Descartes Systems Group Inc. - MRRS Decision

Headnote

Mutual Reliance Review System for ExemptiveRelief Applications -- dutch auction issuer bid -- with respectto securities tendered at or below clearing price -- there isa liquid market for the securities -- circular to contain certaindisclosure including information regarding take up and paymentmechanics as well as facts supporting reliance on the liquidmarket exemption -- offeror to comply with all other legislativerequirements -- offeror exempt from requirement to take up andpay for securities proportionately according to number of securitiesdeposited by each shareholder -- offeror also exempt from theassociated disclosure requirement.

Applicable Statutory Provision

Securities Act, R.S.O. 1990, c. S.5, as amended,ss. 95(7) and 104(2)(c).

Applicable Regulatory Provision

Ontario Regulation 1015 -- General Regulationmade under the Securities Act, R.R.O. 1990, Reg. 1015, as amended,s. 189(b).

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN, MANITOBA

ONTARIO, QUEBEC, NOVA SCOTIAAND NEWFOUNDLAND AND LABRADOR

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

THE DESCARTES SYSTEMS GROUPINC.

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof British Columbia, Alberta, Saskatchewan, Manitoba, Ontario,Quebec, Nova Scotia and Newfoundland and Labrador (collectively,the "Jurisdictions") has received an application fromThe Descartes Systems Group Inc. (the "Corporation")for a decision under the securities legislation of the Jurisdictions(the "Legislation") that the requirements containedin the Legislation to:

(i) take up and pay for securities proportionatelyaccording to the number of securities deposited by each shareholder(the "Proportionate Take Up and Payment Requirement");

(ii) provide disclosure in the issuer bidcircular (the "Circular") of such proportionatetake up and payment (the "Associated Disclosure Requirement");and

(iii) obtain a valuation of the Corporation'scommon shares (the "Shares") and provide disclosurein the Circular of such valuation, or a summary thereof (the"Valuation Requirement"),

shall not apply to the Corporation in connectionwith its proposed purchase of a portion of the Shares pursuantto a formal issuer bid (the "Proposed Issuer Bid");

AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulatorfor the Application;

AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions or in Québec Commission Notice 14-101;

AND WHEREAS the Corporation has representedto the Decision Makers that:

1. The Corporation was amalgamated under theBusiness Corporations Act (Ontario) on January 26,1999.

2. The Corporation is authorized to issuean unlimited number of Shares. As of May 23, 2003, the Corporationhad 52,231,711 Shares issued and outstanding.

3. The Corporation is a reporting issuer orthe equivalent in each of the Jurisdictions, is not in defaultof any requirements of the Legislation and is not on the listof defaulting reporting issuers maintained pursuant to suchLegislation, where applicable.

4. The Shares are listed and posted for tradingon the Toronto Stock Exchange (the "TSX") underthe trading symbol "DSG" and on the Nasdaq NationalMarket ("Nasdaq") under the trading symbol "DSGX",and its Debentures are listed and posted for trading on theTSX under the trading symbol "DSG.DB.U".

5. The Corporation, or the Corporation indirectlythrough its wholly-owned subsidiary, proposes to purchase,for a period concurrent with the Proposed Issuer Bid, up toU.S.$45,000,000 aggregate principal amount of its 5.50% ConvertibleUnsecured Subordinated Debentures due June 30, 2005 ("Debentures")at a purchase price of U.S.$950 for each U.S.$1,000 of principalamount of Debentures plus any accrued and unpaid interest.

6. To the knowledge of the Corporation, theonly holder of Shares that currently holds greater than 10%of the Shares is PRIMECAP Management Company, which owns 5,698,600Shares as of May 16, 2003, representing approximately 10.9%of the issued and outstanding Shares.

7. The intention to make the Proposed IssuerBid and certain anticipated details of the Proposed IssuerBid were announced on May 12, 2003 (the "AnnouncementDate").

8. The Proposed Issuer Bid will be made pursuantto a modified dutch auction procedure (the "Procedure")as follows:

(a) the Circular specifies the maximum numberof Shares that the Corporation intends to purchase underthe Proposed Issuer Bid is 11,578,000 Shares (the "SpecifiedNumber");

(b) the Circular also specifies a pricerange of $3.00 to $3.85 (the "Price Range") withinwhich the Corporation is prepared to purchase the Sharesunder the Proposed Issuer Bid;

(c) holders of Shares (collectively, the"Shareholders") wishing to tender to the ProposedIssuer Bid may specify the lowest price within the PriceRange at which they are willing to sell all or a portionof their Shares (an "Auction Tender");

(d) Shareholders willing to tender to theProposed Issuer Bid but who do not wish to make an AuctionTender may elect to tender such Shares at the purchase price(the "Clearing Price") determined in accordancewith paragraph 8(f) below (a "Purchase Price Tender");

(e) all Shares tendered and not withdrawnby Shareholders who fail to specify any tender price forsuch tendered Shares and fail to indicate that they havetendered such Shares pursuant to a Purchase Price Tenderwill be deemed to have been tendered pursuant to a PurchasePrice Tender;

(f) the Clearing Price of the Shares tenderedto the Proposed Issuer Bid will be the lowest price thatwill enable the Corporation to purchase the Specified Numberand will be determined based upon the number of Shares tenderedand not withdrawn pursuant to an Auction Tender at eachprice within the Price Range and tendered and not withdrawnpursuant to a Purchase Price Tender, with each PurchasePrice Tender being considered a tender at the lowest pricein the Price Range for the purposes of calculating the ClearingPrice;

(g) the aggregate amount that the Corporationwill pay for Shares tendered to the Proposed Issuer Bidwill not be ascertained until the Clearing Price is determined;

