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The REINVENTION of TWO RETAIL ICONS

HBC IPO Presentation

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Page 1: HBC IPO Presentation

The REINVENTION of TWO RETAIL ICONS

Page 2: HBC IPO Presentation

MANAGEMENT PRESENTATIONNovember 2012

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Page 3: HBC IPO Presentation

FORWARD-LOOKING STATEMENTS

Certain statements in this presentation about our current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements or any other future events or developments constitute forward-looking statements. The words “may”, “will”, “would”, “should”, “could”, “expects”, “plans”, “intends”, “trends”, “indications”, “anticipates”, “believes”, “estimates”, “predicts”, “likely” or “potential” or the negative or other variations of these words or other comparable words or phrases, are intended to identify forward-looking statements.  Forward-looking statements are based on estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable in the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Certain assumptions in respect of the determination of the impairment of losses, claim liabilities, income taxes, employee future benefits, goodwill and intangibles are material factors made in preparing forward-looking information and management’s expectations.

Many factors could cause our actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the following factors: (i) significant competition in the retail industry, (ii) changing consumer preferences and consumer spending, (iii) the prospect of unfavorable economic and political conditions, (iv) the seasonal nature of our business, (v) unseasonable weather conditions or natural disasters, (vi) our ability to continue to improve same store sales, (vii) our ability to retain our senior management team who possess specialized market knowledge, (viii) our dependence on our ability to attract and retain quality employees, (ix) maintaining good relations with employees that are not unionized as well as with our unions, (x) increased commodity prices, including for cotton, may affect our profitability, (xi) with a majority of our vendors we do not have a long term contract and therefore we cannot be assured of continued access to our brands that we offer (xii) our dependence on successful inventory management, (xiii) our dependence on our advertising and marketing programs, (xiv) a material disruption in our computer systems, (xv) our ability to comply with the covenants in our credit facilities, (xvi) breaches of privacy, (xvii) risk arising from regulation and litigation, (xviii) product liability claims and product recalls, (xix) fluctuations in the value of the Canadian dollar in relation to the U.S. dollar, (xx) loss of or disruption in our centralized distribution centers, (xxi) inability to protect our trademarks and other proprietary rights, (xxii) risks associated with the lease and ownership of real estate, (xxiii) our ability to profitably manage the portfolio of national and private label brands that we offer and that are preferred by consumers, (xxiv) the value of the brands we offer could diminish due to factors beyond our control, (xxv) our ability to maintain the brand value of our various retail banners, (xxvi) our ability to pay dividends is dependent on our ability to generate sufficient income, (xxvii) our principal shareholder will hold a material percentage of the common shares following the closing of the offering which may have an impact on the trading price of the common shares, (xxviii) our principal shareholder may sell its common shares at a time in the future and such timing will be beyond our control and may affect the trading price of the common shares, (xxix) no prior public market for our securities exists, (xxx) volatile market price for our common shares, and (xxxi) influence by our principal shareholder. These factors are not intended to represent a complete list of the factors that could affect us; however, these factors should be considered carefully.

The purpose of the forward-looking statements is to provide the reader with a description of management’s expectations regarding the company’s financial performance and may not be appropriate for other purposes; readers should not place undue reliance on forward-looking statements made herein. Furthermore, unless otherwise stated, the forward-looking statements contained in this presentation are made as of the date of this presentation, and we have no intention and undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. The forward-looking statements contained in this presentation are expressly qualified by this cautionary statement.

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Page 4: HBC IPO Presentation

SENIOR MANAGEMENT TEAM

RICHARD BAKER, Governor & CEO

BONNIE BROOKS, President

DON WATROS, COO

MICHAEL CULHANE, CFO

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Proven Track Record with Significant Ownership

Page 5: HBC IPO Presentation

HBC OVERVIEW

Richard Baker, Governor & CEO

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Page 6: HBC IPO Presentation

OUR HISTORY

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500 Years of Combined Iconic Department Store Banner Heritage

• Founded in 1826 by Samuel Lord and George Washington Taylor

• One of the oldest department store chains in the United States

• In 1914, one of the first department stores to open location on New York’s renowned Fifth Avenue.

