Securities Law & Instruments

Headnote

Subsection 104(2)(c) of the Act -- Issuer bid -- relief from issuer bid requirements in sections 94 to 94.8 and 97 to 98.7 of the Act -- issuer proposes to purchase, pursuant to a repurchase program and at a discounted purchase price, up to 4,000,000 of its common shares from a third party purchasing as agent -- third party will abide by the requirements governing normal course issuer bids as though it was the issuer, subject to certain modifications, including that the third party will not make any purchases under the program pursuant to a pre-arranged trade -- common shares delivered to the issuer for cancellation will be common shares from the third party's existing inventory -- due to the discounted purchase price, the common shares cannot be acquired through the TSX trading system -- but for the fact that the common shares cannot be acquired through the TSX trading system, the Issuer could otherwise acquire such shares in reliance upon the issuer bid exemption available under section 101.2 of the Act and in accordance with the TSX rules governing normal course issuer bid purchases -- the parameters pursuant to which the third party will purchase common shares under the program are established at the time that the agreement governing same is entered into -- no adverse economic impact on, or prejudice to, the Issuer or public shareholders -- acquisition of securities exempt from the issuer bid requirements in sections 94 to 94.8 and 97 to 98.7 of the Act, subject to conditions, including that the agreement governing the program will prohibit the third party from selling common shares from its existing inventory to the issuer under the program unless it has purchased, or had purchased on its behalf, an equivalent number of common shares on the markets and such number of common shares so purchased must be equal to the number of common shares sold to the issuer.

Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 94 to 94.8, 97 to 98.7 104(2)(c).

IN THE MATTER OF THE SECURITIES ACT, R.S.O. 1990, c. S.5, AS AMENDED AND IN THE MATTER OF CANADIAN NATIONAL RAILWAY COMPANY

ORDER (Clause 104(2)(c))

UPON the application (the "Application") of Canadian National Railway Company (the "Issuer") to the Ontario Securities Commission (the "Commission") for an order pursuant to clause 104(2)(c) of the Securities Act (Ontario) (the "Act") exempting the Issuer from the requirements of sections 94 to 94.8, inclusive, and sections 97 to 98.7, inclusive, of the Act (the "Issuer Bid Requirements") in respect of the proposed purchases by the Issuer of up to 4,000,000 of its common shares (the "Program Maximum") from The Bank of Nova Scotia ("Scotia") pursuant to a repurchase program (the "Program");

AND UPON considering the Application and the recommendation of staff of the Commission;

AND UPON the Issuer (and Scotia in respect of paragraphs 5, 6, 7, 8, 11, 17, 20, 21, 22, 23, 24, 25, 26, 27, 28, 34 and 35 as they relate to Scotia and its agents) having represented to the Commission that:

1. The Issuer is a corporation governed by the Canada Business Corporations Act.

2. The registered and head office of the Issuer is located at 935 de La Gauchetière Street West, Montréal, Quebec, H3B 2M9.

3. The Issuer is a reporting issuer in each of the provinces and territories of Canada (the "Jurisdictions") and the Common Shares are listed for trading on the Toronto Stock Exchange (the "TSX") and the New York Stock Exchange (the "NYSE") under the symbols "CNR" and "CNI", respectively. The Issuer is not in default of any requirement of the securities legislation of the Jurisdictions in which it is a reporting issuer.

4. The authorized common share capital of the Issuer consists of an unlimited number of common shares (the "Common Shares"), of which 793,872,323 were issued and outstanding as of September 30, 2015.

5. Scotia is a full service Schedule 1 Bank under the Bank Act (Canada). The corporate headquarters of Scotia are located in the Province of Ontario.

6. Scotia does not directly or indirectly own more than 5% of the issued and outstanding Common Shares.

7. Scotia is the beneficial owner of at least 4,000,000 Common Shares, none of which were acquired by, or on behalf of, Scotia in anticipation or contemplation of resale to the Issuer (such Common Shares over which Scotia has beneficial ownership, the "Inventory Shares").

