taken, which shows that the challenged action violates
Mexican law or Desc's bylaws. Relief under these provisions is only available to
holders (1) who were entitled to vote on the challenged stockholder action and
(2) whose shares were not represented when the action was taken or, if
represented, voted against such action.
3
Stockholders' meetings are required to be held in Desc's corporate
domicile, which is Mexico City. Calls for stockholders' meetings must be made by
Desc's board of directors or statutory examiners or any Mexican court of
competent jurisdiction. Desc's board of directors or statutory examiners may be
required to call a meeting of stockholders by the holders of 10% of Desc's
outstanding capital stock.
Notice of stockholders' meetings must be published in the Diario
Oficial de la Federacion or in a newspaper of major circulation in Mexico City
at least 15 days prior to the meeting. Unless the approval of financial
statements is to be discussed at the meeting, such notice period may be reduced
to 5 days if Desc's board of directors deems such reduction appropriate based on
the urgency of the matters to be discussed at such meeting. Each call of a
stockholders' meeting must set forth the place, date and time of the meeting and
the matters to be addressed at such meeting. Calls of a stockholders' meeting
must be signed by whoever makes such calls.
In order to attend and vote at a stockholders' meeting, a stockholder
must request and obtain an admission card by depositing its share certificates
(or evidence of deposit thereof in a Mexican bank) with the Secretary of Desc at
least one day prior to the meeting. The stockholders may be represented at a
stockholders' meetings by proxies named through a notarized power of attorney, a
proxy letter or a power of attorney conferred in the form prepared by Desc for a
specific meeting.
QUORUM
A quorum on a first call of an ordinary stockholders' meeting is at
least 50% of the outstanding shares. In order for a resolution of the ordinary
stockholders' meeting to be validly adopted as a result of a first or a
subsequent call, the favorable vote of the majority of the shares represented at
such meeting is required.
The quorum on a first call for an extraordinary stockholders' meeting
is at least 75% of the outstanding shares. An extraordinary stockholders'
meeting may be validly held pursuant to a second call with a quorum of at least
50% of the outstanding shares. In order for a resolution of the extraordinary
general meeting to be validly adopted as a result of a first or a subsequent
call, the favorable vote of 50% of the outstanding shares is required.
WITHDRAWAL RIGHTS
The outstanding variable portion of Desc's capital stock may be fully
or partially withdrawn by the stockholders. The minimum fixed portion of Desc's
capital stock specified in Desc's bylaws cannot be withdrawn. A holder of shares
representing Desc's variable capital stock that wishes to effect a total or
partial withdrawal of its shares must notify Desc in an authenticated written
notice to that effect. If notice of withdrawal is received prior to the last
quarter of the fiscal year, the withdrawal becomes effective at the end of the
fiscal year in which the notice is given. Otherwise, the withdrawal becomes
effective at the end of the following fiscal year.
4
The redemption of a stockholder's shares would be made at the lower
of: (i) 95% of the value quoted on the Bolsa Mexicana de Valores, S.A. de C.V.
(the "Mexican Stock Exchange") obtained from the weighted average price per
volume of operations done during the last thirty days during which the shares of
Desc have been traded, prior to the date on which the redemption must take
effect, for a period that may not be more than six months; or (ii) the book
value of the shares according to the general balance sheet corresponding to the
close of the fiscal year immediately prior to that in which the separation must
take effect, previously approved by the General Ordinary Stockholders Meeting.
If the number of days on which the shares have been traded during the period set
forth in the preceding paragraph is less than thirty, the days shall be taken
when they were actually traded. If the shares were not traded in said period,
the book value of the shares shall be used.
The redemption shall be done against delivery and cancellation of the
respective shares. Since Desc's inception, no stockholder has ever exercised its
right to withdraw.
DIVIDENDS AND DISTRIBUTIONS
At Desc's annual ordinary general stockholders' meeting, Desc's board
of directors must submit to the holders of the Series A shares and the Series B
shares Desc's financial statements for the preceding fiscal year. Five percent
of Desc's net earnings must be allocated to a legal reserve fund until such fund
reaches an amount equal to 20% of Desc's capital stock. Prior to the increase in
capital approved by our stockholders on March 8, 2004, Desc's legal reserve fund
satisfied this requirement. Additional amounts may be allocated to
extraordinary, special or additional reserve funds as the stockholders may from
time to time determine. The remaining balance, if any, of net earnings may be
distributed as dividends or allocated for the redemption of shares. Any
redemption must be approved in advance at an extraordinary stockholders'
meeting.
Dividends are paid to the registered holder of the relevant share or
the duly authorized representative of such holder upon delivery of the
applicable coupon. With respect to share certificates deposited with Indeval
S.A. de C.V., Institucion para el Deposito de Valores ("Indeval"), payment of
dividends is made through Indeval in accordance with customary payment
procedures. Partially paid shares may participate in any distribution to the
extent that such shares have been paid at the time of the distribution. Desc's
ability to pay dividends is subject to limitations under our credit agreements
and to Mexican legal requirements, which provide that a corporation may declare
and pay dividends only out of the profits reflected in its year-end financial
statements (approved by its stockholders), only if such payment is approved by
its stockholders, and then only after the creation of a required legal reserve
and the set off or satisfaction of losses, if any, incurred in previous fiscal
years.
5
LIQUIDATION RIGHTS
Upon a dissolution of Desc, one or more liquidators must be appointed
at an extraordinary stockholders' meeting to wind up Desc's affairs. All fully
paid and outstanding shares of capital stock, regardless of class, will be
entitled to participate equally in any distribution upon liquidation. Partially
paid shares participate in a liquidation distribution in the same manner as they
would in a dividend distribution.
CHANGES IN SHARE CAPITAL
An increase of capital stock may be effected through the issuance of
new shares for payment in cash or in kind, by capitalization of indebtedness or
by capitalization of certain items of stockholders' equity. No increase of
capital stock may be effected until all previously issued shares have been fully
paid. A reduction of capital stock may be effected to absorb losses, to redeem
shares or to release stockholders from payments not made. A reduction of capital
stock to absorb losses may be effected by reducing the value of all outstanding
shares. A reduction of capital stock to redeem shares may be effected by
reimbursing holders of shares pro rata or through a drawing before a public
broker. Stockholders may also approve the redemption of fully paid shares with
retained earnings, which would be effected by a repurchase of shares on the
Mexican Stock Exchange (in the case of shares listed thereon).
Desc's capital stock may be increased or decreased only by resolution
of an extraordinary general stockholders' meeting and, if such increase or
decrease affects the fixed portion of Desc's capital, an amendment to Desc's
bylaws. Any holders of the Series A shares or the Series B shares would be
entitled to vote on an increase or decrease in capital stock.
No stockholder resolution is required for decreases in capital stock
based on the exercise of a stockholder's right to withdraw variable shares or
Desc's purchase of its shares or for increases based on a resale by Desc of
shares it previously purchased.
PREEMPTIVE RIGHTS
In the event of a capital increase through the issuance of new shares
for payment in cash or in kind, a holder of existing shares generally has a
preferential right to subscribe for a sufficient number of new shares to
maintain the holder's proportionate holdings of shares.
