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Executive Employment Agreement

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CANADIAN PACIFIC RAILWAY LTD/CN | Canadian Pacific Railway Company

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Date: 7/26/2016
Industry: Railroads     Sector: Transportation

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THIS EMPLOYMENT AGREEMENT (this " Agreement ") is made between Canadian Pacific Railway Company (the " Company ") and Keith Creel (the " Executive ") on the date hereof set forth on the signature page hereto, effective as of July 1, 2017 (the " Effective Date ").

WHEREAS , the Executive is currently employed in the position of President and Chief Operating Officer pursuant to the terms and conditions of an employment agreement between the Company and the Executive dated February 5, 2013, as amended on August 10, 2015 (the " Old Agreement ");

WHEREAS , the Executive has been offered and wishes to accept continued employment with the Company and commence serving as its President and Chief Executive Officer (" CEO "); and

WHEREAS , the Company and the Executive desire to enter into this Agreement and define the terms of the employment relationship effective the Effective Date and thereupon superseding the Old Agreement in its entirety.

NOW, THEREFORE , conditional on the Executive remaining an employee in good standing up to and including the Effective Date, in consideration of the mutual covenants and agreements hereinafter contained, the Company and the Executive agree as follows:

1. Employment; Office and Duties . Between the date hereof and the Effective Date, the Old Agreement shall continue in full force and effect in accordance with the terms thereof. As of the Effective Date the Company shall employ the Executive in the capacity of President and CEO with the duties and responsibilities normally incidental to such a position, and the Executive hereby accepts such employment, on the terms and conditions set forth in this Agreement. The Executive shall report directly to the Board of Directors of the Company (the " Board "). In his capacity as President and CEO, the Executive agrees




to perform the duties consistent with such office, and as may be reasonably assigned to him from time to time by the Board. The Executive may be required to serve as officer or director of one or more subsidiaries or affiliates of the Company or one or more entities in which the Company has an interest. Without limiting the foregoing, the Executive agrees to serve as the President of the Soo Line Railroad Company.

The Executive shall be expected to devote all of his business time to perform his duties and to promote the success of the Company (and its affiliates). The Executive is a fiduciary of the Company and shall act at all times in the Company's best interests. The duties to be performed by the Executive shall include responsibility for managing all aspects of the operations of the Company. The Executive will be primarily based at such location as the Board reasonably designates from time to time.

2. Compensation . All amounts expressed in this Agreement are U.S. Dollars (" USD "). In consideration of the services to be rendered by the Executive to the Company (and services rendered to all affiliates) pursuant to this Agreement, the Executive shall be paid the following compensation and other benefits:

(a) Salary . The Company shall pay the Executive an annual base salary of $1,125,000 payable in accordance with the Company's usual payroll practices, or such higher annual base salary as may be established by the Board from time to time. The Executive's annual base salary shall be referred to in this Agreement as the " Annual Salary ". The Annual Salary shall be reviewed annually by the Board and may be increased, but shall not be decreased, without the Executive's consent.

(b) Long Term Incentive Grants upon Appointment to CEO .

(i)On the Effective Date (or the first available date in the event of a corporate blackout applicable to the Executive), the Executive shall be awarded a grant of performance stock options (" Performance Options ") having a grant value (as determined pursuant to Company equity grant practices) equal to 500% of the Annual Salary in accordance with the terms




of the Section 162(m) Incentive Plan adopted by the Board on December 16, 2015 (the " Omnibus Plan ") and the Company's Amended and Restated Management Stock Option Incentive Plan dated November 19, 2015 (" MSOIP "). Pursuant to the terms of such grant, which is to be evidenced by a formal performance option agreement that is consistent with the terms of this Agreement (the " Performance Option Agreement "), the Performance Options (A) will have an exercise price equal to the closing market price of Company common stock on the New York Stock Exchange on the date of grant and a term of seven years from the date of grant; (B) will vest and become exercisable on the date that is the later of the fifth anniversary of the Effective Date and the date of achievement by the Company of the specified Performance Goals (as such term is defined in the Omnibus Plan) determined by the Board in consultation with the Executive that will be set out in the Performance Option Agreement; and (C) to the extent outstanding, will be canceled and proceeds from any Performance Option exercises shall become repayable should the Executive breach Sections 6 or 8 of this Agreement. For greater certainty, in the event that the Executive's employment ceases for any reason (except for Death or Disability as provided in Section 9(b)(i) and Section 9(b)(ii)) prior to July 1, 2022 the Performance Options shall not vest and will be forfeited without any payment or compensation of any kind.