8. Scotia is at arm's length to the Issuer and is not an "insider" of the Issuer or "associate" of an "insider" of the Issuer, or an "associate" or "affiliate" of the Issuer, as such terms are defined in the Act. Scotia is an "accredited investor" within the meaning of National Instrument 45-106 Prospectus Exemptions.

9. Subject to approval of its Board of Directors, the Issuer intends to announce on October 27, 2015 that it is engaging in a normal course issuer bid (the "Normal Course Issuer Bid") for up to 33,000,000 Common Shares, representing 4.9% of the Issuer's public float of Common Shares as of the date specified in the Notice of Intention to Make a Normal Course Issuer Bid (the "Notice") to be submitted to the TSX for acceptance. The Notice will specify that purchases under the Normal Course Issuer Bid will be conducted through the facilities of the TSX and the NYSE or alternative trading systems, if eligible, or by such other means as may be permitted by the TSX or a securities regulatory authority in accordance with sections 628 to 629.3 of Part VI of the TSX Company Manual (the "TSX Rules"), including under automatic trading plans and by private agreements or share repurchase programs under issuer bid exemption orders issued by securities regulatory authorities.

10. To the best of the Issuer's knowledge, the "public float" (calculated in accordance with the TSX Rules) for the Common Shares as at September 30, 2015 consisted of 680,382,309 Common Shares. The Common Shares are "highly liquid securities", as that term is defined in section 1.1 of OSC Rule 48-501 Trading during Distributions, Formal Bids and Share Exchange Transactions ("OSC Rule 48-501") and section 1.1 of the Universal Market Integrity Rules ("UMIR").

11. Pursuant to the TSX Rules, the Issuer will appoint Scotia Capital Inc. ("Scotia Capital") as its designated broker in Canada and Merrill Lynch, Pierce, Fenner & Smith as its designated broker in the United States under the Normal Course Issuer Bid (the "Responsible Brokers").

12. The Issuer may, from time to time, appoint a non-independent purchasing agent (a "Plan Trustee") to fulfill requirements for the delivery of Common Shares under the Issuer's security-based compensation plans (the "Plan Trustee Purchases"). The maximum number of Common Shares that the Issuer is permitted to repurchase under the Normal Course Issuer Bid will be reduced by the number of Plan Trustee Purchases.

13. The Issuer will implement an automatic repurchase plan (the "ARP") to permit the Issuer to make purchases under the Normal Course Issuer Bid during internal blackout periods, including regularly scheduled quarterly blackout periods and at such times when the Issuer would not otherwise be permitted to trade in its Common Shares. The ARP will be submitted to the TSX for its approval and will be in compliance with the TSX Rules and applicable securities law.

14. The Normal Course Issuer Bid will be conducted in reliance upon the exemption from the Issuer Bid Requirements set out in subsection 101.2(1) of the Act in Ontario, and its equivalent provision in the securities legislation of the other Jurisdictions. Subsection 101.2(1) provides that an issuer bid that is made in the normal course through the facilities of a designated exchange is exempt from the formal bid requirements if the bid is made in accordance with the by-laws, rules, regulations and policies of that exchange. The Commission has recognized the TSX as a designated exchange for the purposes of subsection 101.2(1) of the Act.

15. The Normal Course Issuer Bid will also be conducted in the normal course on the NYSE and other permitted published markets (collectively with the NYSE, the "Other Published Markets") in reliance upon the exemption from the Issuer Bid Requirements set out in subsection 101.2(2) of the Act in Ontario, and its equivalent provision in the securities legislation of the other Jurisdictions (the "Other Published Markets Exemption", and together with the TSX Rules, the "NCIB Rules"). The Other Published Markets Exemption provides that an issuer bid that is made in the normal course on a published market, other than a designated exchange, is exempt from the formal bid requirements if the bid is, among other things, for not more than 5% of the outstanding securities of a class of securities of the issuer and the aggregate number of securities acquired in reliance upon the Other Published Markets Exemption by the issuer and any person or company acting jointly or in concert with the issuer within any period of 12 months does not exceed 5% of the outstanding securities of that class at the beginning of the 12-month period.

