[Federal Register Volume 68, Number 33 (Wednesday, February 19, 2003)]
[Notices]
[Pages 8061-8064]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3946]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47350; File No. SR-NASD-2003-16]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule Change by the National 
Association of Securities Dealers, Inc. Relating to the Listing and 
Trading of the Dreyer's Grand Ice Cream Holdings, Inc. Callable 
Puttable Common Stock

February 11, 2003.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 6, 2003, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association'') through its subsidiary, The Nasdaq 
Stock Market, Inc. (``Nasdaq''), filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
Nasdaq. The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested persons and to approve the 
proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to list and trade the Dreyer's Grand Ice Cream 
Holdings, Inc. (``New Dreyer's'') class A callable puttable common 
stock (``Common Stock'').

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Nasdaq included statements 
concerning the purpose of, and basis for, the proposed rule change, and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. Nasdaq has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

[[Page 8062]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

 1. Purpose
    Nasdaq proposes to list for trading the New Dreyer's Common Stock 
under NASD Rule 4420(f). Under NASD Rule 4420(f), Nasdaq may approve 
for listing and trading innovative securities which cannot be readily 
categorized under traditional listing guidelines.\3\ Nasdaq believes 
that it is appropriate to list the New Dreyer's Common Stock under NASD 
Rule 4420(f) because it combines the features of more than one category 
of currently listed securities, specifically common stock with a put 
right and a call right.\4\
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    \3\ See Securities Exchange Act Release No. 32988 (September 29, 
1993); 58 FR 52124 (October 6, 1993) (``1993 Order'').
    \4\ Id.; see also Securities Exchange Act Release No. 32378 (May 
27, 1993), 58 FR 31770 (June 4, 1993).
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    Dreyer's Grand Ice Cream, Inc. (``Dreyer's'') has entered into an 
Agreement and Plan of Merger and Contribution (``Merger Agreement'') 
with Nestle Holdings, Inc. (``Nestle'') and its affiliates to combine 
Dreyer's with Nestle's United States frozen dessert business. The 
combination will result in both Dreyer's and Nestle Ice Cream Company, 
LLC, which holds Nestle's United States frozen dessert business, 
becoming wholly-owned subsidiaries of a newly formed Delaware 
corporation, which is named New December, Inc. (``New December'') and 
which will be renamed New Dreyer's.\5\
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    \5\ For further information regarding the Merger Agreement, see 
the registration statement filed by New December with the Commission 
(File No. 333-101052).
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    As described in the registration statement filed by New December, 
if the transactions contemplated by the Merger Agreement are completed, 
the public shareholders of Dreyer's will receive the New Dreyer's 
Common Stock. Each holder of the New Dreyer's Common Stock will have 
the option to require New Dreyer's to redeem out of legally available 
funds all or part of the New Dreyer's Common Stock held by the holder 
at a price of $83.00 per share during each of the following put 
periods: (1) The period beginning on December 1, 2005 and ending on 
January 13, 2006; and (2) the period beginning on April 3, 2006 and 
ending on May 12, 2006. Prior to the start of each put period, New 
Dreyer's will be required to give notice of the availability of the put 
right to the holders of the New Dreyer's Common Stock. Notwithstanding 
the foregoing, New Dreyer's will be relieved of its redemption 
obligations in respect of any put right upon the occurrence of a 
triggering event, which means either a substantial adverse change 
determination or an insolvency event as described in the registration 
statement. During the call period beginning on January 1, 2007 and 
ending on June 30, 2007, the New Dreyer's Common Stock may be redeemed 
by New Dreyer's out of legally available funds, in whole but not in 
