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SHAREHOLDER RIGHTS PLAN AGREEMENT

MEMORANDUM OF AGREEMENT dated as of July 30, 2001 and amended and restated as of February 19, 2002 and May 5, 2005 between Canadian Pacific Railway Limited (the Corporation), a corporation incorporated under the Canada Business Corporations Act and Computershare Trust Company of Canada, a trust company incorporated under the laws of Canada (the Rights Agent);

WHEREAS in connection with the completion of the Plan of Arrangement pursuant to the Arrangement Agreement, the Board of Directors of the Corporation has determined that it is in the best interests of the Corporation to adopt, with effect on the Effective Date (as defined below), a shareholder rights plan to ensure, to the extent possible, that all shareholders of the Corporation are treated fairly in connection with any take-over bid for the Corporation;

AND WHEREAS each Right entitles the holder thereof, after the Separation Time, to purchase securities of the Corporation pursuant to the terms and subject to the conditions set forth herein;

AND WHEREAS the Corporation desires to appoint the Rights Agent to act on behalf of the Corporation and the holders of Rights and Convertible Rights, and the Rights Agent is willing to so act, in connection with the issuance, transfer, exchange and replacement of Rights Certificates (as hereinafter defined), the exercise of Rights and Convertible Rights and other matters referred to herein;

AND WHEREAS the Board of Directors proposes that this Agreement be in place for a period of ten years, subject to the Agreement being reconfirmed by shareholders of the Corporation every three years;

AND WHEREAS pursuant to Section 5.4(a) of this Agreement the Board of Directors acting in good faith by resolution on February 19, 2002 made certain amendments to this Agreement and directed that this restatement of the agreement as so amended be executed and delivered for and on behalf of the Corporation;

AND WHEREAS the Board of Directors of the Corporation has determined it advisable to amend this Agreement and to restate it as so amended on the terms set forth herein, and such amendment and restatement has been approved by the shareholders of the Corporation in accordance with this Agreement.

NOW THEREFORE, in consideration of the premises and the respective covenants and agreements set forth herein, and subject to such covenants and agreements, the parties hereby agree as follows:

ARTICLE 1 - INTERPRETATION

1.1 Certain Definitions

For purposes of this Agreement, the following terms have the meanings indicated:

(a) Acquiring Person means any Person who is the Beneficial Owner of 20% or more of the outstanding Voting Shares provided, however, that the term Acquiring Person shall not include:

(i) the Corporation or any Subsidiary of the Corporation;

(ii)   any Person who becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares as a result of one or any combination of (A) a Voting Share Reduction, (B) Permitted Bid Acquisitions, (C) an Exempt Acquisition or (D) Pro Rata Acquisitions; provided, however, that if a Person becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares by reason of one or any combination of the operation of Paragraphs (A), (B), (C) or (D) above and such Persons Beneficial Ownership of Voting Shares thereafter increases by more than 1.0% of the number of Voting Shares outstanding (other than pursuant to one or any combination of a Voting Share Reduction, a Permitted Bid Acquisition, an Exempt Acquisition or a Pro Rata Acquisition), then as of the date such Person becomes the Beneficial Owner of such additional Voting Shares, such Person shall become an Acquiring Person;

(iii)   for a period of ten days after the Disqualification Date (as defined below), any Person who becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares as a result of such Person becoming disqualified from relying on Clause 1.1(g)(v) solely because such Person or the Beneficial Owner of such Voting Shares is making or has announced an intention to make a Take-over Bid, either alone or by acting jointly or in concert with any other Person. For the purposes of this definition, Disqualification Date means the first date of public announcement that any Person is making or has announced an intention to make a Take-over Bid;

(iv)   an underwriter or member of a banking or selling group that becomes the Beneficial Owner of 20% or more of the Voting Shares in connection with a distribution of securities of the Corporation; or

(v)   a Person (a Grandfathered Person) who is the Beneficial Owner of 20% or more of the outstanding Voting Shares of the Corporation determined as at the Record Time, provided, however, that this exception shall not be, and shall cease to be, applicable to a Grandfathered Person in the event that such Grandfathered Person shall, after the Record Time, become the Beneficial Owner of additional Voting Shares of the Corporation that increases its Beneficial Ownership of Voting Shares by more than 1% of the number of Voting Shares outstanding as at the Record Time (other than pursuant to one or any combination of a Voting Share Reduction, a Permitted Bid Acquisition, an Exempt Acquisition or a Pro Rata Acquisition);

(b) Affiliate: when used to indicate a relationship with a specified corporation means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such specified corporation;

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ARTICLE 1 - INTERPRETATION		1

