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 4,356,000 of its common shares under its normal course issuer bid 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 -- during blackout periods, the third party will purchase common shares under the program based on irrevocable instructions delivered by the issuer prior to the start of the blackout period -- outside of blackout periods, the third party will purchase common shares under the program based on instructions provided by the issuer on the relevant day prior to the opening of trading -- 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.

Applicable Legislative Provisions

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 4,356,000 of its common shares (the "Program Maximum") from Royal Bank of Canada ("RBC") 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 RBC in respect of paragraphs 5, 6, 7, 8, 18, 21, 22, 23, 24, 25, 26, 27, 29, 36 and 37 as they relate to RBC 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 792,158,531 were issued and outstanding as of November 18, 2015.

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

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

7. RBC is the beneficial owner of at least 4,356,000 Common Shares, none of which were acquired by, or on behalf of, RBC in anticipation or contemplation of resale to the Issuer (such Common Shares over which RBC has beneficial ownership, the "Inventory Shares"). No Common Shares were purchased by, or on behalf of, RBC on or after October 20, 2015, being the date that was 30 days prior to the date of the Application, in anticipation or contemplation of a sale of Common Shares by RBC to the Issuer.

8. RBC 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. RBC is an "accredited investor" within the meaning of National Instrument 45-106 Prospectus Exemptions.

9. The Issuer announced 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 (as amended on November 27, 2015) (the "Notice") that was submitted to, and accepted by, the TSX. The Notice specifies 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. The Commission granted the Issuer an order on October 27, 2015 (the "October Order") pursuant to clause 104(2)(c) of the Act exempting the Issuer from the Issuer Bid Requirements in connection with the proposed purchases by the Issuer of up to 4,000,000 Common Shares from The Bank of Nova Scotia ("Scotia") pursuant to a share repurchase program (the "Initial Scotia Program"). On November 27, 2015, the Commission granted the Issuer an order pursuant to section 144 of the Act varying the October Order so as to increase the maximum number of Common Shares that may be purchased under the Initial Scotia Program from 4,000,000 to 5,175,000 Common Shares (such varied Initial Scotia Program, the "Scotia Program"). As at November 19, 2015, the Issuer has purchased 2,077,400 Common Shares under the Scotia Program. The Scotia Program terminates on the earlier of December 24, 2015 and the date on which the Issuer will have purchased 5,175,000 Common Shares from Scotia under the Scotia Program.

11. The Program Maximum is less than the number of Common Shares remaining that the Issuer is entitled to acquire under the Normal Course Issuer Bid, calculated as at the date of the Program Agreement.

12. To the best of the Issuer's knowledge, the "public float" (calculated in accordance with the TSX Rules) for the Common Shares as at November 18, 2015 consisted of 679,056,456 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").

13. Pursuant to the TSX Rules, the Issuer has appointed Scotia Capital Inc. as its designated broker in Canada, and Merrill Lynch, Pierce, Fenner & Smith as its designated broker in the United States, in each case, in respect of the Normal Course Issuer Bid (the "Responsible Brokers").

14. 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.

15. The Issuer implemented 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 was approved by the TSX and is in compliance with the TSX Rules and applicable securities law.

16. The Normal Course Issuer Bid is being 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.

17. The Normal Course Issuer Bid is also being 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.

18. The Issuer proposes to participate in the Program during, and as a part of, the Normal Course Issuer Bid. The Program 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 RBC prior to the commencement of the Program and a copy of which will be delivered by the Issuer to the Commission.

19. The Issuer is of the view that (a) it will be able to purchase Common Shares from RBC 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.

20. At least two clear trading days prior to the commencement of the Program, the Issuer will issue a press release that has been pre-cleared by the TSX that describes the material features of the Program and discloses the Issuer's intention to participate in the Program during the Normal Course Issuer Bid (the "Press Release").

21. RBC will retain the services of RBC Dominion Securities Inc. ("RBC DS") 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"). No Common Shares will be acquired under the Program by, or on behalf of, RBC on any Other Published Markets other than Canadian Other Published Markets.

22. RBC DS is registered as an investment dealer under the securities legislation of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec, Nova Scotia and New Brunswick. 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). RBC DS 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 RBC DS is located in Toronto, Ontario.