part, at a price of $88.00 per share, upon Nestle's request.
    As set forth in the registration statement, prior to the expiration 
of the two put periods, the existence of the put right will likely be 
influential in determining the market price at which the New Dreyer's 
Common Stock will trade. However, the market price of the New Dreyer's 
Common Stock is not guaranteed at the completion of the transactions or 
thereafter, and may be adversely affected in the event that the ability 
of the New Dreyer's Common Stock holders to exercise the put right or 
to receive proceeds upon exercise of the call right is impaired or 
diminished. Moreover, after the expiration of the two put periods, the 
market price of the Common Stock, to the extent still outstanding, may 
decline significantly. Although Nestle is prohibited from proposing a 
business combination transaction during the period beginning on July 1, 
2007 and ending on July 1, 2008 at a price lower than $88.00 per share 
of the New Dreyer's Common Stock, there are no price protections for 
business combination transactions after July 1, 2008.
    Furthermore, at the expiration of the call period on July 1, 2007, 
the New Dreyer's Common Stock will convert into New Dreyer's class B 
common stock and Nestle will no longer be contractually restricted from 
controlling more than 50% of the New Dreyer's board of directors, and 
may use its controlling vote as a New Dreyer's stockholder to elect any 
number or all of the members of New Dreyer's board of directors. Also, 
after July 1, 2007, Nestle will have no restrictions on its ability to 
sell or transfer its New Dreyer's Common Stock on the open market, in 
privately negotiated transactions or otherwise, and these sales or 
transfers could create a substantial decline in the price of the 
outstanding shares of the New Dreyer's Common Stock or, if these sales 
or transfers were made to a single buyer or group of buyers, could 
transfer control of New Dreyer's to a third party.
    In addition, the existence of the call right may prevent the New 
Dreyer's Common Stock from trading above the call price of $88.00 per 
share even if New Dreyer's future growth and/or market conditions were 
to otherwise warrant a per share valuation in excess of that price. If 
the call right is exercised, the Common Stock holders would participate 
in this increased valuation only to the extent of the $88.00 per share 
of the Common Stock redemption price.
    Upon the occurrence of a triggering event, the New Dreyer's Common 
Stock will be redeemed, in whole but not in part, at a price per share 
equal to the triggering event price. The triggering event price will be 
determined on the basis of a discount to the put price of $83.00 per 
share of the New Dreyer's Common Stock and will depend on the date of 
the triggering event. Upon New Dreyer's receipt of a written request 
from Nestle for the redemption of the New Dreyer's Common Stock under 
the call right, including in connection with a triggering event, New 
Dreyer's will be required to give notice of the exercise of the call 
right and the redemption of the Common Stock to New Dreyer's Common 
Stock holders.
    The New Dreyer's Common Stock will initially be subject to Nasdaq's 
listing criteria for other securities under NASD Rule 4420(f). 
Specifically, under NASD Rule 4420(f)(1):
    (A) The issuer shall have assets in excess of $100 million and 
stockholders' equity of at least $10 million. In the case of an issuer 
which is unable to satisfy the income criteria set forth in paragraph 
(a)(1), Nasdaq generally will require the issuer to have the following: 
(i) assets in excess of $200 million and stockholders' equity of at 
least $10 million; or (ii) assets in excess of $100 million and 
stockholders' equity of at least $20 million;
    (B) There must be a minimum of 400 holders of the security, 
provided, however, that if the instrument is traded in $1,000 
denominations, there must be a minimum of 100 holders;
    (C) For equity securities designated pursuant to this paragraph, 
there must be a minimum public distribution of 1,000,000 trading units; 
and
    (D) The aggregate market value/principal amount of the security 
will be at least $4 million.
    In addition, New Dreyer's will satisfy the listed marketplace 
requirement set forth in NASD Rule 4420(f)(2).\6\ Lastly, pursuant to 
NASD Rule 4420(f)(3), prior

[[Page 8063]]