Except in limited circumstances, preemptive rights must be exercised
within the period and under the conditions established for such purpose by the
stockholders' meeting approving the increase and under Desc's bylaws, and in no
case may such period be less than 15 calendar days following the publication of
notice of the capital increase in the Diario Oficial de la Federacion, provided
that if all stockholders are present or represented at such meeting such
publication shall not be required. Otherwise, such rights will lapse. Under
Mexican law, preemptive rights may not be waived in advance by a stockholder and
cannot be represented by an instrument that is negotiable separately from the
corresponding share. Holders of American Depositary Shares may exercise
preemptive rights only through the depositary.
6
REGISTRATION AND TRANSFER OF THE SHARES
All of Desc's series of shares are evidenced by share certificates in
registered form, and registered dividend coupons may be attached to the
certificates. Share certificates held by stockholders may have dividend coupons
attached. If Desc and Indeval agree, share certificates deposited with Indeval
will have no dividend coupons attached. Dividend coupons may only be presented
for payment by the registered holder of the related share or its duly appointed
agent. Stockholders of Desc may either hold their shares directly, in the form
of physical certificates, or indirectly through institutions that have accounts
with Indeval. Accounts may be maintained at Indeval by brokers, banks, other
financial institutions or other entities ("Indeval Participants") approved by
the Comision Nacional Bancaria y de Valores (the National Banking and Securities
Commission or the "CNBV"). Desc maintains a share registry, and only those
persons listed in such registry and those holding certificates issued by Indeval
and any relevant Indeval Participant indicating ownership will be recognized as
stockholders by Desc.
OTHER PROVISIONS
LIABILITIES OF THE MEMBERS OF THE BOARD OF DIRECTORS
Under Mexican law, an action for civil liabilities against members of
Desc's board of directors may be initiated by a stockholders' resolution. The
director against whom such action is brought will cease to be a member of the
board immediately upon the stockholders' adoption of a resolution demanding
responsibility for such civil liabilities. Additionally, stockholders
representing not less than 15% of Desc's outstanding shares may directly take
such action against members of Desc's board of directors, if (1) such
stockholders have not voted against taking such action at the relevant
stockholders' meeting and (2) the claim in question covers damage alleged to
have been caused to Desc and not merely to the individual plaintiffs. Any
recovery of damages with respect to the action will be for Desc's benefit and
not for the stockholders bringing such action.
PURCHASE BY DESC OF ITS SHARES
According to Mexican law, Desc may repurchase any Desc shares on the
Mexican Stock Exchange at any time at the then prevailing market price. If Desc
repurchases Desc's shares and holds onto them (i.e., the shares are not
cancelled or placed in Desc's treasury), Desc must record such repurchase as a
charge to Desc's net worth. If the repurchased shares are placed in Desc's
treasury, Desc must record such repurchase as a charge to Desc's stockholders'
equity and no stockholder approval is REQUIRED. The general ordinary
stockholders' meeting must expressly approve for each fiscal year the maximum
amount of funds that may be used for stock repurchases, with the sole limitation
that such designated amount may not exceed Desc's net profits, including
retained profits. Any of Desc's shares that are owned by Desc and are not
cancelled or placed in Desc's treasury may not be represented at any
stockholders' meeting. Desc may publicly sell any of these repurchased shares,
whether owned directly by Desc or held as treasury shares.
7
REPURCHASES IN THE EVENT OF DELISTING
In accordance with the regulations of the CNBV, Desc's majority
stockholders are obligated to make a public offer for the purchase of stock held
by minority stockholders if the listing of Desc's stock with the Mexican Stock
Exchange is canceled, either by resolution of Desc or by an order of the CNBV.
The price at which the stock must be purchased by the majority stockholders is
the higher of:
o the average quotation price for the 30 days prior to the date of
the offer; or
o the book value, as reflected in the last quarterly report filed
with the CNBV and the Mexican Stock Exchange.
The majority stockholders are not bound to make the repurchase if all
Desc's stockholders agree to waive that right.
APPRAISAL RIGHTS
Whenever a stockholders' meeting approves a change of Desc's
corporate purpose, a change of Desc's nationality, a restructuring from one type
of corporate form to another or a spin-off (escision), any stockholder who has
voted against such change or restructuring has the right to withdraw from Desc
and receive an amount equal to the book value of Desc's shares (in accordance
with Desc's latest balance sheet approved by an ordinary general meeting),
provided the dissenting stockholder exercises its right to withdraw during the
15-day period following the meeting at which such change or restructuring was
approved.
STOCKHOLDER'S CONFLICTS OF INTEREST
Pursuant to Article 196 of the Mexican General Law of Commercial
Companies, any stockholder that has a direct or indirect conflict of interest
with respect to a transaction must abstain from discussing and voting with
respect to such transaction at the relevant stockholders' meeting. A stockholder
that votes on a transaction in which its interest conflicts with that of Desc
may be liable for damages if the relevant transaction would not have been
approved without such stockholder's vote.
DIRECTOR'S CONFLICTS OF INTEREST
Pursuant to Article 14 Bis 5 of the Ley del Mercado de Valores (the
"Securities Market Law"), any director, the statutory examiner that attends the
Audit Committee meetings or any member of such committee, that has a direct or
indirect conflict of interest with respect to a transaction that is presented to
the board of directors or to the Audit Committee must disclose such conflict to
the board of directors or committee and abstain from discussing and voting with
respect to such transaction.
8
RIGHTS OF STOCKHOLDERS
The protections afforded to minority stockholders under Mexican law
are different from those in the United States and many other jurisdictions. The
substantive law concerning fiduciary duties of directors has not been the
subject of extensive judicial interpretation in Mexico, unlike many states in
the United States where duties of care and loyalty elaborated by judicial
decisions help to shape the rights of minority stockholders. Mexican civil
procedure does not contemplate class actions or stockholder derivative actions,
which permit stockholders in U.S. courts to bring actions on behalf of other
stockholders or to enforce rights of the corporation itself. Stockholders cannot
challenge corporate action taken at a stockholders' meeting unless they meet
certain procedural requirements, as described above under "Stockholders'
Meetings." As a result of these factors, in practice it may be more difficult
for Desc's minority stockholders to enforce rights against us or Desc's
directors or controlling stockholders than it would be for stockholders of a
U.S. company. In 2001, the Mexican government increased minority stockholders'
rights by amending the Securities Market Law and enacting other regulations to
reduce the ownership percentages necessary to exercise minority rights and
permit minority stockholders to sell their shares in the event of a change of
control in Desc.
ENFORCEABILITY OF CIVIL LIABILITIES
Desc is organized under the laws of Mexico, and most of Desc's
directors, officers and controlling persons reside outside the United States. In
addition, all or a substantial portion of Desc's assets and their assets are
located in Mexico. As a result, it may be difficult for investors to effect
service of process within the United States on such persons. It may also be
difficult to enforce against them, either inside or outside the United States,
judgments obtained against them in U.S. courts, or to enforce in U.S. courts
judgments obtained against them in courts in jurisdictions outside the United
States, in any action based on civil liabilities under the U.S. federal
securities laws. There is doubt as to the enforceability against such persons in
Mexico, whether in original actions or in actions to enforce judgments of U.S.
courts, of liabilities based solely on the U.S. federal securities laws.
EXCLUSIVE JURISDICTION
Desc's bylaws provide that legal actions relating to the execution,
interpretation or performance of Desc's bylaws shall be brought only in the
courts of Mexico City, Federal District.