• Targeting suburban markets, opened first branch department store in Manhasset, NY in 1941

• Opened stores in retail malls, shopping centres and free standing locations in prosperous suburban areas across the eastern seaboard of United States

• Affiliates of HBC’s Principal Shareholder acquired Company from Federated Department Stores (now Macy’s, Inc.) in October 2006

• Founded in 1670, originally incorporated by Royal Charter granted by King Charles II

• Longest continuously operated company in North America and one of the oldest commercial enterprises globally

• Primarily fur trading business in early years, moved into retail by the end of the 19th century, transforming trading posts into retail stores

• Opened first store in Winnipeg in 1881

• Acquired Henry Morgan & Co. Ltd. in 1960 , providing flagship locations in Toronto, Ottawa and Montreal

• Played significant role in consolidation of department store operators in Canada

• Affiliates of HBC’s Principal Shareholder acquired indirect 20% interest in July 2006

• In July 2008, HBC’s Principal Shareholder acquired the remaining 80%

Page 7: HBC IPO Presentation

LEADING NORTH AMERICAN DEPARTMENT STORE RETAILER

STORES1

RETAIL SALES2

PRO FORMA EBITDA2,3

207$3.9B

$373M

48$1.4B

69$0.3B

90$2.2B

9.7% of Retail Sales

Strong Banner Recognition

1. At September 30, 20122. FY2011

3. Includes additional Zellers cost reductions of $60 million

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Page 8: HBC IPO Presentation

REINVENTION OF TWO RETAIL ICONS

Successful Transformation and Repositioning

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THE OPPORTUNITY THE VISION

Poor merchandizing and operations World-class management team

Strong iconic, but tarnished brands Appropriate brand matrix, upgraded shopping experience, and effective marketing and promotions

Weak productivity and profitability Drive productivity through right sizing, inventory investment and brand management to create top-quartile sales productivity and EBITDA margins

Outstanding real estate portfolio Intelligent execution of capital investments

Exceptional value in Zellers leases Monetize Zellers assets

Page 9: HBC IPO Presentation

REPLACED 90% OF TOP 100 EXECUTIVES

RECRUITED A WORLD-CLASS MANAGEMENT TEAM

Richard Baker Governor & CEO

Brian Pall President, Real Estate

Don Watros COO

Debbie EdwardsEVP Stores

Suzanne Timmins VP Fashion Direction

Liz RodbellEVP Chief Merchant

Evelyn Reynolds SVP GMM - Home & Licensed

Marc MetrickEVP Chief Marketing Officer

Mary TurnerEVP PrivateBrands Design & Development

Bonnie BrooksPresident

Home OutfittersJarrod Johanns EVP Planning & Allocation

Kerry Mader SVP Store Planning & Design

Sheila RiderSVP Human Resources

Bill TracyEVP Supply Chain & IT

Mike Culhane CFO

Extensive Global Department Store and Real Estate Experience

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Page 10: HBC IPO Presentation

FOCUSED AND STRENGTHENEDBANNER RE-POSITIONING

Superior shopping experience with locally and customer edited merchandise assortment

Strong position in the mid-tier suburban department store segment

Hig

he r

Low

er

Mainstream Unique

Customer Experience

Valu

e P

rop

osit

ion

Hig

he r

Low

er

Mainstream

Unique

Customer Experience

Valu

e P

rop

osit

ion

STRONGER

REFOCUSED

Expansive consumer value proposition

Owns the mid-tier store position in Canada

Canada’s leading brand retailer

10

A Compelling Value Proposition

Page 11: HBC IPO Presentation

LEADING AND RELEVANT BRAND PORTFOLIO

New brands generating 25%1 of sales

Introduction of more affordable brands

New brands generating 20%1 of sales

Added 330 new brands and discontinued over 900 underperforming brands since 2009

1. Since 2008

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Hudson’s Bay:

