Power of Attorney – Target Corp.

ZELLERS INC.,

HUDSON153S BAY COMPANY,

TARGET CORPORATION,

and

TARGET CANADA CO.

TRANSACTION AGREEMENT

January 12, 2011

TABLE OF CONTENTS

i

TABLE OF CONTENTS

(continued)

ii

TABLE OF CONTENTS

(continued)

iii

TRANSACTION AGREEMENT

Transaction Agreement dated January 12, 2011 between Zellers Inc.
(“Zellers”), Hudson153s Bay Company (“HBC“),
Target Corporation (“Target“), and Target Canada Co.

RECITALS:

A. Zellers operates a chain of retail department stores throughout Canada
under the “Zellers” banner.

B. Target operates a chain of retail department stores throughout the United
States.

C. Zellers wishes to assign certain of the leasehold interests that it
currently uses in its operations subject to subleases back to it so as to allow
it to continue to operate its business on such leased premises for varying
periods of time.

D. Target wishes to obtain an assignment of the aforesaid leasehold interests
from Zellers to use for itself or to allow it to assign certain of such
leasehold interests to other parties on terms that it may negotiate, subject in
each case to the aforesaid subleases to Zellers.

E. The Parties wish to set out their agreement regarding certain matters
relating to such transactions.

THEREFORE, the Parties agree as follows:

ARTICLE 1
INTERPRETATION

Section 1.1 Defined Terms.

As used in this Agreement, the following terms have the following meanings:

“Accrued Interest” has the meaning specified in Section
3.8(3).

“Affiliate” of any Person means, at the time such
determination is being made, any other Person controlling, controlled by or
under common control with such first Person, in each case, whether directly or
indirectly, and “control” and any derivation of such term means
the possession, directly or indirectly, of the power to direct the management
and policies, business or affairs of a Person whether through the ownership of
voting securities or otherwise.

“Agreement” means this transaction agreement.

“Ancillary Agreements” means the Lease Assignment and
Assumption Agreements, the Subleases, the Designee Assignment and Assumption
Agreements, and the Brand Waiver.

“Assignee” has the meaning specified in Section 12.2(1).

“Assumed Liabilities” has the meaning specified in Section
4.1.

“Authorization” means, with respect to any Person, any
order, permit, approval, consent, waiver, license, no action letter or similar
authorization of any Governmental Entity having jurisdiction over the Person.

“Books and Records” means all books, records, files, reports
and documents (including all correspondence, real estate and engineering data,
facilities reports, blueprints and other property records), in whatever format.

“Brand Waiver” has the meaning specified in Section 9.2(e).

“Business Day” means any day of the year, other than a
Saturday, Sunday or any day on which major banks are closed for business in
Toronto, Ontario or Minneapolis, Minnesota.

“Closing Date” means, as applicable, the First Tranche
Closing Date or the Second Tranche Closing Date.

“Commissioner of Competition” means the Commissioner of
Competition appointed pursuant to the Competition Act and includes Persons
authorized by the Commissioner of Competition.

“Competition Act” means the Competition Act
(Canada).

“Competition Act Approval” has the meaning
specified in Section 7.3(4).

“Competition Tribunal” means the Competition Tribunal
established under the Competition Act.

“Cost Basis” has the meaning specified in Section 3.8(2).

“Damages” means any losses, liabilities, damages, out of
pocket expenses or costs (including reasonable legal fees and expenses),
contingent or otherwise, whether liquidated or unliquidated, whether resulting
from an action, suit, proceeding, arbitration, application, cause of action,
claim or demand that is instituted or asserted by a third party, including a
Governmental Entity, or a cause, matter, thing, act, omission or state of facts
not involving a third party.

“Default Notice” means any written notice given by the
Landlord under any Lease claiming or alleging that Zellers (or any Affiliate of
Zellers) is or may be in default of its obligations under such Lease and which
default or allegation of default remains uncured.

“Delivery Date” has the meaning specified in Section 2.1(4).

“Designee” has the meaning specified in Section 2.7(1).

“Designee Assignment and Assumption Agreement” has the
meaning specified in Section 2.7(1)(a).