DURATION
Desc's existence under Desc's bylaws is 99 years from June 15, 1994.
TAX TREATY BETWEEN THE UNITED STATES AND MEXICO
The United States and Mexico have signed and ratified a Convention
for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with
Respect to Taxes on Income and Protocols thereto. This Convention is referred to
as the "Tax Treaty". The Tax Treaty is currently in effect and summarized below
are the provisions of the Tax Treaty that may affect holders of American
Depositary Shares, which represent 20 Series B shares ("ADSs"), and Series B
shares who are residents of the United States (as defined in the Tax Treaty).
9
Mexico has also executed treaties to avoid double taxation with other
countries as well as agreements providing for the exchange of information with
respect to tax matters, some of which presently are in force. The following
summary does not take into account the effect of any such treaties. Readers
should consult their tax advisors as to their entitlement to the benefits
afforded by the Tax Treaty or such other treaties.
MEXICAN FEDERAL INCOME TAX CONSIDERATIONS FOR HOLDERS OF ADSS AND SERIES SERIES
B SHARES
The following is a summary of the principal consequences under
current Mexican federal tax laws, the regulations and administrative rules
issued by the Ministry of Finance and Public Credit and the Tax Treaty of the
purchase, ownership and disposition of ADSs or Series B shares by a holder that
is not a resident of Mexico, as in effect as of the date hereof. Readers are
cautioned that these laws and regulations are subject to change or differing
interpretations, which changes or differing interpretations could apply
retroactively. This summary does not address the tax laws of any state or
municipality in Mexico. Readers are cautioned that this is not a complete
analysis or listing of all potential tax effects that may be relevant to a
decision to purchase, hold or dispose of ADSs or Series Bshares.
For purposes of Mexican taxation, an individual is a resident of
Mexico if he has established his home or main business location in Mexico. An
individual is deemed to have his main business location in Mexico when (i) more
than 50% of his worldwide income in the calendar year is Mexican sourced or (ii)
Mexico is the main center of his professional activity. Individuals of Mexican
nationality are deemed to be Mexican residents for tax purposes, unless proof is
submitted to the contrary. A legal entity established under Mexican law or
having its principal offices or management in Mexico is deemed a resident of
Mexico. A person having a permanent establishment in Mexico will be regarded as
a resident of Mexico and will be required to pay taxes in Mexico in accordance
with applicable law in respect of all Mexican-source income.
TAXATION OF DIVIDENDS
Dividends paid either in cash or in any other form to Mexican
individuals and to all non-Mexican stockholders, whether individuals or
entities, with respect to the ADSs or the Series B shares represented by ADSs,
are not subject to a Mexican withholding tax.
Desc will not be subject to any tax in connection with a dividend
payment if the amount maintained in Desc's previously taxed net earnings account
(cuenta de utilidad fiscal neta or "CUFIN") exceeds the dividend payment to be
made. However, if the dividend payment is in an amount greater than Desc's CUFIN
balance (which may occur in a year when net profits exceed the balance in such
accounts), then Desc will be required to pay up to 33% in 2004 and 32% beginning
in 2005 on an amount equal to the product of (i) the portion of the amount which
exceeds such balance times 1.4925 in 2004 and 1.4706 in 2005.
10
TAXATION OF CAPITAL GAINS
Gains on the sale or other disposition of ADSs by holders who are not
residents of Mexico will not be subject to Mexican tax, if such disposition
takes place over a stock exchange located in a highly liquid market of a country
with which Mexico has executed a treaty to avoid double taxation. Deposits of
Series B shares in exchange for ADSs and withdrawals of Series B shares in
exchange for ADSs will not give rise to Mexican taxes.
Gains on the sale of Series B shares by holders who are not residents
of Mexico will not be subject to any Mexican tax if (1) the transaction is
carried out through the Mexican Stock Exchange, (2) such disposition takes place
over a stock exchange located in a highly liquid market of a country with which
Mexico has executed a treaty to avoid double taxation, or (3) the Series B
shares, as is the case, are on the list of publicly-traded shares published by
the Ministry of Finance and Public Credit through general rules.
Under current law, the sale or disposition of Series B shares other
than through the Mexican Stock Exchange by holders who are not residents of
Mexico is generally subject to a Mexican tax at a rate of 25% of the gross sales
price. However, if the holder is a resident of a country which is not considered
to be a low tax rate country (by reference to a list of low rate countries
published by the Mexican Ministry of Finance and Public Credit), the holder may
elect to designate a resident of Mexico as its representative for Mexican tax
purposes, in which case taxes would be payable at a maximum rate of 33% on the
gain on such disposition. The maximum rate will be gradually reduced by one
percent per year until 2005. In 2005 and thereafter, the maximum rate will be
32%. The United States is not considered to be low tax rate country. The Tax
Treaty exempts United States residents from Mexican capital gains taxes on
dispositions of stock (whether or not those dispositions are carried out through
the Mexican Stock Exchange), provided that (i) during the 12-month period before
the disposition, the U.S. resident did not hold, directly or indirectly, an
equity interest of 25% or more in the Mexican company, (ii) less than 50% of the
assets of the Mexican company consist of immovable property situated in Mexico
or (iii) the gain is not attributable to a permanent establishment in Mexico of
the U.S. resident.
OTHER MEXICAN TAXES
There are no Mexican inheritance, gift or succession taxes applicable
to the ownership, transfer or disposition of ADSs or Series B shares, although
gratuitous transfers of Series B shares may in some circumstances cause a
Mexican federal tax to be imposed on the recipient. There are no Mexican stamp,
issue, registration or similar taxes or duties payable by holders of ADSs or
Series B shares.
11
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS - ADSS OR SERIES SERIES B SHARES
GENERAL
Subject to the limitations described below, the following discussion
describes the material United States federal income tax consequences to a U.S.
Holder (as defined below) that is a beneficial owner of the ADSs or Series B
shares (the "Shares") and that holds them as capital assets. For United States
federal income tax purposes, a U.S. Holder (as defined below) of ADSs will be
treated as the owner of the Shares that those ADSs represent. Accordingly, this
discussion generally treats ownership of ADSs as equivalent to owning Shares and
the United States federal income tax consequences discussed below apply equally
to owners of both Shares and ADSs. For purposes of this summary, a "U.S. Holder"
is a beneficial owner of Shares who or that is for United States federal income
tax purposes (i) a citizen or resident of the United States, (ii) a corporation
(or other entity treated as a corporation for United States federal tax
purposes) created or organized in the United States or under the laws of the
United States or of any state or the District of Columbia, (iii) an estate, the
income of which is includible in gross income for United States federal income
tax purposes regardless of its source, or (iv) a trust, if a court within the
United States is able to exercise primary supervision over the administration of
the trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust.
This summary is for general information purposes only. It does not
purport to be a comprehensive description of all of the tax considerations that
may be relevant to each person's decision to purchase Shares. As this is a
general summary, prospective owners of Shares are advised to consult their own
tax advisers with respect to the U.S. federal, state and local tax consequences,
as well as to non-U.S. tax consequences, of the acquisition, ownership and
disposition of Shares applicable to their particular tax situations.
This discussion is based on current provisions of the U.S. Internal
Revenue Code of 1986, as amended (the "Code"), current and proposed U.S.