Focus On High Volume and Leading Brands

Number of Brands selling >$10M: +22%1

Number of Brands selling <$1M: -15%1

Page 12: HBC IPO Presentation

DIFFERENTIATED AND ENHANCED CUSTOMER SHOPPING EXPERIENCE

Multi-Billion Core Business Real Estate Portfolio

24,000 associates and managers trained

Staffing based on traffic

Manager on floor 90% of time

Product from dock to floor <24hrs

Launched “Brand Stewardship Program”

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1. Three year period ending FY2011

IMPROVED SHOPPING ENVIRONMENT BETTER MERCHANDISE PRESENTATION

INVESTED $212M 1 UPDATING AND MODERNIZING STORES

Higher Store Traffic, Sales and Customer Satisfaction

INCREASED MERCHANDISING AND SERVICE STANDARDS

Page 13: HBC IPO Presentation

EXTENSIVE PROPRIETARY CUSTOMER DATABASE

13

42%Of Sales3

1.6MCredit Card Holders1

34%Of Sales3

3.1MCredit Card Holders1

1. At July 28, 2012 2. Includes Bay and Home Outfitters

3. FY2011

62%Of Sales3

4.6MHBC Rewards Card Holders1,2

Opportunity to employ CRM tools Collect and analyze customer data Better business decisions

Merchandise trends Brand selection

Using Customer Data to Generate Sales Growth

Page 14: HBC IPO Presentation

EFFECTIVE MARKETING AND PROMOTION

Rejuvenated Marketing and Promotion

14

Storewide promotional eventsFriends and FamilyThe Signature Sale Introducing “One Day Sale”

Olympic SponsorshipPromotional strategy to enhance gross marginsOne Day Sales“Bay Days” events

New “Rewards” program in 2013“Spend more, earn more” model

Personalized direct mail programPresident’s letterCredit EventsE-Books

19% RESPONSE RATES 2

11% INCREASE IN ACTIVE 12-MONTH CUSTOMER BASE

96% INCREASE IN EMAIL DISTRIBUTION1

1. In the 2 year period ended FY2011

2. Last 18 months

Page 15: HBC IPO Presentation

GROWTHS T R A T E G Y

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Page 16: HBC IPO Presentation

HANDBAGS, JEWELLERY & ACCESSORIES

WOMEN’S FOOTWEAR

COSMETICS

WOMEN’S APPAREL

MEN’S WEAR

INVEST IN HIGH GROWTH MERCHANDISE CATEGORIES

Right sizing space allocations

Increasing inventory and new brands

Improving product presentation

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Increase Sales from High Growth Categories

25% 14%

SALES INCREASES IN HIGH GROWTH CATEGORIES (FY2009 - FY2011)

Page 17: HBC IPO Presentation

BURBERRY | KIEHL’S | BOBBI BROWN | MICHAEL KORS | MAC | CHANEL

STRATEGIC PARTNERSHIPS WITH EXCITING BRANDS AND VENDORS

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1. Reflects running totalsStrategic Partnerships Drive Strong Sales Growth

$750/sq. ft. In first full year (Yorkdale) – opened October 2011

Rollout strategy

19,000 sq. ft. store opened in Toronto Queen Street Oct 4, 2012

40,000 sq. ft. store opened in Vancouver Oct 17, 2012

FY2011 FY2012 FY2013

Stores1 1 5 11

Other strategic partnership opportunities

Page 18: HBC IPO Presentation

SIGNIFICANTLY INCREASEPRIVATE LABEL BRAND SALES

Transition from 25 to 5 cornerstone private brands

Build national brand awareness and importance

Higher Margins and New Loyal Customers

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Lord & Taylor

Black Brown 1826HBC Collections

Gluckstein

Exit or Re-Label

London Fog

PRIVATE BRAND SALES PENETRATION

FY2011 3–5 Year Target

9%

15%

9% 15%

Page 19: HBC IPO Presentation

Collect and analyze data

Stronger marketing campaigns

New digital marketing

Grow e-commerce sales

LAUNCH OMNI-CHANNEL PLATFORM

FY2010 FY2011 FY2012E

$140

$83

$44

HBC E-Commerce Sales($Millions)