23. The Program Agreement will provide that all Common Shares acquired by, or on behalf of, RBC on a day (each, a "Trading Day") during the term of the Program Agreement on which 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) during such times when the Issuer would not otherwise be permitted to trade in its Common Shares, including internal blackout periods (each such time, a "Blackout Period"), RBC will purchase, or have purchased on its behalf, Common Shares in accordance with the irrevocable instructions given by the Issuer to RBC prior to the start of the internal black-out period in compliance with exchange and securities regulatory requirements applicable to automatic repurchase plans;

(ii) during such times when the Issuer is not in a Blackout Period, RBC will purchase, or have purchased on its behalf, Common Shares on the applicable day in accordance with the instructions received from the Issuer prior to the opening of trading on such date, provided that the instructions given by the Issuer to RBC under the Program will be the same instructions that the Issuer would give if it were conducting the Normal Course Issuer Bid itself;

(iii) the aggregate number of Common Shares to be acquired on Canadian Markets by, or on behalf of, RBC 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, RBC 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;

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

(v) the aggregate number of Common Shares acquired by, or on behalf of, RBC 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;

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

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

24. Pursuant to the Program Agreement, on every Trading Day, RBC will purchase, or have purchased on its behalf, the Number of Common Shares. The "Number of Common Shares" will be no greater than the least of: (a) the quotient of an agreed upon daily Canadian dollar amount divided by the Discounted Price; (b) the Program Maximum less the aggregate number of Common Shares previously purchased by, or on behalf of, RBC under the Program; (c) on a Trading Day on which a Market Disruption Event occurred, the Acquired Shares; and (d) the Modified Maximum Daily Limit. The "Discounted Price" per Common Share is 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.

25. RBC will deliver to the Issuer a number of Common Shares equal to the number of Common Shares purchased by, or on behalf of, RBC under the Program on any Trading Day on the second Trading Day thereafter, and the Issuer will pay RBC the Discounted Price for each such Common Share. Each Common Share purchased by the Issuer under the Program will be cancelled upon delivery to the Issuer. The Common Shares delivered by RBC to the Issuer will be from the Inventory Shares.

26. RBC 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, RBC on Canadian Markets on a Trading Day will be equal to the Number of Common Shares for such Trading Day.

27. The Program will begin on the earlier of December 29, 2015 and the Trading Day following the expiration of the Scotia Program, and the Program will terminate on the earlier of February 29, 2016 and the date on which the Issuer will have purchased the Program Maximum from RBC (the "Program Term"). Neither the Issuer nor RBC may unilaterally terminate the Program Agreement during the Program Term except in the case of an event of default by a party thereunder.

28. 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, (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 RBC and RBC DS.

29. The Program Agreement will provide that all purchases of Common Shares under the Program by, or on behalf of, RBC will be done as if RBC were an agent of the Issuer and neither RBC nor RBC DS will engage in any hedging activity in connection with the conduct of the Program.

30. The Program Term will include Blackout Periods and during such times, the Program will be conducted in accordance with the parameters established and set out in the Program Agreement. The Program was approved by the TSX.

31. 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.

32. 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 RBC, 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.

33. The entering into of the Program Agreement, the purchase of Common Shares by, or on behalf of, RBC and the sale of Common Shares by RBC 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.

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

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

36. At the time that the Issuer and RBC enter into the Program Agreement, neither the Issuer, nor any member of the Equity Finance Canada group of RBC, nor any personnel of RBC 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").

37. Each of RBC and RBC DS 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 RBC to the Issuer pursuant to the Program, provided that:

(a) at least two clear trading days prior to the commencement of the Program, the Issuer will issue the Press Release, which describes, among other things, the material features of the Program and discloses the Issuer's intention to participate in the Program during the Normal Course Issuer Bid;

(b) the Program Agreement will require RBC and its agents to abide by the NCIB Rules applicable to the Normal Course Issuer Bid, subject to clauses 23(iii) and (vii) hereof;

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

(d) the Program Agreement will prohibit RBC from selling Inventory Shares to the Issuer under the Program unless RBC 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, RBC 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 RBC 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 RBC 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, (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 RBC and RBC DS;

(g) each purchase made by or on behalf of RBC 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 RBC, 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 RBC enter into the Program Agreement, neither the Issuer, nor any member of the Equity Finance Canada group of RBC, nor any personnel of RBC 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, Ontario, this 18th day of December, 2015

"Grant Vingoe"
Vice-Chair
Commissioner
Ontario Securities Commission
 
"William Furlong"
Commissioner
Ontario Securities Commission