Treasury regulations promulgated thereunder, and administrative and judicial
decisions, as of the date hereof, all of which are subject to change, possibly
on a retroactive basis. This discussion does not address all aspects of United
States federal income taxation that may be relevant to any particular holder
based on such holder's individual circumstances. In particular, this discussion
does not address the potential application of the alternative minimum tax or the
United States federal income tax consequences to holders that are subject to
special treatment, including:
o broker-dealers, including dealers in securities or currencies;
o insurance companies;
12
o taxpayers that have elected mark-to-market accounting;
o tax-exempt organizations;
o financial institutions or "financial services entities";
o taxpayers who hold Shares as part of a straddle, "hedge" or
"conversion transaction" with other investments;
o holders owning directly, indirectly or by attribution at least
10% of Desc's voting power or 10% of the value of Desc's stock;
o taxpayers whose functional currency is not the Dollar;
o certain expatriates or former long-term residents of the United
States; and
o taxpayers who acquire Shares as compensation.
This discussion does not address any aspect of United States federal
gift or estate tax, or state, local or non-United States tax laws. Additionally,
the discussion does not consider the tax treatment of partnerships or persons
who hold Shares through a partnership or other pass-through entity. Certain
material aspects of United States federal income tax relevant to a beneficial
owner other than a U.S. Holder (a "NON-U.S. HOLDER") also are discussed below.
EACH INVESTOR IS ADVISED TO CONSULT SUCH PERSON'S OWN TAX ADVISOR WITH RESPECT
TO THE SPECIFIC TAX CONSEQUENCES TO SUCH PERSON OF PURCHASING, HOLDING OR
DISPOSING OF SHARES.
TAXATION OF DIVIDENDS PAID ON SHARES
In the event that Desc pays a dividend, and subject to the discussion
of the passive foreign investment company, or "PFIC," rules below, a U.S. Holder
will be required to include in gross income as ordinary income the amount of any
distribution paid on the Shares on the date the distribution is received (which,
in the case of ADSs, will be the date of receipt by the Depositary) to the
extent the distribution is paid out of Desc's current or accumulated earnings
and profits, as determined for United States federal income tax purposes.
Distributions in excess of such earnings and profits will be applied against and
will reduce the U.S. Holder's basis in the Shares and, to the extent in excess
of such basis, will be treated as a gain from the sale or exchange of the
Shares. Distributions of current or accumulated earnings and profits paid in
foreign currency to a U.S. Holder will be includible in the income of a U.S.
Holder in a Dollar amount calculated by reference to the exchange rate on the
date the distribution is received (which, in the case of ADSs, will be the date
of receipt by the Depositary), regardless of whether the payment is in fact
converted into U.S. dollars on such date. A U.S. Holder that receives a foreign
currency distribution and converts the foreign currency into U.S. dollars
subsequent to receipt will have foreign exchange gain or loss based on any
appreciation or depreciation in the value of the foreign currency against the
Dollar, which will generally be U.S. source ordinary income or loss.
13
Distributions of Desc's current or accumulated earnings and profits
will be foreign source passive income for United States foreign tax credit
purposes and will not qualify for the dividends received deduction otherwise
available to corporations. U.S. Holders will not be entitled to a deduction or
credit for any taxes paid by us on a distribution. See "Mexican Federal Income
Tax Considerations for holders of ADSs and Series Series B shares - Taxation of
dividends."
Dividends paid to non-corporate U.S. Holders after May 5, 2003 and
before 2009 may qualify for a reduced rate of taxation of 15% or lower under
recently enacted legislation if (i) Desc's shares or ADSs are readily tradable
on an established securities market in the United States or (ii) Desc qualifies
for benefits under a comprehensive income tax treaty with the United States
which includes an exchange of information program. Upon issuance, Desc's ADSs
representing B Shares will be traded on an established securities market in the
United States. Dividends will not qualify for the preferential rate if Desc is
treated, in the year the dividend is paid or in the prior year, as a foreign
investment company, foreign personal holding company, or a passive foreign
investment company ("PFIC"). Due to the nature of Desc's operations and/or
ownership, Desc does not believe it is a foreign investment company or a foreign
personal holding company. While Desc does not believe it is a PFIC, see the
discussion below at "--Passive Foreign Investment Companies" concerning Desc's
status as a PFIC. If Desc's beliefs concerning its PFIC status are correct and
Desc's ADSs continue to be readily tradeable on an established securities
exchange in the United States, dividend distributions with respect to Desc's
shares should be treated as qualified dividend income, subject to the U.S.
holder satisfying holding period and other requirements described below. A U.S.
holder will not be entitled to the preferential rate: (a) if the U.S. holder has
not held the ordinary shares or ADRs for at least 61 days of the 120 day period
beginning on the date which is 60 days before the ex-dividend date, or (b) to
the extent the U.S. holder is under an obligation to make related payments on
substantially similar property. Any days during which the U.S. holder has
diminished its risk of loss on Desc's shares are not counted towards meeting the
61-day holding period. Based on IRS New Release 4004-22, the IRS intends to give
current effect to proposed legislation changing the aforementioned 120 day
period to a 121 day period. Finally, U.S. holders who elect to treat the
dividend income as "investment income" pursuant to section 163(d)(4) of the Code
will not be eligible for the preferential rate of taxation
TAXATION OF THE SALE OR EXCHANGE OF SHARES
Subject to the discussion of the PFIC rules below, upon the sale or
exchange of Shares, a U.S. Holder will recognize capital gain or loss in an
amount equal to the difference between such U.S. Holder's basis in the Shares,
which is usually the Dollar cost of such shares, and the amount realized on such
sale or exchange. Capital gain from the sale or exchange of the Shares held more
than one year is long-term capital gain. Long-term capital gains recognized by
non-corporate U.S. Holders after May 5, 2003 and before 2009 may qualify for a
reduced rate of taxation of 15% or lower under recently enacted legislation.
Gain or loss recognized by a U.S. Holder on a sale or exchange of Shares
generally will be treated as United States source income or loss for United
States foreign tax credit purposes. The deductibility of a capital loss
recognized on the sale or exchange of Shares is subject to limitations.
14
If the Shares are publicly traded, a disposition of Shares will be
considered to occur on the "trade date," regardless of the U.S. Holder's method
of accounting. A U.S. Holder that uses the cash method of accounting calculates
the Dollar value of the proceeds received on the sale as of the date that the
sale settles. However, a U.S. Holder that uses the accrual method of accounting
is required to calculate the value of the proceeds of the sale as of the trade
date and, therefore, may realize foreign currency gain or loss, unless such U.S.
Holder has elected to use the settlement date to determine its proceeds of sale
for purposes of calculating such foreign currency gain or loss. In addition, a
U.S. Holder that receives foreign currency upon the sale or exchange of the
Shares and converts the foreign currency into U.S. dollars subsequent to receipt
will have foreign exchange gain or loss based on any appreciation or
depreciation in the value of the foreign currency against the Dollar, which will
generally be U.S. source ordinary income or loss.
U.S. Holders generally will not be entitled to claim a foreign tax
credit for any Mexican tax incurred on a sale of the Shares against U.S. tax
imposed on any gain from the sale. See "Mexican Federal Income Tax
Considerations for Holders of ADSs and Series Series B shares - Taxation of
capital gains."
PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS
Desc would be a passive foreign investment company, or PFIC, for
United States federal income tax purposes, if 75% or more of Desc's gross income
in a taxable year, including the pro-rata share of the gross income of any
company, U.S. or foreign, in which Desc is considered to own 25% or more of the
shares by value, is passive income. Alternatively, Desc will be considered to be
a PFIC if 50% or more of Desc's assets in a taxable year, averaged over the year
and ordinarily determined based on fair market value and including the pro-rata
share of the assets of any company, U.S. or foreign, in which Desc is considered
to own 25% or more of the shares by value, are held for the production of, or
produce, passive income.
If Desc is a PFIC, a U.S. Holder may be subject to adverse United
States federal income tax consequences upon receipt of distributions by us or
upon realizing a gain on the disposition of Desc's Shares, including taxation of
such amounts as ordinary income and the imposition of an interest charge on the
resulting tax liability as if such ordinary income accrued over the U.S.
Holder's holding period for the PFIC shares. Desc believes that it was not a
PFIC for 2003 and believes it will not be a PFIC for 2004. However, there can be
no assurances that Desc will not become a PFIC. U.S. Holders are strongly urged
to consult their tax advisors about the PFIC rules.
TAX CONSEQUENCES FOR NON-U.S. HOLDERS OF SHARES
Except as described in "U.S. Information Reporting and Backup
Withholding" below, a Non-U.S. Holder who is a beneficial owner of Shares will
not be subject to United States federal income or withholding tax on the payment
of dividends on, and the proceeds from the disposition of, such Shares, unless:
15
o such item is effectively connected with the conduct by the
Non-U.S. Holder of a trade or business in the United States and,
in the case of a resident of a country which has a treaty with
the United States, such item is attributable to a permanent
establishment or, in the case of an individual, a fixed place of
business, in the United States; or
o the Non-U.S. Holder is an individual who holds the Shares as
capital assets and is present in the United States for 183 days
or more in the taxable year of the disposition and does not
qualify for an exemption.
U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. Holders generally are subject to information reporting
requirements with respect to dividends paid in the United States on Shares. In
addition, U.S. Holders are subject to U.S. backup withholding (currently at a
rate of 28%) on dividends paid in the United States on Shares unless the U.S.
Holder provides an IRS Form W-9 or otherwise establishes an exemption. U.S.
Holders are subject to information reporting and backup withholding (currently
at a rate 28%) on proceeds paid from the sale, exchange, redemption or other
disposition of Shares unless the U.S. Holder provides an IRS Form W-9 or
otherwise establishes an exemption.
Non-U.S. Holders generally are not subject to information reporting
or backup withholding with respect to dividends paid on, or proceeds upon the
sale, exchange, redemption or other disposition of, Shares, provided that such
Non-U.S. Holder provides a taxpayer identification number, certifies to its
foreign status, or otherwise establishes an exemption.
Backup withholding is not an additional tax. The amount of any backup
withholding will be allowed as a credit against such U.S. Holder's or Non-U.S.
Holder's United States federal income tax liability and may entitle such holder
to a refund, provided that the required information is furnished to the U.S.
Internal Revenue Service.
16
DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS
Citibank, N.A. has agreed to act as the depositary bank for the ADS
(the "Depositary"). Citibank's depositary offices are located at 111 Wall
Street, New York, New York 10043. American depositary shares are frequently
referred to as ADSs and represent ownership interests in securities that are on
deposit with the Depositary. ADS are normally represented by certificates that
are commonly known as "American Depositary Receipts" or "ADRs". The Depositary
typically appoints a custodian to safekeep the securities on deposit.
Desc has appointed Citibank as the depositary bank pursuant to the
Amended and Restated Deposit Agreement dated as of June 29, 1994 and effective
as of July 20, 1994, as amended by Amendment No. 1 to the Amended and Restated
Deposit Agreement, dated as of July 15, 1996, and entered into among Desc, the
Depositary and all holders from time to time of the ADRs (the "Deposit
Agreement"). A copy of the Deposit Agreement is on file with the Securities and
Exchange Commission under cover of a registration statement on Form F-6. A
holder of an ADS may obtain a copy of the Deposit Agreement from the Securities
and Exchange Commission's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C., 20549. Please refer to Registration Number 033-80128 when
retrieving such copy.
Set forth below is a summary description of the material terms of the
ADSs and of a holder's material rights as an owner of ADSs. Please note that
summaries by their nature lack the precision of the information summarized and
that a holder's rights and obligations as an owner of ADSs will be determined by
reference to the terms of the Deposit Agreement and not by this summary. Desc
urges holders of ADSs to review the Deposit Agreement in its entirety.
Each ADS represents the right to receive twenty Series B shares on
deposit with the custodian. As an owner of an ADS, you will become a party to
the Deposit Agreement and therefore will be bound to its terms and to the terms
of the ADR that represents your ADSs. The Deposit Agreement and the ADR specify
Desc's rights and obligations as well as a holder's rights and obligations as an
owner of ADSs and those of the Depositary. As an ADS holder you appoint the
Depositary to act on your behalf in certain circumstances. The Deposit Agreement
and the ADRs are governed by New York law. However, Desc's obligations to the
holders of Series B shares will continue to be governed by the laws of Mexico,
which may be different from the laws in the United States.
As an owner of ADSs, you may hold your ADSs either by means of an ADR
registered in your name or through a brokerage or safekeeping account. If you
decide to hold your ADSs through your brokerage or safekeeping account, you must
rely on the procedures of your broker or bank to assert your rights as an ADS
owner. Please consult with your broker or bank to determine what those
procedures are.
17
DEPOSIT AND WITHDRAWAL OF SHARES
The Depositary has agreed that, upon deposit to the custodian's
account with Indeval of Series B shares accompanied by delivery of such
appropriate instruments or evidence of transfer as are acceptable to the
Custodian and upon payment of the fees, charges and taxes provided in the
Deposit Agreement and such other payments as may be required by the Depositary,
the Depositary, subject to the terms of the Deposit Agreement, will execute and
deliver at its principal office to, or upon the written order of, the person or
persons specified in a written order of the depositor, an ADR or ADRs registered
in the name of such person or persons for the number of ADSs issuable in respect
of such deposit.
Subject to the terms and conditions of the Deposit Agreement and any
limitations established by the Depositary, the Depositary may execute and
deliver ADRs prior to the receipt of Series B shares (a "Pre-Release") and may
receive ADRs in lieu of Series B shares in satisfaction of a Pre-Release. Each
Pre-Release shall be (a) preceded or accompanied by a written representation and
agreement from the person to whom ADRs are to be delivered that such person, or
its customer, owns the Series B shares to be remitted, (b) at all times fully
collateralized with cash, U.S. government securities or such other collateral of
comparable safety and liquidity, (c) terminable by the Depositary on not more
than five (5) business days' notice, and (d) subject to such further indemnities
and credit regulations as the Depositary reasonably deems appropriate. The
Depositary will limit the number of ADRs issued by Pre-Release involved in
transactions to be done in accordance with the terms described in this paragraph
with any one person on a case by case basis as it deems appropriate. The
collateral referred to in clause (b) above shall be held by the Depositary for
the benefit of the owners of ADRs as security for the performance of the
obligations to deliver shares set forth in clause (a) above. The Depositary will
limit the number of ADRs involved in such Pre-Release transactions so that the
number of ADSs represented thereby will not, at any one time, exceed fifteen
percent (15%) of the total number of ADSs then outstanding (without giving
effect to ADSs outstanding as a result of Pre-Release); however, the Depositary
reserves the right to change or disregard such limit after consultation with
Desc and upon its consent.