16. The Issuer proposes to participate in the Program during the Normal Course Issuer Bid, which will be governed by, and conducted in accordance with, the terms and conditions of a Repurchase Program Agreement (the "Program Agreement") that will be entered into between the Issuer and Scotia prior to the commencement of the Program and a copy of which will be delivered by the Issuer to the Commission.

17. The term of the Program Agreement will be from October 30, 2015 to the earlier of December 24, 2015 or the date on which the Issuer will have purchased the Program Maximum from Scotia (the "Program Term"). The Issuer will not be in any internal blackout periods during the Program Term.

18. The Issuer is of the view that (a) it will be able to purchase Common Shares from Scotia at a lower price than the price at which it would be able to purchase an equivalent quantity of Common Shares under the Normal Course Issuer Bid through the facilities of the TSX and/or on Other Published Markets, and (b) the purchase of Common Shares pursuant to the Program is in the best interests of the Issuer and constitutes a desirable use of the Issuer's funds.

19. The Notice and a press release announcing the Normal Course Issuer Bid and the Program (the "Press Release") will describe the material features of the Program and disclose the Issuer's intention to participate in the Program during the Normal Course Issuer Bid. Once the Notice and the Press Release are in a form that is acceptable to the TSX, they will be filed with the TSX and the Press Release will be issued by the Issuer at least two clear trading days prior to the commencement of the Program.

20. Scotia will retain the services of Scotia Capital to acquire Common Shares on its behalf through the facilities of the TSX and on Other Published Markets in Canada (each, a "Canadian Other Published Market" and collectively with the TSX, the "Canadian Markets") under the Program.

21. Scotia Capital is registered as an investment dealer under the securities legislation of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec, Nova Scotia, New Brunswick, Newfoundland and Labrador, Prince Edward Island, the Northwest Territories, Yukon and Nunavut. It is also registered as a futures commission merchant under the Commodity Futures Act (Ontario), a derivatives dealer under the Derivatives Act (Québec), and as dealer (futures commission merchant) under The Commodity Futures Act (Manitoba). Scotia Capital is a member of the Investment Industry Regulatory Organization of Canada ("IIROC") and the Canadian Investor Protection Fund, a participating organization or member of the TSX, TSX Venture Exchange and Canadian Securities Exchange, and an approved participant of the Bourse de Montréal. The head office of Scotia Capital is located in Toronto, Ontario.

22. The Program Agreement will provide that all Common Shares acquired by, or on behalf of, Scotia on a day (each, a "Trading Day") during the Program Term when Canadian Markets are open for trading must be acquired on Canadian Markets in accordance with the NCIB Rules that would be applicable to the Issuer in connection with the Normal Course Issuer Bid, provided that:

(i) Scotia will purchase Common Shares in accordance with the instructions received from the Issuer, which instructions will be the same instructions that the Issuer would give if it were conducting the Normal Course Issuer Bid itself;

(ii) the aggregate number of Common Shares to be acquired on Canadian Markets by, or on behalf of, Scotia on each Trading Day will not exceed the maximum daily limit that is imposed upon the Normal Course Issuer Bid pursuant to the TSX Rules determined with reference to an average daily trading volume that is based on the trading volume on all Canadian Markets rather than being limited to the trading volume on the TSX only (the "Modified Maximum Daily Limit"), being understood that the aggregate number of Common Shares to be acquired on the TSX by, or on behalf of, Scotia on each Trading Day will not exceed the maximum daily limit that is imposed on the Normal Course Issuer Bid pursuant to the TSX Rules;

(iii) the aggregate number of Common Shares acquired by, or on behalf of, Scotia pursuant to the Program Agreement may not exceed the Program Maximum;

(iv) the aggregate number of Common Shares acquired by, or on behalf of, Scotia pursuant to the Program Agreement on Canadian Other Published Markets may not exceed that number of Common Shares remaining eligible for purchase pursuant to the Other Published Markets Exemption, calculated as at the date of the Program Agreement;

(v) upon the occurrence of a cessation of trading on the TSX or other event that would impair Scotia's ability to acquire Common Shares on Canadian Markets (a "Market Disruption Event"), Scotia will cease acquiring Common Shares and the number of Common Shares acquired by Scotia to such time will be the "Acquired Shares" for such purposes of the Program; and

(vi) notwithstanding the block purchase exception provided for in the TSX Rules, no purchases will be made by, or on behalf of, Scotia on any Canadian Markets pursuant to a pre-arranged trade.