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“Direct Claim” means any cause, matter, thing, act, omission
or state of facts not involving a Third Party Claim which entitles an
Indemnified Party to make a claim for indemnification under this Agreement.

“Disclosure Letter” means the disclosure letter dated the
Execution Date and delivered by Zellers to Target with this Agreement.

“Due Diligence File” means the electronic files (other than
those contained in the folder entitled “Bay Lease Info”) on a computer hard
drive created by Zellers and provided to Target (as updated by the electronic
files on a computer hard drive created by Target and provided to Zellers on
January 11, 2011) consisting of documents and information related to the Leases
(including copies of all leases, occupancy agreements and amendments thereto and
all other documents and correspondence in the possession or control of Zellers
which relate to the Leases and the Leased Properties) assembled and made
available by Zellers to Target.

“Effective Time” means 12:01 a.m. (Toronto time) on the
relevant Closing Date, Vacancy Date or Delivery Date, as the case may be.

“Encumbrances” means pledges, liens, charges, security
interests, leases, title retention agreements, mortgages, hypothecs,
restrictions, development or similar agreements, easements, rights-of-way, title
defects, options or adverse claims or encumbrances of any kind or character
whatsoever.

“Excluded Liabilities” has the meaning specified in Section
4.2.

“Execution Date” means the date upon which the last of
Zellers, HBC, Target, and Target Canada Co. executed this Agreement.

“Failure to Operate” means a reduction, change or cessation
in Zellers153 operations at a Leased Property which, were it to continue, would
give rise to a Landlord Recapture Right and which is not caused by a force
majeure.

“Final Adjustments” has the meaning specified in Section
3.3.

“First Four Fiscal Quarters” means the four full Fiscal
Quarters ending immediately following the Execution Date.

“Fiscal Quarter” means any of the quarterly accounting
periods of Zellers, ending on or about April 30, July 31, October 31 and January
31 of each year.

“First Tranche Closing Date” means the date that is 10
Business Days following the later of (i) the last day of the First Tranche
Selection Period or (ii) the date that Competition Act Approval is obtained, but
in either case subject to the satisfaction or waiver by the applicable Party or
Parties of all conditions at the Effective Time on the First Tranche Closing
Date.

“First Tranche Purchase Price” has the meaning specified in
Section 3.1(1)(a).

“First Tranche Selection List” has the meaning specified in
Section 2.1(1).

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“First Tranche Selection Period” means the 120-day period
following the Execution Date.

“First Tranche Subject Leases” means the Leases pertaining
to the First Tranche Subject Leased Properties, subject to Sections 2.1(4) and
7.2(3).

“First Tranche Subject Leased Properties” means the Leased
Properties listed on the First Tranche Selection List, subject to Section
2.1(4).

“Governmental Entity” means (i) any international,
multinational, national, federal, provincial, state, municipal, local or other
governmental or public department, central bank, court, minister,
governor-in-council, cabinet, commission, board, bureau, agency, commissioner,
tribunal or instrumentality, domestic or foreign, (ii) any subdivision or
authority of any of the above, (iii) any stock exchange, and (iv) any
quasi-governmental or private body exercising any regulatory, expropriation or
taxing authority under or for the account of any of the above.

“HBC” means Hudson153s Bay Company.

“HST Declaration and Indemnity” means the HST declaration
and indemnity in the form attached as Section 9.3(g) to the Disclosure Letter.

“Indemnified Party” means a Party with indemnification
rights or benefits under this Agreement, including pursuant to Article 11.

“Indemnifying Party” means a Party against which a claim may
be made for indemnification under this Agreement, including pursuant to Article
11.

“Intercreditor Agreement” means that certain Intercreditor
Agreement dated as of October 2, 2006 among U.S. Bank National Association, as
Trustee for the benefit of the holders of Merrill Lynch Floating Trust
Pass-Through Certificates, Series 2006-1, and the lenders under the Notes.