(ii)On the Effective Date, the Executive shall be awarded a grant of stock options and Performance Share Units under the LTIP, having a grant value (as determined pursuant to Company equity grant practices) equal to 50% of the Annual Salary and having the same terms, conditions and weighting as the Executive’s 2017 long term incentive grant; provided, if the Effective Date shall occur earlier than July 1, 2017, then the grant value of the award shall be increased proportionate to a maximum of 100% of the Annual Salary




to reflect the portion of calendar year 2017 during which the Executive serves as CEO.

(c) Short Term Incentive Plan . The Executive shall be eligible to participate in the Company's Performance Incentive Plan (" STIP ") as it may be amended from time to time. As of the Effective Date, the STIP shall provide the opportunity to earn an annual bonus at a target level of not less than 120% of Annual Salary as in effect on the last day of the calendar year (" Target Bonus "). The bonus is dependent on corporate performance (75% weighting) and individual performance (25% weighting). Both corporate and individual components currently have a maximum of 200% of a Target Bonus (i.e., for a total of 240% of Annual Salary). The individual component will be the same as the corporate component rating unless the Board, in its sole discretion, determines otherwise. The Board will consider the Company’s safety performance in determining the Executive's individual performance. The Board has discretion in the event of a major safety incident or significant sustained deterioration in Company safety performance to reduce the individual performance component. This discretion is in addition to any safety metric included in the STIP corporate component. The Executive shall fully participate in the STIP for calendar 2017 in accordance with this Section 2(c) without regard for the date he assumes the position of CEO.

(d) Long Term Incentive Program ("LTIP") . The Executive shall be eligible to participate in the Company's LTIP, as it may be amended from time to time (including without limitation the Board's discretion to alter the ratio of performance share units (PSUs) to options granted under such program), having a grant value (as determined pursuant to Company equity grant practices) equal to 400% of Annual Salary commencing with the 2018 annual LTIP grants made to senior executives. All Grants are subject to Board approval each year.

(e) Pension . Without limiting the Executive’s benefits and account contributions and credits accrued through the Effective Date under the Old Agreement (and




without interruption hereunder to the extent applicable), the Executive shall be eligible to participate in the following pension benefit plans, subject to the terms of such plans as may be amended from time to time:

(i)      The Canadian Pacific US Salaried Retirement Income Plan;

(ii)      The defined contribution option of the Canadian Pacific Railway Company Pension Plan (the " Registered Plan ");

(iii)      the CP 401K Savings Plan;

(iv)      The Canadian Pacific U.S. Supplemental Executive Retirement Plan;

(v)      The Canadian Pacific Railway Company Supplemental Retirement Plan;

(vi)      CP Make-up Pension – The Company hereby establishes for the Executive a supplemental executive retirement arrangement that is not subject to the Pension Benefits Standards Act, 1985 (Canada) or such other pension standards laws in Canada as may apply from time to time to make up for the forfeiture of the Executive’s defined benefit under the supplemental executive retirement plan (" CN DC SERP ") with his previous employer, Canadian National Railway Co. (" CN "), (the " CP Make-up Pension "). The CP Make-up Pension shall be subject to the following terms:

(A)the Executive shall receive $58,800 per year on a non indexed basis, payable in equal monthly instalments during the Executive's lifetime commencing on the later of his "separation from service" or June 1, 2033;

(B)for greater clarity, the aforementioned amount under the CP Make-up Pension is in addition to and shall not be reduced by any other benefit due to the Executive from the Company (or any affiliate), including the annual annuity which may be purchased at the date




payments commence or are to commence from the amounts held for the benefit of the Executive in the Company's Registered Plan or supplemental executive retirement plans;