to the commencement of trading of the New Dreyer's Common Stock, Nasdaq 
will distribute a circular to members providing guidance regarding the 
features of the Common Stock and members' responsibilities (including 
suitability recommendations) when handling transactions in callable 
puttable common stock and highlighting the characteristics and risks of 
the Common Stock. In particular, Nasdaq will inform members that 
customer confirmations involving the New Dreyer's Common Stock should 
identify the security as a callable and puttable instrument and that a 
customer may contact the member for more information concerning the 
security.\7\ Furthermore, given the put and call features of the Common 
Stock, the circular will indicate that Nasdaq suggests that 
transactions in the Common Stock be recommended only to investors whose 
accounts have been approved for options trading. If a customer has not 
been approved for options trading, or does not wish to open an options 
account, the member should ascertain whether the Common Stock is 
suitable for the customer. Pursuant to NASD Rule 2310 and IM-2310-2, 
members must have reasonable grounds for believing that a 
recommendation to a customer regarding the purchase, sale or exchange 
of any security is suitable for such customer upon the basis of the 
facts, if any, disclosed by such customer as to his other security 
holdings and as to his financial situation and needs. In addition, 
members recommending a transaction in the Common Stock must, among 
other things, have a reasonable basis for believing that the customer 
can evaluate the special characteristics of, and is able to bear the 
financial risks of, such transaction.
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    \6\ NASD Rule 4420(f)(2) requires issuers of securities 
designated pursuant to this paragraph to be listed on Nasdaq or the 
New York Stock Exchange (``NYSE'') or be an affiliate of a company 
listed on Nasdaq or the NYSE; provided, however, that the provisions 
of NASD Rule 4450 will be applied to sovereign issuers of ``other'' 
securities on a case-by-cade basis.
    \7\ See NASD IM-2110-6, Confirmation of Callable Common Stock.
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    The New Dreyer's Common Stock will be subject to Nasdaq's continued 
listing criterion for other securities pursuant to NASD Rule 4450(c). 
Under this criterion, the aggregate market value or principal amount of 
publicly-held units must be at least $1 million. The Common Stock also 
must have at least two registered and active market makers as required 
by NASD Rule 4310(c)(1).
    Nasdaq represents that NASD's surveillance procedures are adequate 
to properly monitor the trading of the Common Stock. Specifically, NASD 
will rely on its current surveillance procedures governing equity 
securities.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
Section 15A of the Act,\8\ in general, and furthers the objectives of 
Section 15A(b)(6) of the Act,\9\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market and, in general, to 
protect investors and the public interest.
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    \8\ 15 U.S.C. 78o-3.
    \9\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to file number SR-NASD-2003-16 and 
should be submitted by March 12, 2003.

IV. Commission Findings and Order Granting Accelerated Approval of the 
Proposed Rule Change

    Nasdaq requests that the Commission approve this filing on an 
accelerated basis because Nasdaq believes that the proposal does not 
raise any novel issues. The Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities association 
and, in particular, with the requirements of Section 15A(b)(6) of the 
Act \10\ in that it is designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market, and, in general, to protect investors and 
the public interest.\11\
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    \10\ 15 U.S.C. 78o-3(b)(6).
    \11\ In approving the proposed rule, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
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    The Commission notes that the New Dreyer's Common Stock has both 
callable and puttable features. In particular, shareholders of Dreyer's 
will receive the Common Stock, subject to the completion of certain 
transactions in the Merger Agreement, with the option of redeeming all 
or part of their Common Stock at a price of $83.00 per share during two 
put periods: (1) The period between December 1, 2005 and January 13, 
2006; and (2) the period between April 3, 2006 and May 12, 2006. 
However, as described in the registration statement, New Dreyer's would 
be relieved of its redemption obligations upon the occurrence of a 
substantial adverse change determination or an insolvency event. In 
addition, the Commission notes that New Dreyer's will retain an option 
to call the shares of Common Stock, upon Nestle's request, during the 
period between January 1, 2007 and June 30, 2007, in whole but not in 
part, at a price of $88.00 per share.
    Because of the Common Stock's callable and puttable features, there 
are several issues regarding trading of this type of hybrid product. 
For the reasons discussed below, the Commission believes that Nasdaq's 
proposal adequately addresses the concerns raised by this type of 
product.
    The Commission notes that the protections of NASD Rule 4420(f) were 
designed to address the concerns attendant to the trading of hybrid 
securities like the New Dreyer's Common Stock.\12\ In particular, by 
imposing the hybrid listing standards, heightened suitability for 
recommendations,\13\ and compliance