“Investment Grade Designee” means a Designee that, at the
time of such Designee153s execution of a Designee Assignment and Assumption
Agreement pursuant to Section 2.7(1)(a) or other assumption document pursuant to
Section 2.7 with respect to the Subject Lease to be assigned and transferred to
such Designee, has outstanding senior debt rated by at least two of the
following rating agencies with minimum ratings as follows:

(i) at least BBB– as determined by Standard & Poors,

(ii) at least Baa3 as determined by Moody153s, or

(iii) at least BBB low as determined by the Dominion Bond Rating Service;

and in each case such rating is not subject to a negative watch or other
similar notice suggesting a possible downgrade to below such level, and in each
case Target Canada has provided to Zellers evidence reasonably satisfactory to
Zellers of such ratings.

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“Landlord” means the Person from time to time holding the
landlord153s interest under any Lease.

“Landlord Recapture Right” means the right of a Landlord
(through the exercise of an express right under a Lease) to terminate a Lease by
reason of Zellers153 Failure to Operate.

“Laws” means any and all applicable (i) laws, constitutions,
treaties, statutes, codes, ordinances, orders, decrees, rules, regulations, and
by-laws, (ii) judgments, orders, writs, injunctions, decisions, awards and
directives of any Governmental Entity, and (iii) policies, guidelines, notices
and protocols, to the extent that they have the force of law.

“Lease Assignment and Assumption Agreement” has the meaning
specified in Section 9.2(a).

“Lease Default” means an event which with the passage of
time or the giving of notice or both would constitute a default or event of
default of the tenant under a Lease, in each case where the relevant Landlord
has provided written notice of such default, provided that any default arising
as a result of the failure to obtain the consent of the applicable Landlords
under the Subject Leases to the transactions contemplated by this Agreement
(inclusive of the Wind-Down Actions, the Subleases and the rights of Zellers
therein) shall not constitute a Lease Default.

“Leased Properties” means the leasehold lands, premises,
buildings, and leasehold improvements pertaining to the Leases, which premises
are listed and described in Section 5.1(i)(i) of the Disclosure Letter by
reference to their mall name or municipal address, as applicable, and Zellers
store number.

“Leases” means all agreements of Zellers to lease or
otherwise occupy the Leased Properties.

“Material Lease Default” means (i) a Lease Default which
would result in an express termination of a Lease as a result of a Landlord
having provided a termination notice on or prior to the relevant Closing Date;
or (ii) a Lease Default which could reasonably be expected to give rise to the
termination of a Lease by the relevant Landlord or which could reasonably be
expected to give rise to Zellers153 loss of possession under the Subject Lease by
the Landlord; except in the case of (i) and (ii) a Lease Default where such
breach or termination could be remedied by Target Canada or its Designee within
12 months after the relevant Closing Date with an expenditure of money not
exceeding $50,000. For certainty, any default arising under the Leases as a
result of the failure to obtain the consent of the applicable Landlords under
the Leases to the transactions contemplated by this Agreement (inclusive of the
Wind-Down Actions, the Subleases and the rights of Zellers therein) shall not
constitute a Material Lease Default.

“Monetary Lien” means (1) any Encumbrance that secures the
payment of borrowed money, (2) any registered construction or mechanic153s lien,
any execution upon a judgment or any pre-fixture or fixture filing under
personal property legislation and (3) any Encumbrance (other than an inchoate or
statutory Encumbrance in favour of any Governmental Entity or public or private
utility for amounts not then due) that secures the payment of any cost or amount
which is Zellers153 responsibility to pay under this

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Agreement or under Laws and which is overdue or in default and, payment of
which is not subject to the allocation provisions of this Agreement (unless in
the case of (3) Zellers otherwise gives Target Canada credit therefor whether or
not allocation thereof is contemplated by this Agreement).

“Mortgages” means any mortgage of Zellers153 leasehold
interest in the Leased Properties.

“Notes” means interests in (a) that certain Mezzanine A Loan
Agreement dated as of October 2, 2006, as amended, between LT Mezz A LLC, a
Delaware limited liability company, and Wells Fargo Bank, National Association,
as custodian for the Participation Holders (as defined therein), and (b) that
certain Mezzanine B Loan Agreement dated as of October 2, 2006, as amended,
between LT Mezz B LLC, a Delaware limited liability company and GSRE-BS II,
Ltd., as lender.