1.1	Certain Definitions	1
1.2	Currency	13
1.3	Headings	13
1.4	Calculation of Number and Percentage of Beneficial Ownership of Outstanding Voting Shares	13
1.5	Acting Jointly or in Concert	13
1.6	Generally Accepted Accounting Principles	14

ARTICLE 2 - THE RIGHTS		14

2.1	Issue of Rights and Convertible Rights: Legend on Common Share Certificates	14
2.2	Initial Exercise Price; Exercise of Rights; Detachment of Rights	14
2.3	Adjustments to Exercise Price; Number of Rights	17
2.4	Date on Which Exercise Is Effective	21
2.5	Execution, Authentication, Delivery and Dating of Rights Certificates	21
2.6	Registration, Transfer and Exchange	22
2.7	Mutilated, Destroyed, Lost and Stolen Rights Certificates	23
2.8	Persons Deemed Owners of Rights	23
2.9	Delivery and Cancellation of Certificates	23
2.10	Agreement of Rights Holders	24
2.11	Rights Certificate Holder Not Deemed a Shareholder	25

ARTICLE 3 - ADJUSTMENTS TO THE RIGHTS		25

3.1	Flip-in Event	25

ARTICLE 4 - THE RIGHTS AGENT		26

4.1	General	26
4.2	Merger, Amalgamation or Consolidation or Change of Name of Rights Agent	27
4.3	Duties of Rights Agent	27
4.4	Change of Rights Agent	29

ARTICLE 5 - MISCELLANEOUS		30

5.1	Redemption and Waiver	30
5.2	Expiration	31
5.3	Issuance of New Rights Certificates	31
5.4	Supplements and Amendments	32
5.5	Fractional Rights and Fractional Shares	33
5.6	Rights of Action	33
5.7	Regulatory Approvals	34
5.8	Declaration as to Non-Canadian or Non-U.S. Holders	34
5.9	Notices	34
5.10	Costs of Enforcement	35
5.11	Successors	35
5.12	Benefits of this Agreement	35
5.13	Governing Law	35
5.14	Severability	36
5.15	Coming Into Effect	36
5.16	Reconfirmation	36
5.17	Determinations and Actions by the Board of Directors	36
5.18	Time of the Essence	36


ii


5.19	Execution in Counterparts	37

ARTICLE 6 - CONVERTIBLE RIGHTS		37

6.1	Convertible Share Certificates	37
6.2	Conversion of Convertible Rights	37
6.3	Persons Deemed Owners	37
6.4	Agreement of Convertible Rights Holders	37
	ATTACHMENT 1	39
	FORM OF ASSIGNMENT	41
	FORM OF ELECTION TO EXERCISE	42
	CERTIFICATE	43
	NOTICE	43

Table of Contents

Table of Contents

Table of Contents

Table of Contents

	(ii)	any Person who becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares as a result of one or any combination of (A) a Voting Share Reduction, (B) Permitted Bid Acquisitions, (C) an Exempt Acquisition or (D) Pro Rata Acquisitions; provided, however, that if a Person becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares by reason of one or any combination of the operation of Paragraphs (A), (B), (C) or (D) above and such Persons Beneficial Ownership of Voting Shares thereafter increases by more than 1.0% of the number of Voting Shares outstanding (other than pursuant to one or any combination of a Voting Share Reduction, a Permitted Bid Acquisition, an Exempt Acquisition or a Pro Rata Acquisition), then as of the date such Person becomes the Beneficial Owner of such additional Voting Shares, such Person shall become an Acquiring Person;

	(iii)	for a period of ten days after the Disqualification Date (as defined below), any Person who becomes the Beneficial Owner of 20% or more of the outstanding Voting Shares as a result of such Person becoming disqualified from relying on Clause 1.1(g)(v) solely because such Person or the Beneficial Owner of such Voting Shares is making or has announced an intention to make a Take-over Bid, either alone or by acting jointly or in concert with any other Person. For the purposes of this definition, Disqualification Date means the first date of public announcement that any Person is making or has announced an intention to make a Take-over Bid;

	(iv)	an underwriter or member of a banking or selling group that becomes the Beneficial Owner of 20% or more of the Voting Shares in connection with a distribution of securities of the Corporation; or

	(v)	a Person (a Grandfathered Person) who is the Beneficial Owner of 20% or more of the outstanding Voting Shares of the Corporation determined as at the Record Time, provided, however, that this exception shall not be, and shall cease to be, applicable to a Grandfathered Person in the event that such Grandfathered Person shall, after the Record Time, become the Beneficial Owner of additional Voting Shares of the Corporation that increases its Beneficial Ownership of Voting Shares by more than 1% of the number of Voting Shares outstanding as at the Record Time (other than pursuant to one or any combination of a Voting Share Reduction, a Permitted Bid Acquisition, an Exempt Acquisition or a Pro Rata Acquisition);