23. Scotia will deliver to the Issuer a number of Common Shares equal to the number of Common Shares purchased by, or on behalf of, Scotia under the Program on any Trading Day on the second Trading Day thereafter, and the Issuer will pay Scotia the Discounted Price for each such Common Share. The "Discounted Price" per Common Share will be equal to (i) the volume weighted average price of the Common Shares on the Trading Day on which purchases were made less an agreed upon discount, or (ii) upon the occurrence of a Market Disruption Event, the volume weighted average price of the Common Shares at the time of the Market Disruption Event less an agreed upon discount.

24. Each Common Share purchased by the Issuer under the Program will be cancelled upon delivery to the Issuer. The Common Shares delivered by Scotia to the Issuer will be from the Inventory Shares.

25. Scotia will not sell Inventory Shares to the Issuer under the Program unless it has purchased, or had purchased on its behalf, an equivalent number of Common Shares on Canadian Markets, and the number of Common Shares that are purchased by, or on behalf of, Scotia on the Canadian Markets on a Trading Day will be equal to the Number of Common Shares for such Trading Day.

26. Neither the Issuer nor Scotia may unilaterally terminate the Program Agreement prior to the last day of the Program Term, except in the case of an event of default by a party thereunder.

27. The Program Agreement will (a) prohibit the Issuer from purchasing any Common Shares (other than Common Shares purchased under the Program), (b) require the Issuer to prohibit the Responsible Brokers from acquiring any Common Shares on behalf of the Issuer, except for purchases by Scotia Capital as agent for Scotia under the Program, (c) require the Issuer to prohibit the Plan Trustee from undertaking any Plan Trustee Purchases, and (d) require the Issuer to prohibit the designated broker under the ARP from acquiring any Common Shares on behalf of the Issuer, in each case, during the conduct of the Program by Scotia and Scotia Capital.

28. The Program Agreement will provide that all purchases of Common Shares under the Program by, or on behalf of, Scotia will be done as agent of the Issuer and neither Scotia nor Scotia Capital will engage in any hedging activity in connection with the conduct of the Program.

29. The Issuer will report its purchases of Common Shares under the Program to the TSX in accordance with the TSX Rules. In addition, immediately following the completion of the Program, the Issuer will: (a) report the total number of Common Shares acquired under the Program to the TSX and the Commission; and (b) file a notice on the System for Electronic Document Analysis and Retrieval (SEDAR) disclosing the number of Common Shares acquired under the Program and the aggregate dollar amount paid for such Common Shares.

30. But for the fact that the Discount Price will be at a discount to the prevailing market price and below the prevailing bid-ask price for the Common Shares on the TSX at the time that the Issuer purchases the Common Shares from Scotia, the Issuer could otherwise acquire such Common Shares through the facilities of the TSX as a "block purchase" in accordance with the block purchase exception in paragraph 629(1)7 of the TSX Rules and the exemption from the Issuer Bid Requirements that is available pursuant to subsection 101.2(1) of the Act.

31. The entering into of the Program Agreement, the purchase of Common Shares by, or on behalf of, Scotia and the sale of Common Shares by Scotia to the Issuer will not adversely affect the Issuer or the rights of any of the Issuer's security holders and it will not materially affect control of the Issuer.

32. The sale of Common Shares to the Issuer by Scotia will not be a "distribution" (as defined in the Act).

33. The Issuer will be able to acquire the Common Shares from Scotia without the Issuer being subject to the dealer registration requirements of the Act.

34. At the time that the Issuer and Scotia enter into the Program Agreement, neither the Issuer, nor any member of the Global Equity Derivatives and Investor Solutions group of Scotia, nor any personnel of Scotia that negotiated the Program Agreement or made, participated in the making of, or provided advice in connection with, the decision to enter into the Program Agreement and sell the Common Shares, will be aware of any "material change" or "material fact" (each as defined in the Act) with respect to the Issuer or the Common Shares that has not been generally disclosed (the "Undisclosed Information").