(C)in the event that the Executive dies and the Executive's spouse, Ginger Creel, remains married to the Executive at the time of his death and survives him, the Company shall pay to her from the CP Make-up Pension, in non-indexed, equal monthly installments, an annual pension during her lifetime equal to $29,400; and

(D)amounts payable under the CP Make-up Pension shall be forfeited if the Executive is in breach of the confidentiality or non-competition or non-solicitation covenants contained in Sections 6 and 8 of this Agreement; and

(vii)      DSUs in lieu of CN Defined Contribution Pension Amount – The Executive shall be granted fully vested deferred share units (" DSUs ") under the Canadian Pacific Railway Limited Senior Executives Deferred Share Unit Plan (the " DSU Plan ") having a face value equal to $47,637 and payable in such form and at such time as is provided under the DSU Plan, which represents the outstanding value forfeited from the CN DC SERP, effective on the earliest date permissible following the Effective Date.

All amounts payable under paragraphs 2(e)(iv) and (v) above shall be forfeited if the Executive is in breach of the confidentiality or non-competition or non-solicitation covenants contained in Sections 6 and 8 of this Agreement.

(f) Housing . The Company shall provide use of reasonable accommodation for the Executive in the City of Calgary and such accommodations shall be commensurate with the Executive's position as President and CEO. It is understood that the Executive shall be responsible for applicable income taxes on this benefit.




(g) Relocation Expenses and Home Equity Protection . To the extent the Executive re-locates for purposes of performing his duties under this Agreement, the Executive is eligible for reimbursement of the Executive's expenses and equity protection with respect to the sale of the Executive's residence in accordance with the Company's applicable Relocation Policy.

(h) Corporate Jet . The Executive is required to travel regularly and frequently for executive and operational meetings as well as travel to other Company offices. The Company prefers the Executive, whenever possible, to use its corporate aircraft when the Executive travels by air within continental North America whether such travel is business related or for family visitation, in order to ensure the Executive’s safety, security, immediate ability to move across the Company’s network and personal efficiency and effectiveness. However, it is understood that the Executive shall be responsible for applicable income taxes on the personal use element (as defined by the relevant tax authorities) of this benefit.

(i) Car Allowance . The Executive shall have a vehicle leased for business and personal use in accordance with the Company's Vehicle Policy. It is understood that the Executive shall be responsible for applicable income taxes on this benefit.

(j) Club Membership . The Company shall pay the annual membership dues for one Golf Club membership for the Executive, such membership fees not to exceed $25,000 per year. It is understood that the Executive shall be responsible for applicable income taxes on this benefit.

(k) Benefits . The Executive shall be enrolled in the employee benefit plans made generally available to U.S. based executives of the Company, subject to the terms of said benefit plans, including qualifying provisions and employee contribution requirements. In addition, the Company shall pay for an executive medical examination once per year.




(l) Withholdings . Payments made hereunder shall be made subject to required governmental withholdings.

(m) Cross Border Tax Preparation . The Company shall pay for the provision of tax preparation services relating to U.S./Canada cross border tax advice and tax return preparation to be provided by KPMG LLP or such other qualified professional accounting firm as designated by the Executive.

(n) Financial Advisory Services . The Company shall pay for financial counselling services provided to the Executive up to a maximum of $25,000 per year.

3. Expenses . The Company shall promptly reimburse the Executive for his actual out-of-pocket expenses incurred in carrying out his duties hereunder in the conduct of the Company's business, which expenses shall be limited to ordinary and customary items and which shall be supported by vouchers, receipts or similar documentation submitted in accordance with the Company's expense reimbursement policy and as required by law.

4. Vacations and Leave . The Executive shall be entitled to five (5) weeks of annual paid vacation per year, and any additional other leave time as is provided for under the Company's personnel policies applicable to executives of the Company. The Company encourages the taking of vacation time during the year in which the vacation time is earned.