“Notice” has the meaning specified in Section 13.1.

“Notice Date” means the date upon which Target, Target
Canada or a Designee gives Notice to Zellers of the Vacancy Date for any
Subleases as contemplated by Section 2.4(1).

“Outside Date” means September 30, 2011, provided that if
the Competition Act Approval is not obtained by August 15, 2011, Zellers or
Target may elect to extend from time to time the Outside Date by specified
periods of not less than 30 days to no later than December 31, 2011.

“Participation Agreement” means that certain Mezzanine Loan
Participation Agreement dated as of December 12, 2006 among Wells Fargo Bank,
National Association, as custodian, and the holders of the Notes associated with
the Mezzanine A Loan Agreement.

“Parties” means Zellers, HBC, Target, Target Canada and any
other Person who becomes a party to this Agreement.

“Permitted Encumbrances” means the Encumbrances identified
in Section 5.1(i)(iv) of the Disclosure Letter.

“Person” means a natural person, partnership, limited
partnership, limited liability partnership, corporation, limited liability
company, unlimited liability company, joint stock company, trust, unincorporated
association, joint venture or other entity or Governmental Entity, and pronouns
have a similarly extended meaning.

“Pharmacy Notice Date” has the meaning specified in Section
2.6.

“Pharmacy Records” means all of the prescription files and
prescription records, including patient profiles and refill histories, with
respect to the pharmacies operated at the Subject Leased Properties.

“Purchase Price” means the aggregate of the First Tranche
Purchase Price and the Second Tranche Purchase Price.

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“Second Tranche Closing Date” means the date that is 10
Business Days following the last day of the Second Tranche Selection Period, but
subject to the satisfaction or waiver by the applicable Party or Parties of all
conditions at the Effective Time on the Second Tranche Closing Date.

“Second Tranche Purchase Price” has the meaning specified in
Section 3.1(1)(a).

“Second Tranche Selection List” has the meaning specified in
Section 2.2(1).

“Second Tranche Selection Period” means the 240-day period
following the Execution Date.

“Second Tranche Subject Leases” means the Leases pertaining
to the Second Tranche Subject Leased Properties, subject to Section 7.2(3).

“Second Tranche Subject Leased Properties” means the Leased
Properties listed on the Second Tranche Selection List.

“Subject Leases” means the First Tranche Subject Leases and
the Second Tranche Subject Leases, subject to Section 7.2(3).

“Subject Leased Properties” means the First Tranche Subject
Leased Properties and the Second Tranche Subject Leased Properties.

“Subleases” means the subleases in respect of each of the
Subject Leased Properties by and between Zellers and Target Canada or its
Designee, pursuant to which Zellers shall sublet from Target Canada or its
Designee the Subject Leased Properties for a term commencing on the applicable
Closing Date and expiring on the earlier of (i) one day prior to the expiry or
earlier termination of the term of the applicable Subject Leases, and (ii) the
applicable Vacancy Date, and which subleases shall be in the form (and based on
the terms and conditions set forth therein) attached as Section 1.1 to the
Disclosure Letter (or may be in the form of licenses, occupancy agreement, or
other agreements providing substantially all of the benefits and burdens as said
form of Sublease, provided such licenses, occupancy agreements or other
agreements are satisfactory in form to Zellers and Target Canada, each acting
reasonably).

“Target” means Target Corporation.

“Target Canada” means, collectively, Target Canada Co. and
one or more other subsidiaries (within the meaning of the Business
Corporations Act (Ontario)) of Target incorporated under the laws of Canada
or a province of Canada, as may be designated by Target in accordance with
Section 1.12 prior to the First Tranche Closing Date.

“Target Canada Liabilities” has the meaning specified in
Section 12.2(1).

“Target Entity” has the meaning specified in Section 7.7(2).

“Tax Act” means the Income Tax Act, R.S.C. 1985
(5th Supp.) c.1.

“Tax Refund” has the meaning specified in Section 3.7.

