Canadian Pacific Railway Annual and Special Meeting of Shareholders and Management Proxy Circular May 9, 2008 CONTENTS NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS ........................... 1 MANAGEMENT PROXY CIRCULAR ...................................................... 2 Glossary of Terms .................................................................... 2 General Information ................................................................... 3 Information on Voting ................................................................. 3 BUSINESS TO BE TRANSACTED AT THE MEETING ......................................... 4 1. Financial Statements ............................................................... 4 2. Election of Directors............................................................... 5 Director Independence............................................................ 12 Interlocking Directorships ......................................................... 12 Directors of Other Reporting Issuers ................................................. 12 Directors’ Meeting Attendance ..................................................... 13 Directors’ Share Ownership Requirements ............................................. 14 Directors’ Compensation .......................................................... 16 Directors’ DSU Plan ............................................................. 16 Total Compensation for 2007....................................................... 17 DSOP ........................................................................ 17 3. Appointment of Auditors ........................................................... 18 Audit and Non-Audit Fees and Services — 2007 & 2006 .................................. 18 4. Shareholder Rights Plan: Approval of the amendment and restatement and reconfirmation of the Shareholder’s Rights Plan .... 19 5. Management Stock Option Incentive Plan: Approval of (i) new amendment provisions; (ii) extending the term of Options expiring during a blackout period; (iii) reducing the term of Options on the retirement of a participant; and (iv) providing for immediate vesting of regular Options on the death of a participant ............. 22 REPORTS OF COMMITTEES OF THE BOARD............................................... 24 Report of the Audit Committee .......................................................... 24 Report of the Governance and Nominating Committee ......................................... 26 Report of the Health, Safety, Security and Environment Committee ................................ 27 Report of the Pension Committee ......................................................... 28 Report of the Compensation Committee . ................................................. 28 STATEMENT OF EXECUTIVE COMPENSATION ............................................. 29 Report on Executive Compensation ....................................................... 29 Summary Compensation Table ........................................................... 38 Long-Term Incentive Plan Awards in the last financial year ...................................... 39 Options and SAR Grants during 2007 ...................................................... 39 Aggregated Options and SAR exercises during 2007 and year-end Options and SAR values .............. 40 Securities Authorized for Issuance Under Equity Compensation Plans .............................. 40 Pension Plans ....................................................................... 41 Employment Contracts and Change of Control Agreements ...................................... 42 SUPPLEMENTAL DISCLOSURE: TOTAL COMPENSATION SUMMARY FOR THE NAMED EXECUTIVE OFFICERS............................................................... 43 PERFORMANCE GRAPH ............................................................... 46 COST OF MANAGEMENT RATIO......................................................... 47 INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS ................................ 47 i ADDITIONAL ITEMS .................................................................. 47 Directors’ and Officers’ Liability Insurance. ................................................. 47 Corporate Governance ................................................................. 47 Shareholder Proposals ................................................................. 56 Availability of Documents .............................................................. 56 Directors’ Approval ................................................................... 