Desc has agreed in the Deposit Agreement that neither Desc nor any
company controlled by, or under common control with Desc will deposit Shares in
connection with the original issuance thereof or in connection with a sale of
Series B shares previously issued and reacquired by Desc, unless (i) a
registration statement is in effect as to such Shares, (ii) such deposit, and
the issuance of ADRs in respect thereof, is exempt from the registration under
the Securities Act of 1933, as amended (the "Securities Act"), or (iii) Desc
directs the Depositary to adopt an alternative method of distributing such
Shares.
Upon surrender of ADRs at the principal office of the Depositary, and
upon payment of the fees provided in the Deposit Agreement, and applicable
governmental charges and taxes, ADR owners are entitled to electronic delivery,
through Indeval or through institutions that maintain accounts with Indeval,
and/or physical delivery of Series B shares or any other property that the
surrendered ADRs evidence the right to receive. At the request, risk and expense
of the ADR owner surrendering ADRs, the Depositary shall deliver cash or other
property (other than rights) that the surrendered ADRs evidence the right to
receive at the principal office of the Depositary.
18
DIVIDENDS, OTHER DISTRIBUTIONS AND RIGHTS
The Depositary is required to convert or cause to be converted, as
soon as possible, into U.S. dollars, to the extent that in its judgment it can
do so on a reasonable basis and in accordance with applicable law, and transfer
the resulting U.S. dollars to the United States, all cash dividends and other
cash distributions (including the net proceeds from any sale of securities,
property or rights distributed to owners of Series B shares) denominated in
Mexican pesos (or any other currency other than U.S. dollars) that it receives
in respect of the deposited Shares, and to distribute the amount received to the
owners of ADRs in proportion to the number of ADRs evidenced by such holder's
ADRs without regard to any distinctions among owners on account of exchange
restrictions or the date of delivery of any ADR or ADRs or otherwise. The amount
distributed will be reduced by any amounts to be withheld by Desc, its
withholding agent (if any), the Depositary or the custodian, including amounts
on account of any applicable taxes and certain other expenses. If the Depositary
determines in its judgment that any currency other than U.S. dollars received by
it cannot be so converted on a reasonable basis and transferred, or if the
approval or tense of any government or agency thereof is denied or in the
Depositary's opinion cannot be obtained at a reasonable cost or within a
reasonable period of time as determined by the Depositary, the Depositary may
distribute the foreign currency (or an appropriate document evidencing the right
to receive such foreign currency) to, or in its discretion may hold such foreign
currency (without liability for interest thereon) for the respective accounts
of, the holders entitled to receive the same.
If Desc declares a dividend in, or free distribution of, additional
Series B shares, upon receipt by or on behalf of the Depositary of such
additional shares, the Depositary may with the approval of Desc, and shall if
Desc so requests, distribute as promptly as practicable to the owners of
outstanding ADRs, in proportion to the number of ADSs evidenced by their
respective ADRs, additional ADRs evidencing an aggregate number of ADSs that
represents the number of shares received as such dividend or free distribution,
subject to the provisions of the Deposit Agreement, including the withholding of
taxes and the governmental charges and the payment of fees, if any. In lieu of
delivering ADRs for fractional ADSs in the event of any such distribution, the
Depositary may sell the amount of Series B shares represented by the aggregate
of such fractions and distribute the net proceeds to owners of ADRs in
accordance with the Deposit Agreement. If additional ADRs (other than ADRs for
fractional ADSs) are not so distributed, each ADS shall thereafter also
represent the additional shares distributed in respect of the Series B shares
represented by such ADS prior to such dividend or free distribution.
19
If Desc offers, or causes to be offered, to the owners of Series B
shares any rights to subscribe for additional Series B shares or any rights of
any other nature, the Depositary, after consultation with Desc, shall have
discretion as to the procedure to be followed in making such rights available to
holders, provided that the Depositary, if Desc so requests and provides an
opinion of counsel as to the absence of any registration requirements under the
Securities Act with respect to such additional Series B shares or other rights
or as to the effectiveness of a registration statement under the Securities Act
with respect thereto, will either (i) if the Depositary determines in its
discretion that it is lawful and feasible, make such rights available to owners
of ADRs by means of warrants or otherwise and upon provision of any documents or
certifications requested by the Depositary or (ii) if making such rights
available, in the discretion of the Depositary, is not lawful or feasible, or if
the rights represented by such warrants or other instruments are not exercised
and appear to be about to lapse, use its discretion to sell such rights or
warrants or other instruments, if a market therefor is available, at public or
private sale, at such place or places and upon such terms as the Depositary may
deem proper, and allocate the net proceeds of such sales for the accounts of the
holders otherwise entitled thereto upon an averaged or other practicable basis
without regard to any distinctions among holders on account of exchange
restrictions or the date of delivery of an ADR or ADRs or otherwise. In the
event such rights may not be made available to owners of ADRs or be disposed of,
the Depositary shall, after consultation with Desc, allow such rights to lapse
(without incurring liability to any person as a consequence thereof).
The Depositary will not make available to holders any right to
subscribe for or to purchase any securities unless a registration statement
under the Securities Act with respect to such securities is in effect or unless
the offering and sale of such securities to such holders are exempt from
registration under the provisions of the Securities Act and any other applicable
laws. Neither Desc nor the Depositary will have any obligation to file a
registration statement under the Securities Act or otherwise register such
rights or securities under any other applicable laws to make available to
holders any rights to subscribe for or to purchase any securities. If Desc or
the Depositary does not file a registration statement under the Securities Act
or otherwise register such rights or securities under any applicable law, and an
exemption from registration is not available, holders would not be permitted to
purchase such securities or otherwise exercise such rights and the Depositary
would, to the extent possible, dispose of such rights for the accounts of such
holders, as provided in the preceding paragraph. Such a disposal of rights may
reduce the proportionate equity interest of the holders in Desc. Because Mexican
law does not contemplate the issuance of preemptive rights in negotiable form,
there is unlikely to be a liquid market for preemptive rights, and this will
adversely affect the amount the Depositary would realize upon disposal of
rights.
Whenever the custodian shall receive any distribution other than
cash, Series B shares or rights upon any deposited securities, the Depositary
shall, upon consultation with Desc, cause the securities or property so received
to be distributed to the holders entitled thereto, in proportion to the number
of ADSs representing such deposited securities held by them respectively, in any
manner that the Depositary may deem equitable and practicable for accomplishing
such distribution; provided, however, that if in the opinion of the Depositary
it cannot cause such securities or property to be distributed or such
distribution cannot be made proportionately among the owners entitled thereto,
or if for any other reason (including any requirement that Desc or the
Depositary withhold an amount on account of taxes or other governmental charges
or that such securities must be registered under the Securities Act in order to
be distributed to owners of ADRs ), the Depositary deems such distribution not
to be feasible, the Depositary may dispose of all or a portion of such property
in such amounts and in such manner, including by public or private sale, as the
Depositary deems equitable and practicable, and the Depositary will distribute
the net proceeds of any such sale or the balance of any such property after
deduction of any fees of the Depositary as provided in the Deposit Agreement.