Drive New Sales and Channel Leadership

70%

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Page 20: HBC IPO Presentation

INCREASE SALES PRODUCTIVITY TO ACHIEVE TARGETS

1. Excludes impact of Vancouver Olympics sales2. Includes: Belk, Bon-Ton, Dillards, J. C. Penney, Kohls, Neiman Marcus,

Nordstrom, Macy’s, Saks and Sears Holdings (in Canada)

Q1_x000d_ 2009

Q2 _x000d_2

009

Q3 _x000d_2

009

Q4 _x000d_2

009

Q1 _x000d_2

010

Q2 _x000d_2

010

Q3 _x000d_2

010

Q4 _x000d_2

010

Q1 _x000d_2

011

Q2 _x000d_2

011

Q3 _x000d_2

011

Q4 _x000d_2

011

Q1 _x000d_2

012

Q2 _x000d_2

012

-15%

-10%

-5%

0%

5%

10%

15%

20%The Bay Lord & Taylor North American Department Stores

Sam

e S

tore

Sale

s G

row

th

Continue to Achieve Superior Growth

SALES / SQ. FT.

HUDSON’S BAY1

FY2009 FY2011 3–5 Year TargetFY2009 FY2011 3–5 Year Target

US $175US $210

US $240-$250$122 $133 $170-$180

+20%+9%

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Outperformed North American competitors in past two years Strong Q4 PerformanceSAME STORE SALES PERFORMANCE

LORD & TAYLOR

2009 2010

2011

2012

FY2011

NORTH AMERICAN

PEER GROUP2

US $240

Page 21: HBC IPO Presentation

HIGHLY VALUABLE REAL ESTATE PORTFOLIO

Fee-Owned

Ground Leased

Leased Total

Average Yearsof Control1

The Bay 3.7 1.3 11.116.

167

Lord & Taylor 3.6 2.5 0.7 6.8 54

Home Outfitters - - 2.5 2.5 21

Total 7.3 3.8 14.325.

4

HBC REAL ESTATE GLA (sq. ft. Millions)

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1. Ground leased and leasedEnhanced Business Flexibility and Long-term

Control

Number of Stores:

189

GLA 18M sq. ft.

Zellers Proceeds:

$1.832B

Price /sq. ft.

$101.80

ZELLERS REAL ESTATE Focused on core department store business

Sold 189 Zellers leases for cash of $1.8B+

Discontinued Fields operations

Page 22: HBC IPO Presentation

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WESTCHESTER

VANCOUVER

CALGARY

NEW YORK

TORONTO

MONTREAL

FLAGSHIP STORES

138 HIGH TRAFFIC STRATEGIC LOCATIONS

Major Competitive Advantage and Barrier to Entry

PRIME RETAIL LOCATIONS

LORD & TAYLOR

HUDSON’S BAY

* Opens Fall 2013

*

Page 23: HBC IPO Presentation

LEADING RETAILERT RA N S F O R M AT I O N T O A

23

Michael Culhane, CFO

Page 24: HBC IPO Presentation

Consolidated Retail Sales 2

Normalized EBITDANormalized SG&A as % of Retail Sales 3

Sales / sq. ft.