56 APPENDIX 1 DIRECTOR INDEPENDENCE APPENDIX 2 TERMS OF REFERENCE — BOARD COMMITTEES ii NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS NOTICE IS HEREBY GIVEN that the annual and special meeting of shareholders of Canadian Pacific Railway Limited will be held at The Fairmont Winnipeg, 2 Lombard Place, Winnipeg, Manitoba, at 9:00 a.m. (Central Time) on Friday, May 9, 2008, for the following purposes: 1. to receive the consolidated financial statements for the year ended December 31, 2007, and the auditors’ report thereon; 2. to elect directors; 3. to appoint auditors; 4. to consider and, if deemed appropriate, to pass a resolution approving the amendment and restatement and reconfirmation of the Shareholder Rights Plan; 5. to consider and, if deemed appropriate approve a resolution: (i) approving new amendment provisions for the MSOIP; (ii) extending the term of Options expiring during a blackout period; (iii) reducing the term of Options on the retirement of a participant in the MSOIP; and (iv) providing for immediate vesting of regular Options on the death of a participant in the MSOIP; and 6. to transact such other business as may properly come before the meeting or any adjournment thereof. Shareholders of record at the close of business on March 14, 2008, will be entitled to vote at the meeting and are encouraged to participate either in person or by proxy. By order of the board of directors, DONALD F. BARNHARDT Corporate Secretary Calgary, Alberta February 19, 2008 NOTE: Registered shareholders of Canadian Pacific Railway Limited wishing to vote by proxy are requested to complete and return the enclosed form of proxy in the envelope provided to the Corporation’s transfer agent, Computershare Investor Services Inc. Registered shareholders may also vote by telephone or Internet by following the instructions provided on the enclosed form of proxy. Non-registered shareholders should refer to page 4 of the management proxy circular for information on how to vote their shares. Proxies must be received by Computershare Investor Services Inc. or Georgeson Shareholder Communications Canada, agents for Canadian Pacific Railway Limited, not less than 24 hours prior to the time fixed for holding the meeting (or any adjournment thereof), in order to be used at the meeting. 1 MANAGEMENT PROXY CIRCULAR GLOSSARY OF TERMS In this management proxy circular the following terms shown in “Governance and Corporate Governance and Nominating quotation marks are defined as set forth below. Nominating Committee of CPRL board of directors “Audit Committee” Audit, Finance and Risk Management Committee” Committee of the CPRL board of directors “Governance National Instrument 58-101 and National “Basic Pension Plan” CPRC’s Pension Plan Guidelines” Policy 58-201 “CEO” President and Chief Executive Officer of “HSS&E Committee” Health, Safety, Security and Environment CPRL Committee of the CPRL board of directors “CFO” Executive Vice-President and Chief “MD&A” Management’s Discussion and Analysis Financial Officer of CPRL “Meeting” CPRL annual and special meeting of “Circular” CPRL’s Management Proxy Circular shareholders to be held on May 9, 2008 “Comparator Group” Large autonomous Canadian companies “MSOIP” CPRL’s Management Stock Option with annual revenues exceeding $1 billion Incentive Plan “Compensation Management Resources and Compensation “Named Executive Executive Officers named in the Summary Committee” Committee of the CPRL board of directors Officers” or “NEOs” Compensation Table of this Circular “Computershare” Computershare Investor Services Inc. “Notice” Notice of the Meeting “COO” Executive Vice-President and Chief “NYSE” New York Stock Exchange Operating Officer of CPRL “NYSE Standards” NYSE corporate governance standards “Corporation” Canadian Pacific Railway Limited “Option” or “Options” CPRL stock options “CP” CPRL and its direct and indirect “Pension Committee” Pension Committee of the CPRL board of subsidiaries, including CPRC directors “CPRC” Canadian Pacific Railway Company “Performance Canadian Pacific Railway Performance “CPRL” Canadian Pacific Railway Limited Incentive Plan” Incentive Plan “DSOP” CPRL’s Directors’ Stock Option Plan “PSUs” Performance Share Units “DSU Plan” CPRL’s Directors’ Deferred Share Unit Plan “Record Date” March 14, 2008 “DSUs” Deferred Share Units “RSUs” Restricted Share Units “Employee Shares” Shares held by CP employees under the “SARs” Share appreciation rights ESPP “SEC” United States Securities and Exchange “ESPP” CPRL’s Employee Share Purchase Plan Commission “Exchange Act” United States Securities Exchange Act of “Shares” CPRL common shares 1934, as amended “SOA” United States Sarbanes-Oxley Act of 2002 “Executive DSU Plan” CPRL’s Senior Executives’ Deferred Share “Sr. VP” Senior Vice-President of CPRC Unit Plan “Supplemental Canadian Pacific Railway’s Supplemental “Executive Officers” Officers of CP at the level of Vice-President Pension Plan” Executive Pension Plan and above