5. Share Ownership . The Executive shall maintain a minimum level of share ownership set at a multiple of six times (6x) Annual Salary in accordance with the Company's share ownership guidelines. Share ownership guidelines can be met through the holding of common shares and deferred share units. This ownership level must be maintained for one year following the cessation of employment (except where such cessation of employment follows a Change of Control as defined under the MSOIP, and subject to the terms of the applicable plan in the case of outstanding deferred share units awarded to the Executive).




6. Non-Disclosure of Confidential Information .

(a)      The Executive acknowledges that, as a result of his employment by the Company, he has and will be making use of, acquiring, and/or adding to the Company's Confidential Information (as defined below). Except as required in the performance of the Executive's duties under this Agreement or except in those instances in which the Executive reasonably determines, in good faith, that use or disclosure of Confidential Information is in the best interests of the Company and such disclosure is in accordance with applicable securities laws, the Executive will not use or disclose to third parties, directly or indirectly, any Confidential Information, either during his employment or anytime following cessation of his employment. Notwithstanding the foregoing, the Executive will be permitted to disclose any Confidential Information to the extent required by validly issued legal process or court order, provided that the Executive shall upon receipt of any such legal process or court order give the Company notice of same so that it may intervene or contest such legal process or court order as the Company deems appropriate.

(b)      As used herein, " Confidential Information " means all confidential and proprietary information of the Company, including, without limitation, any business plan, compilation, list, program, device, formula, pattern, method, technique or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means, by other persons who can obtain economic value from its disclosure or use; (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy; and (iii) is owned by the Company. In addition, "Confidential Information" includes, without limitation, both information disclosed to the Executive by the Company and information developed by the Executive in the course of his employment with the Company. The types and categories of information which the Company considers to be its Confidential Information include but are not limited to information concerning the Company's management, financial condition, financial operations, employee lists, customer lists (including potential customers and




prospects), pricing information, sales activities, marketing activities, sales and marketing strategies and business plans.

The parties agree that as used herein, "Confidential Information" shall not include the following: (i) information that at the time of disclosure is in the public domain; or (ii) information that, after disclosure, becomes part of the public domain by publication or otherwise through no fault of the Executive.

(c)      The Company may also advise the Executive from time to time as to restrictions upon the use or disclosure of specified information that has been licensed or otherwise disclosed to the Company by third parties pursuant to license or confidential disclosure agreements that contain restrictions upon the use or disclosure of such information. The Executive agrees to abide by the restrictions upon use and/or disclosure contained in such agreements to the extent such restrictions do not conflict with this Agreement.

(d)      The Company and the Executive agree that it is a term and condition of the Executive's employment that he respect the confidentiality and proprietary interests of any former employer and that he not use or disclose any confidential information of any former employer during his employment with the Company unless and until consent to such use or disclosure is obtained from such former employer or such information is otherwise in the public domain.

7. Property of the Company/Assignment of Developments . All documents, encoded media, and other tangible items provided to the Executive by the Company, or prepared, generated or created by the Executive or others in the performance of the Executive's duties under this Agreement are the property of the Company. Upon cessation of the Executive's employment with the Company, the Executive will promptly deliver to the Company all such documents, media and other items in his possession, including all complete or partial copies, recordings, abstracts, notes or reproductions of any kind made from or about such documents, media, items or information contained therein. The




Executive will neither have nor claim any right, title or interest in any trademark, copyright, patent, trade secret, service mark or trade name owned or used by the Company.

8. Non-solicitation of Clients/Covenants Against Competition .

(a)      The Executive acknowledges that by reason of his employment the services he renders to the Company are of a special or unusual character with a unique value to the Company, the loss of which the Company believes cannot adequately be compensated by damages in an action at law. In view of the Confidential Information known or to be obtained by, or disclosed to the Executive, as set forth above, and as a material inducement to the Company to enter into this Agreement, the Executive covenants and agrees during his employment with the Company and during the Covenant Period (as defined below), the Executive will not, except as otherwise expressly authorized by this Agreement, directly or indirectly, anywhere in North America, own, manage, engage in, operate, control, work for, consult with, render services for, do business with, maintain any inte

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