20
CHANGES AFFECTING THE DEPOSITED SECURITIES
Upon any change in par value, any split, consolidation, cancellation
or other reclassification of deposited securities, or upon any recapitalization,
reorganization, merger or consolidation or sale of assets effecting Desc or to
which it is a party, any Series B shares or other securities received by the
Depositary or the custodian in exchange for, in conversion of or otherwise in
respect of deposited securities, shall be treated as newly deposited securities
under the Deposit Agreement, and ADSs shall thenceforth represent the right to
receive the securities so received, unless additional ADRs are delivered, as in
the case of a stock dividend, or unless the Depositary calls for the surrender
of outstanding ADRs to be exchanged for new ADRs. Notwithstanding the foregoing,
in the event that any security so received may not be lawfully distributed to
owners of the ADRs, the Depositary may, with Desc's approval (and shall, if Desc
so requests) sell such securities at a public or private sale and allocate the
net proceeds of such sale to the owners entitled thereto as provided in the
Deposit Agreement.
RECORD DATES
Whenever any cash dividend or other cash distribution shall become
payable, or any distribution other than cash shall be made, or whenever rights
shall be issued with respect to the Series B shares, or whenever the Depositary
shall receive notice of any meeting at which owners of Series B shares are
entitled to vote, or the Depositary causes a change in the number of Series B
shares that are represented by each ADS, the Depositary, after consultation with
Desc, shall fix a record date, which date shall be as near as practicable to the
record date fixed by Desc for the determination of the owners of ADRs who are
entitled to receive such dividend, distribution or rights, or net proceeds of
the sale thereof, or to give instructions for the exercise of voting rights at
any such meeting or after which each ADS shall represent such changed number of
shares, subject to the provisions of the Deposit Agreement.
VOTING OF THE UNDERLYING DEPOSITED SECURITIES
As soon as practicable after receipt of notice of any meeting or
solicitation of consents or proxies of owners of Series B shares or other
deposited securities, the Depositary has agreed to mail to owners of ADRs
registered on the books of the Depositary a notice in English containing (a)
such information (or a summary thereof) as is contained in such notice of
meeting, (b) a statement that each owner of ADRs at the close of business on a
specified record date will be entitled, subject to any applicable provisions of
Mexican law and the bylaws of Desc, to instruct the Depositary as to the
exercise of the voting rights, if any, pertaining to the deposited securities
21
represented by the ADSs evidenced by such owners' ADRs and (c) a brief statement
as to the manner in which such instructions may be given. Upon the written
request of a holder of ADRs on such record date, received on or before the date
established by the Depositary for such purpose, the Depositary has agreed to
endeavor, insofar as practicable and permitted under Mexican law, the Deposit
Agreement and the provisions of the bylaws of Desc, to vote or cause to be voted
the amount of Series B shares represented by the ADSs evidenced by such owner of
ADRs in accordance with any instruction set forth in such request. The
Depositary has agreed not to, and will ensure that the custodian does not, vote
or attempt to vote the Series B shares evidenced by the ADSs evidenced by the
ADRs other than in accordance with such instructions.
Please note that the ability of the Depositary to carry out voting
instructions may be limited by practical and legal limitations and the terms of
the securities on deposit. Desc cannot assure holders of the ADRs that you will
receive voting materials in time to enable the holders to return voting
instructions to the Depositary in a timely manner. Securities for which no
voting instructions have been received will not be voted.
REPORTS AND NOTICES
The Depositary will make available for inspection by owners of ADRs
at its principal office any reports and communications received from Desc which
are both received by the Depositary or the custodian and made generally
available by Desc to the owners of deposited securities. The Depositary will
also send to such owners copies of such reports when furnished by Desc to the
custodian.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of the ADRs and the Deposit Agreement may at any time be
amended by agreement between Desc and the Depositary. Any amendment that imposes
or increases any fees or charges (other than taxes and other governmental
charges, registration fees, cable, telex or facsimile transmission costs,
delivery costs or other such expenses), or that otherwise prejudices any
substantial existing right of ADR owners, will not take effect as to the
outstanding ADRs until the expiration of three months after notice of such
amendment has been given to the owners of outstanding ADRs. Every owner of an
ADR at the time such amendment becomes effective will be deemed, by continuing
to hold such ADR, to consent and agree to such amendment and to be bound by the
Deposit Agreement as amended thereby. In no event may any amendment impair the
right of any ADR owner to surrender its ADR and receive therefor the shares and
other property represented thereby, except in order to comply with mandatory
provisions of applicable law.
Whenever so directed by Desc, the Depositary has agreed to terminate
the Deposit Agreement by mailing notice of such termination to the owners of all
ADRs then outstanding at least 30 days prior to the date fixed in such notice
for such termination. The Depositary may likewise terminate the Deposit
Agreement at any time 60 days after (i) the Depositary shall have delivered to
22
Desc and all owners of ADRs a notice of its election to resign or (ii) Desc
shall have delivered to the Depositary a written notice of the removal of the
Depositary, and in either case provided that a successor depositary shall not
have been appointed and accepted its appointment as provided in the Deposit
Agreement. If any ADRs remain outstanding after the date of termination, the
Depositary thereafter will discontinue the registration of transfer of ADRs,
will suspend the distribution of dividends to the owners thereof and will not
give any further notices or perform any further acts under the Deposit
Agreement, except that the Depositary will continue (i) the collection of
dividends and other distributions pertaining to the shares and any other
property represented by such ADRs, (ii) the sale of property and rights as
provided in the Deposit Agreement and (iii) the delivery of deposited shares,
together with any dividends or other distributions received with respect thereto
and the net proceeds of the sale of any rights or other property, in exchange
for surrendered ADRs subject to the applicable terms of the Deposit Agreement,
including the payment of fees and other charges of the Depositary. At any time
after the expiration of six (6) months from the date of termination, the
Depositary may sell any remaining shares and any other property represented by
such ADRs and hold the net proceeds, together with any other cash then held,
without liability for interest, for the pro rata benefit of the owners of ADRs
that have not theretofore been surrendered. After making such sale, the
Depositary shall be discharged from all obligations under the Deposit Agreement,
except for certain indemnification obligations and the obligation to account for
the net proceeds of such sale and other cash (after deducting, in each case, the
fee of the Depositary for surrendered ADRs, any expenses for the account of the
owner of such ADRs in accordance with the terms and conditions of the Deposit
Agreement and any applicable taxes or governmental charges). Upon the
termination of the Deposit Agreement, Desc will also be discharged from all
obligations thereunder, except for certain obligations to the Depositary.
CHARGES OF DEPOSITARY
The Depositary will charge (i) any party to whom ADRs are delivered
against deposit of Series B shares (including ADRs issued pursuant to a stock
dividend or stock split declared by Desc or an exchange of ADRs or shares or
distribution of ADRs pursuant to the Deposit Agreement), and (ii) each person
surrendering ADRs in exchange for Series B shares or other property evidenced by
such ADRs, up to $5.00 for each 100 ADSs (or fraction thereof) evidenced by the
ADRs so issued or surrendered. In addition, the following charges shall be
incurred by any party depositing or withdrawing Series B shares or by any party
surrendering ADRs or to whom ADRs are issued (including ADRs issued pursuant to
a stock dividend or stock split declared by Desc or an exchange of ADAs or
shares or distribution of ADRs pursuant to the Deposit Agreement), as
applicable: (i) the fees of the Depositary for the execution and delivery of
ADRs, the transfers of ADRs, the surrender of ADRs and the making of any
distributions; (ii) taxes and other governmental charges; (iii) the registration
fees on transfers of Series B shares; (iv) such cable, telex, facsimile
transmission and delivery charges as are expressly provided in the Deposit
Agreement; (v) expenses that are paid or incurred by the Depositary in
connection with the conversion into U.S. dollars, pursuant to the Deposit
Agreement, of Mexican pesos or any other currency received by the Depositary in
respect of the Series B shares held on deposit; and (vi) such fees and expenses
as are incurred by the Depositary in delivery of deposited securities. Desc will
pay all other charges of the Depositary.