(h) all Shares tendered and not withdrawnat or below the Clearing Price pursuant to an Auction Tenderand all Shares tendered and not withdrawn pursuant to aPurchase Price Tender will be taken up and paid for at theClearing Price (calculated to the nearest whole Share, soas to avoid the creation of fractional Shares), subjectto pro ration if the aggregate number of Shares tenderedand not withdrawn at or below the Clearing Price pursuantto Auction Tenders and the number of Shares tendered andnot withdrawn pursuant to Purchase Price Tenders exceedsthe Specified Number;

(i) all Shares tendered and not withdrawnat prices above the Clearing Price will be returned to theappropriate Shareholders;

(j) in the event that more than the SpecifiedNumber of Shares are tendered at or below the Clearing Price,the Shares to be purchased by the Corporation will be prorated from the Shares so tendered;

(k) in the event that the bid is under-subscribedby the initial expiration date but all the terms and conditionsthereof have been complied with except those waived by theCorporation, the Corporation may wish to extend the bidfor at least 10 days, in which case the Corporation mustfirst take up and pay for all Shares deposited thereunderand not withdrawn. In the event the bid is under-subscribedat the expiration date, there would be no proration amongthe tenders taken up and paid for at such time. However,by the time any extension is over, the bid may be oversubscribedin which case the Corporation intends to pro-rate only amongtenders received during the extension and after the originalexpiration date;

(l) all Shares tendered and not withdrawnby Shareholders who specify a tender price for such tenderedShares that falls outside the Price Range will be consideredto have been improperly tendered, will be excluded fromthe determination of the Clearing Price, will not be purchasedby the Corporation and will be returned to the tenderingShareholders;

(m) tendering Shareholders who make eitheran Auction Tender or a Purchase Price Tender but fail tospecify the number of Shares that they wish to tender tothe Proposed Issuer Bid will be considered to have tenderedall Shares held by such Shareholder; and

(n) if the aggregate number of Shares validlytendered, or deemed to have been tendered, to the ProposedIssuer Bid at or below the Clearing Price and not withdrawnis less than or equal to the Specified Number, the Corporationwill purchase all Shares so deposited.

9. Prior to the expiry of the Proposed IssuerBid, all information regarding the number of Shares tenderedand the prices at which such Shares are tendered will be keptconfidential, and the depositary under the Proposed IssuerBid will be directed by the Corporation to maintain such confidentialityuntil the Clearing Price is determined.

10. Since the Proposed Issuer Bid will befor fewer than all the Shares, if the number of Shares tenderedto the Proposed Issuer Bid at or below the Clearing Priceexceeds the Specified Number, the Legislation would requirethe Corporation to take up and pay for deposited Shares proportionately,according to the number of Shares deposited by each Shareholder.In addition, the Legislation would require disclosure in theCircular that the Corporation would, if Shares tendered tothe Proposed Issuer Bid exceeded the Specified Number, takeup such Shares proportionately according to the number ofShares tendered by each Shareholder to the Proposed IssuerBid.

11. During the period of 12 months beforethe Announcement Date:

(a) the number of outstanding Shares wasat all times at least 5,000,000, excluding Shares that eitherwere beneficially owned, directly or indirectly, or overwhich control or direction was exercised, by related partiesof the Corporation or were not freely tradeable;

(b) the aggregate trading volume of theShares on the TSX was at least 1,000,000 Shares;

(c) there were at least 1,000 trades inShares on the TSX; and

(d) the aggregate trading value based onthe price of the trades referred to in paragraph (c) abovewas at least $15,000,000.

12. The market value of the Shares on theTSX was approximately $168,536,044 for the calendar monthpreceding the Announcement Date.

13. The board of directors of the Corporationhas determined it is reasonable to conclude that, followingcompletion of the Proposed Issuer Bid, there will be a marketfor the beneficial owners of Shares who do not tender to theProposed Issuer Bid that is not materially less liquid thanthe market that exists at the time the Proposed Issuer Bidis made and the Corporation intends to rely upon the exemptionsfrom the Valuation Requirement contained in sections 3.4(3)of Ontario Securities Commission Rule 61-501 and Quebec LocalPolicy Statement Q-27 (the "Presumption of Liquid MarketExemptions").

14. The Circular:

(a) discloses the mechanics for the take-upand payment for, or return of, Shares as described in paragraph8 above;

(b) explains that, by tendering Shares atthe lowest price in the Price Range or pursuant to a PurchasePrice Tender, a Shareholder can reasonably expect that Sharesso tendered will be purchased at the Clearing Price, subjectto pro ration as described in paragraph 8(j) above;

(c) discloses the facts supporting the Corporation'sreliance on the Presumption of Liquid Market Exemptions,calculated with reference to the Announcement Date; and

(d) contains the disclosure prescribed bythe Legislation for issuer bids, except to the extent exemptiverelief is granted by this decision.

AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each Decision Maker(collectively, the "Decision");

AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;

THE DECISION of the Decision Makers underthe Legislation is that the Proportionate Take up and PaymentRequirement, the Associated Disclosure Requirement, and theValuation Requirement shall not apply to the Corporation inconnection with the Proposed Issuer Bid provided that:

(i) Shares tendered to the Proposed IssuerBid are taken up and paid for, or returned to the Shareholdersin accordance with the Procedure;

(ii) the facts supporting the Corporation'sreliance on the Presumption of Liquid Market Exemptions calculatedwith reference to the Announcement Date are disclosed; and

(iii) The Corporation complies with otherapplicable provisions of the Legislation relating to formalbids made by issuers.

June 25, 2003.