[[Page 8064]]

requirements, noted above, the Commission believes that Nasdaq has 
adequately addressed the potential problems that could arise from the 
hybrid nature of the Common Stock.
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    \12\ See 1993 Order, supra note 3.
    \13\ As discussed above, Nasdaq will advise members and 
employees thereof recommending a transaction in the Common Stock to: 
(1) Determine that the transaction is suitable for the customer; and 
(2) have a reasonable basis for believing that the customer can 
evaluate the special characteristics of, and is able to bear the 
financial risk of, the transaction.
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    The Commission notes that Nasdaq will distribute a circular to its 
members that provides guidance regarding members' compliance 
responsibilities and requirements, including heightened suitability 
recommendations, when handling transactions in callable puttable common 
stock, and that highlights the special risks and characteristics 
associated with the Common Stock. Specifically, among other things, the 
circular will inform members that customer confirmations involving the 
New Dreyer's Common Stock should identify the security as a callable 
and puttable instrument and that a customer may contact the member for 
more information concerning the security. Nasdaq represents that the 
circular will also indicate that, given the put and call features of 
the Common Stock, Nasdaq will suggest that transactions in the Common 
Stock be recommended only to investors whose accounts have been 
approved for options trading. Nasdaq further represents that, if a 
customer has not been approved for options trading, or does not wish to 
open an options account, the member should ascertain whether the Common 
Stock is suitable for the customer pursuant to NASD Rule 2310 and IM-
2310-2. The Commission believes that the distribution of the circular 
should help to ensure that only customers with an understanding of the 
risks attendant to the trading of the New Dreyer's Common Stock and who 
are able to bear the financial risks associated with transactions in 
the Common Stock will acquire and trade the Common Stock.
    In addition, Nasdaq represents that the circular will identify the 
following specific risks associated with the Common Stock.\14\ The 
circular will note that members should inform customers that the price 
at which the New Dreyer's Common Stock will trade may be influenced, 
prior to the expiration of the two put periods, by the existence of the 
put right. The circular will also note that the final rate of return on 
the Common Stock may be less than the market price of the Common Stock, 
and that after the expiration of the two put periods, the market price 
of the Common Stock may decline significantly. Furthermore, customers 
should be aware that after the expiration of the call period on July 1, 
2007, the New Dreyer's Common Stock will be converted into New Dreyer's 
class B common stock, and that Nestle will no longer be held to certain 
controlling interest and sale restrictions, as discussed above. The 
Commission believes that to some extent the financial risk is minimized 
by the NASD's listing standards in NASD Rule 4420(f), which provide 
that only issuers satisfying substantial asset and equity requirements 
may issue these types of hybrid securities, and that the issuers of 
securities to be listed on Nasdaq or the NYSE or be an affiliate of a 
company listed on Nasdaq or the NYSE. In addition, the NASD's hybrid 
listing standards further require that the Common Stock have at least 
$4 million in market value.
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    \14\ Telephone conversation between John Nachmann, Senior 
Attorney, Office of General Counsel, Nasdaq, and Florence Harmon, 
Senior Special Counsel, and Sapna C. Patel, Attorney, Division of 
Market Regulation, Commission, on February 11, 2003.
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    Furthermore, the Commission notes that Nasdaq represents that 
NASD's surveillance procedures for the Common Stock will be the same as 
its current surveillance procedures for equity securities, and that 
Nasdaq represents that such surveillance procedures are adequate for 
this product.
    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register. The Commission 
believes that granting accelerated approval of the proposal will 
facilitate the trading of New Dreyer's Common Stock. Accordingly, the 
Commission believes that there is good cause, consistent with Sections 
15A(b)(6) and 19(b)(2) of the Act,\15\ to approve the proposal on an 
accelerated basis.
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    \15\ 15 U.S.C. 78o-3(b)(6) and 78s(b)(2).
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    The Commission is approving Nasdaq's proposed listing standards for 
the New Dreyer's Common Stock. The Commission specifically notes that, 
notwithstanding approval of the listing standards for the Common Stock, 
other similarly structured products will require review by the 
Commission prior to being traded on Nasdaq.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-NASD-2003-16) is approved on an 
accelerated basis.
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    \16\ 17 CFR 200.30-3(a)(12).
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    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\16\

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-3946 Filed 2-18-03; 8:45 am]
BILLING CODE 8010-01-P