9%Hudson’s Bay1

20%Lord & Taylor

12.6%

100%550bps

540bps

Normalized EBITDA Margin 3

1. Excludes Vancouver Olympic sales of $44.4M in Q4 FY2009 and $50.5M in Q1 FY20102. Lord & Taylor presented on a constant dollar basis and excluding Vancouver Olympic

sales3. FY2009 to Pro Forma FY2011 including $60M of Zellers cost reductions

STRONG SALES PRODUCTIVITY AND EARNINGS GROWTH: FY2009-2011

Powerful Operating Leverage

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Page 25: HBC IPO Presentation

FY2009 FY2010 FY2011 Pro Forma FY2011

CONTINUE TO DRIVE EXPENSE REDUCTION

Rapidly Attaining Leading Profitability

NORMALIZED SG&A EXPENSES AS % OF RETAIL SALES

Primary areas of incremental savings: Logistics, IT, and Shared Services

$20-25M of one-time expenses related to the savings to be incurred in 2H 2012 and 2013

$50M one-time restructuring expense in 1H 2012

1. Includes additional Zellers cost reductions of $60M

$60M

1

Achieved significant cost savings:

10 distribution centers in FY2008 reduced to 4 by end of FY2012

More direct logistics network and shorterlead time to stores

Reduced IT expenses by 18% while implementing best in class IT systems

Zellers Cost Reductions Underway with Near Term Realization

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Further expense saving to coincide with Zellers wind-down

38.8%

36.1%

34.9%

33.3%

Page 26: HBC IPO Presentation

STRATEGIC CAPEX DRIVING SALES GROWTH

CAPITAL EXPENDITURES($MILLIONS)

Rejuvenating flagship stores

Right sizing departments across store portfolio

Topshop / Topman store rollout

Expanding omni-channel capabilities

$112

$185-$190

$93

26

$185–$195

$166

FY2009 FY2010 FY2011 FY2013 Proj. FY2013 Proj.

3719 25

39 65

10817

26

22

2

10

Maintenance MerchandisingIT Omni-Channel

FY2012 Proj.

Page 27: HBC IPO Presentation

FINANCIAL REVIEW

27

Page 28: HBC IPO Presentation

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($MILLIONS)

FY2009 FY2010 FY2011

$3,620

$3,718

$3,850

6.1%

CAGR

COMPARABLE SALES

Lord & Taylor (USD)

Hudson’s Bay (CAD)

FY2011 7.1% 6.8%

FY2010 12.4% 2.2%

FY2009 1.1% (5.2%)

RETAIL SALES

1. Excludes Vancouver Olympic sales of $44.4M in Q4 FY2009 and $50.5M in Q1 FY2010 and impact of foreign exchange

(2.7%) SSSG1

6.4%SSSG1

6.5%SSSG1

Page 29: HBC IPO Presentation

4.3%

7.1%

8.1%

9.7%

Normalized EBITDA Margin

($MILLIONS)

CONTINUOUS IMPROVEMENT IN EBITDA MARGINS

FY2009 FY2010 FY2011 Pro Forma FY2011

$156

$265

$313

$373

1. Includes additional Zellers cost reductions of $60M

1

29

Enhanced sales productivity Above peer group same store sales

growth

Consistent gross margin rate Enhanced promotions focused

on key events Balancing sales growth and inventory

investment with margin rate expansion

Meaningful operating leverage 200 bps improvement in store

payroll and expense 50 bps improvement in marketing costs Reduction in corporate overhead $60M of pro forma FY2011 SG&A

related to Zellers $20-25M of one-time expenses related to

the savings to be incurred in 2H 2012 and 2013

$50M one-time restructuring expense in 1H 2012

$156

$265

$313

$373

Page 30: HBC IPO Presentation

FY2012 RESULTS AND OUTLOOK

($Millions)H1 2012 H2 2012E COMMENTARY

Retail Sales & YoY Growth

$1,7606.5%

Mid single-digit comp (constant dollar)