23
LIABILITY OF OWNERS FOR TAXES OR OTHER CHARGES
Any tax or other governmental charge or expense payable by the
custodian, the Depositary or its nominee as the registered holder of any
deposited Series B shares represented by ADSs evidenced by any ADR shall be
payable by the holder of such ADR to the Depositary. The Depositary may refuse
to effect registration of transfer and withdrawal of Series B shares underlying
such ADR until such payment is made, and may withhold any dividends or other
distributions or may sell for the account of the holder thereof any part or all
of the deposited Series B shares underlying such ADR and may apply such
dividends or distributions or the proceeds of any such sale in payment of any
such tax or other governmental charge or expense and the owner of such ADR shall
remain liable for any deficiency.
DISCLOSURE OF BENEFICIAL OWNERSHIP
To the extent that provisions of or governing any deposited
securities or the rules or regulations of any governmental authority or
securities exchange or automated quotation system may require the disclosure of
beneficial or other ownership of Series B shares, other shares and other
securities to Desc or other persons, the Depositary shall use its best efforts
to comply with Company instructions in respect of any such enforcement or
limitation and owners shall comply with all such disclosure requirements and
shall cooperate with the Depositary's compliance with such instructions from
Desc.
OWNERSHIP RESTRICTIONS
Desc may restrict transfers of the Series B shares where such
transfer might result in ownership of Series B shares exceeding the limits under
applicable law. Desc may also restrict, in such manner as it deems appropriate,
transfers of the ADSs where such transfer may result in the total number of
shares represented by the ADSs owned by a single owner to exceed the limits
under any applicable law. Desc, may, in its sole discretion, instruct the
Depositary to take action with respect to the ownership of any owner in excess
of the limitation set forth in the preceding sentence, including but not limited
to a mandatory sale or disposition on behalf of a holder of the Series B shares
represented by the ADSs held by such owner in excess of such limitations, if and
to the extent such disposition is permitted by applicable law and to the extent
the same action could have been taken with respect to holders of Series B shares
under similar circumstances.
LIMITATIONS ON EXECUTION, TRANSFER AND SURRENDER OF AMERICAN DEPOSITARY RECEIPTS
The ADRs are transferable on the books of the Depositary, provided
that the Depositary may close the transfer books, at any time and from time to
time, when deemed expedient by it in connection with the performance of its
duties or at the request of Desc. As a condition precedent to the execution and
delivery, registration of transfer, spilt-up, combination or surrender of any
ADR, the delivery of any distribution thereon or withdrawal of Series B shares.
24
Desc, Depositary or the custodian may require payment from the person presenting
the ADR or the depositor of the Series B shares of a sum sufficient to reimburse
it for any tax or other governmental charge, and any stock transfer or
registration fee with respect thereto and payment of any applicable fees payable
by the owners of ADRs. The Depositary may refuse to deliver ADRs, register the
transfer of any ADR or make any distribution on, or related to, shares until it
has received such proof of citizenship, residence, exchange control approval,
legal or beneficial ownership or other information as it may reasonably deem
necessary or proper or as Desc may require by written request to the Depositary.
The execution and delivery or transfer of ADRs generally may be suspended, and
in particular instances may be refused, during any period when the transfer
books of the Depositary, Desc or the Custodian are closed or if any such action
is deemed necessary or advisable by the Depositary or Desc at any time or from
time to time. The surrender of outstanding ADRs and withdrawal of the underlying
Series B shares may not be suspended, except as required in connection with (i)
temporary delays caused by closing the transfer books of the Depositary, Desc or
Indeval or the deposit of the underlying Series B shares in connection with
voting at a meeting of holders of Series B shares, or payment of dividends (ii)
the payment of fees, taxes and similar charges, and (iii) compliance with any
U.S. or foreign laws or governmental regulations relating to the ADRs or to the
withdrawal of the underlying Series B shares. Owners of ADRs may inspect the
transfer books of the Depositary at any reasonable time, provided that such
inspection shall not be for the purpose of communicating with owners of the ADRs
in the interest of a business or object other than the business of Desc or a
matter related to the Deposit Agreement or the ADRs.
GENERAL
Neither the Depositary nor Desc will be liable to the owners of ADRs
if prevented or delayed in performing their obligations under the Deposit
Agreement by the law of any country, by any governmental authority or by any
circumstances beyond their control or, in the case of the Depositary, any
provision of Desc's bylaws or of the securities deposited pursuant to the
Deposit Agreement. The obligations of Desc and the Depositary to the owners of
ADRs under the Deposit Agreement are expressly limited to performing their
respective duties specified therein without negligence or bad faith.
Neither the Depositary nor Desc assumes any obligations other than to
perform without negligence and in good faith the duties specified in the Deposit
Agreement. They shall be privileged to rely in good faith upon the advice or
information from legal counsel, accountants, any person presenting shares for
deposit or any other person they believe to be competent to give such advice or
information. Neither the Depositary nor Desc shall be required to appear in,
prosecute or defend any action with respect to the ADRs unless satisfactory
indemnity is furnished. The Depositary will not be liable for any acts or
omissions made by a successor depositary, nor will it be responsible for any
failure to carry out any voting instructions, provided that its action or
inaction is in good faith and in accordance with the terms of the Deposit
Agreement.
25
So long as any ADRs or ADSs evidenced thereby are listed on one or
more stock exchanges, the Depositary will act as registrar or, with the approval
of Desc, appoint a registrar or one or more co-registrars, for registration of
such ADRs in accordance with any requirements of such exchanges. Such registrars
or co-registrars shall, upon Desc's request, and may, with the approval of Desc,
be removed and a substitute or substitutes appointed by the Depositary.
ITEM 2. EXHIBITS
1. Bylaws of Desc, S.A. de C.V.
2. Form of Amended and Restated Deposit Agreement dated as of June
29, 1994 and effective as of July 20, 1994, as amended by Amendment No. 1 to the
Amended and Restated Deposit Agreement, dated as of July 15, 1996, and entered
into among Desc, S.A. de C.V., Citibank, N.A., as the Depositary Bank, and all
holders from time to time of the ADRs (incorporated by reference to Exhibit A to
the Registration Statement on Form F-6 (Registration No. 033-80128), with
respect to the ADSs, filed on June 10, 1994.
3. Form of ADR (incorporated by reference to the Post-Effective
Amendment to the Form F-6 filed pursuant to Rule 424(b)(3), which was filed on
March 15, 2004).
26
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereto duly authorized.
Date: March 15, 2004
DESC, S.A. de C.V.
By: /s/ Marisol Vazquez Mellado
------------------------------
Name: Marisol Vazquez Mellado
Title: Treasury Director