35. Each of Scotia and Scotia Capital has policies and procedures that are designed to ensure conduct of the Program in accordance with, among other things, the Program Agreement and to preclude those persons responsible for administering the Program from acquiring any Undisclosed Information during the conduct of the Program.

AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

IT IS ORDERED pursuant to clause 104(2)(c) of the Act that the Issuer be exempt from the Issuer Bid Requirements in respect of the entering into of the Program Agreement and the delivery of the Inventory Shares by Scotia to the Issuer pursuant to the Program, provided that:

(a) following acceptance of the Notice by the TSX and at least two clear Trading Days prior to the commencement of the Program, the Issuer will issue the Press Release, which will describe, among other things, the material features of the Program and disclose the Issuer's intention to participate in the Program during the Normal Course Issuer Bid;

(b) the Program Agreement will require Scotia and its agents to abide by the NCIB Rules applicable to the Normal Course Issuer Bid, subject to clauses 22(ii) and (vi) hereof;

(c) the Program Agreement will require that Scotia and its agents maintain records of all purchases of Common Shares that are made by, or on behalf of, Scotia pursuant to the Program, which will be available to the Commission and IIROC upon request;

(d) the Program Agreement will prohibit Scotia from selling Inventory Shares to the Issuer under the Program unless Scotia has purchased, or had purchased on its behalf, an equivalent number of Common Shares on Canadian Markets, and the Program Agreement will provide that the number of Common Shares that are purchased by, or on behalf of, Scotia on Canadian Markets on a Trading Day will be equal to the Number of Common Shares for that Trading Day;

(e) the Common Shares acquired by Scotia under the Program will be taken into account by the Issuer when calculating the maximum annual aggregate limits that are imposed upon the Normal Course Issuer Bid in accordance with the TSX Rules and those Common Shares that were purchased by or on behalf of Scotia on Canadian Other Published Markets will be taken into account by the Issuer when calculating the maximum aggregate limits that are imposed upon the Issuer in accordance with the Other Published Markets Exemption;

(f) the Program Agreement will (i) prohibit the Issuer from purchasing any Common Shares (other than Common Shares purchased under the Program), (ii) require the Issuer to prohibit the Responsible Brokers from acquiring any Common Shares on behalf of the Issuer, except for purchases by Scotia Capital as agent for Scotia under the Program, (iii) require the Issuer to prohibit the Plan Trustee from undertaking any Plan Trustee Purchases, and (iv) require the Issuer to prohibit the designated broker under the ARP from acquiring any Common Shares on behalf of the Issuer, in each case, during the conduct of the Program by Scotia and Scotia Capital;

(g) each purchase made by or on behalf of Scotia through the facilities of Canadian Markets pursuant to the Program shall be marked with such designation as would be required by the applicable marketplace and UMIR for a trade made by an agent on behalf the Issuer;

(h) at the time that the Program Agreement is entered into by the Issuer and Scotia, the Common Shares must be "highly liquid securities", as that term is defined in section 1.1 of OSC Rule 48-501 and section 1.1 of UMIR;

(i) at the time that the Issuer and Scotia enter into the Program Agreement, neither the Issuer, nor any member of the Global Equity Derivatives and Investor Solutions group of Scotia, nor any personnel of Scotia that negotiated the Program Agreement or made, participated in the making of, or provided advice in connection with, the decision to enter into the Program Agreement and deliver the Common Shares, will be aware of any "material change" or "material fact" (each as defined in the Act) with respect to the Issuer or the Common Shares that has not been generally disclosed; and

(j) in addition to reporting its purchases of Common Shares under the Program to the TSX in accordance with the TSX Rules, immediately following the completion of the Program, the Issuer will: (i) report the total number of Common Shares acquired under the Program to the TSX and the Commission; and (ii) file a notice on SEDAR disclosing the number of Common Shares acquired under the Program and the aggregate dollar amount paid for such Common Shares.

DATED at Toronto this 27th day of October, 2015.

"Grant Vingoe"
Commissioner
Ontario Securities Commission
 
"Edward P. Kerwin"
Commissioner
Ontario Securities Commission