Historically strong Q4 comp performance

Recent major renovations drive 4th quarter sales performance

E-commerce growth New stores and 53rd week will

add about 2+% to total sales

Gross Profit as a % of Sales

$70640.1%

-40bps to LY

Expect modest rate improvement

Expecting margin rate improvement in Q4:• Better matching of inventory levels to store levels• Mix of higher margin cold weather merchandise

Normalized SG&A as a % of Sales

$68038.6%

Flat to LY

Improved leverage vs. last year

Accelerated comp rate in Q4 will improve operating leverage Decline of 60 bps / $10M related to change in credit card program –

impact is less than half that rate in second half 2012

Normalized EBITDAMargin

$854.8%

-10bps to LY

Moderate dollar and rate expansion vs.

2011 pro-forma normalized EBITDA

Earnings impact of $60M cost reduction from Zellers wind-down begins to be realized in Q3 FY2012

EBITDA margin expected to perform similarly or better than 1H 2012

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2012 SAME STORE SALES GROWTH

H1 Aug/Sep

HUDSON’S BAY 5.3% 2.5%

LORD & TAYLOR (US$) 4.3% 3.2%

• Q3 performance will improve as Bay Days and L&T Friends and Family drive Q3 sales

Page 31: HBC IPO Presentation

OPERATING AND FINANCIAL TARGETS

METRIC FY2011 PRO-FORMA 3-5 YEAR TARGET

Sales / sq. ft.

US $210 US $240-250

$133 $170-180

EBITDA Margin 8.1% 9.7%1 12.0%2

EBITDA Leverage 4.0x 3.0X3 2.0x - 2.5x

Capex $166MFuture spending in line

with FY2012E$185-195M

1. Includes additional Zellers cost reductions of $60M2. North America’s Top-5 department stores 2011 average

3. Pro-forma net IPO proceeds as at July 28, 2012

Well-Positioned to Drive Sales Productivity & Outsized Earnings Growth

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Page 32: HBC IPO Presentation

PRO FORMA CAPITALIZATION

($Millions)AS AT

JULY 28, 20121

PRO FORMA$400M OFFERING

Total Short-term Debt 440 399

Long-term Debt:

Existing HBC Term Loan 444 –

New HBC Term Loan – 250

Lord & Taylor Term Loan 202 202

5th Avenue Lord & Taylor Mortgage 245 245

Other 40 40

Total Long-term Debt 930 736

TOTAL DEBT $

1,370 $

1,135

LTM Pro Forma EBITDA2 373 373

TOTAL DEBT / LTM Pro Forma EBITDA2 3.7X 3.0X

Strong free cash flow available for debt repayment

Supports dividend in line with peer group

Low interest rate capital structure with attractive maturity profile

1H 2012 cash interest: $45M

Pro-forma: $24M

Revolving credit facilities provide significant flexibility

No debt maturing until November 2014

Pension plans are currently overfunded by more than $100M

1. As adjusted for refinancing of the L&T 5th Avenue Mortgage.2. Pro forma the $60 million of additional Zellers cost reductions.

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Page 33: HBC IPO Presentation

vI N V E S T M E N T H I G H L I G H T S

LEADING ICONIC NORTH AMERICAN RETAIL BANNERS

INCREASED SALES PRODUCTIVITY

POSITIONED FOR OUTSIZED EARNINGS GROWTH

STRATEGIC AND VALUABLE REAL ESTATE PORTFOLIO

MANAGEMENT WITH EXTENSIVE RETAIL EXPERIENCE AND OWNERSHIP

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Page 34: HBC IPO Presentation

OFFERING SUMMARY

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Amount:Approximately $400 million; $250 million Treasury Offering and $150 million Secondary Offering

Over-Allotment Option: Up to 15% from Secondary

Use of Treasury Proceeds: General Corporate Purposes including reduction of debt

IPO Marketing Range$2.2 billion – $2.6 billion

Listing: Toronto Stock Exchange

Page 35: HBC IPO Presentation

The REINVENTION of TWO RETAIL ICONS