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“Tax Returns” means any and all returns, reports,
declarations and elections (including any amendments, schedules and attachments
to them), made or filed or required to be made or filed in respect of Taxes.

“Taxes” means (i) any and all taxes, duties, fees, excises,
premiums, assessments, imposts, levies and other charges or assessments of any
kind whatsoever imposed by any Governmental Entity, and (ii) all interest,
penalties, fines, additions to tax or other additional amounts imposed by any
Governmental Entity on or in respect of amounts of the type described in clause
(i) above or this clause (ii).

“Third Party Claim” means any action, suit, proceeding,
arbitration, application, cause of action, claim or demand that is instituted or
asserted by a third party, including a Governmental Entity, against an
Indemnified Party which entitles the Indemnified Party to make a claim for
indemnification under this Agreement.

“Vacancy Date” means, with respect to a particular Sublease,
the date that is 270 days following the Notice Date with respect to such
Sublease; provided, Target or Target Canada may designate up to 20 particular
Subleases in each of the First Four Fiscal Quarters for which the Vacancy Date
would mean the date that is 180 days following the Notice Date with respect to
each such Sublease; and provided further that:

(i) no Vacancy Date shall be earlier than January 31, 2012; and

(ii) no Vacancy Date shall be later than March 31, 2013.

“Wind-Down Actions” means the (i) conduct of liquidation
sales at a Subject Leased Property the period for which shall not exceed, in the
aggregate, 12 weeks and (ii) winding-down and closure of Zellers153 business and
operations (including any action reasonably taken in connection therewith) so as
to satisfy the provisions of Section 2.4(2), the period for which shall not
exceed, in the aggregate, two weeks; provided however, that if a Landlord
refuses to allow the conduct of a liquidation sale pursuant to clause (i) above
and Target Canada has provided Notice at least 120 days prior to the applicable
Vacancy Date, then (a) with respect to up to 10 Subject Leased Properties
designated by Target Canada in such Notice from time to time, Zellers shall
complete such activities at such Subject Leased Properties within eight weeks
and (b) with respect to up to an additional 10 Subject Leased Properties
designated by Target Canada in such Notice from time to time, Zellers shall not
be permitted to conduct any liquidation sales at such Subject Leased Properties.

“Winnipeg Premises” means the portion of the premises known
municipally as 450 Portage Avenue, Winnipeg, Manitoba and more particularly
described in Section 2.9 of the Disclosure Letter.

“Zellers” means Zellers Inc.

“Zellers Entity” has the meaning specified in Section
7.7(1).

“Zellers Entity Location” has the meaning specified in
Section 7.7(1).

8

“Zellers Liabilities” has the meaning specified in Section
12.1(1).

Section 1.2 Gender and Number.

Any reference in this Agreement or any Ancillary Agreement to gender includes
all genders. Words importing the singular number only include the plural and
vice versa.

Section 1.3 Headings, etc.

The provision of a Table of Contents, the division of this Agreement into
Articles and Sections and the insertion of headings are for convenient reference
only and do not affect the interpretation of this Agreement.

Section 1.4 Currency.

All references in this Agreement or any Ancillary Agreement to dollars, or to
$ are expressed in Canadian currency unless otherwise specifically indicated.

Section 1.5 Certain Phrases, etc.

In this Agreement and any Ancillary Agreement (i) the words
“including“, “includes” and
“include” mean “including (or includes or include)
without limitation“, and (ii) the phrase “the aggregate
of“, “the total of“, “the sum of“, or
a phrase of similar meaning means “the aggregate (or total or sum),
without duplication, of“. Unless otherwise specified, the words
“Article” and “Section” followed by a number
mean and refer to the specified Article or Section of this Agreement.

Section 1.6 Knowledge.

Where any representation or warranty contained in this Agreement or any
Ancillary Agreement is qualified by reference to the knowledge of:

(1) Zellers, it refers to the actual knowledge (without further inquiry) of
Mark Foote, as Chief Executive Officer of Zellers, Michael Culhane, as Senior
Vice-President and Chief Financial Officer of Zellers, David Mock, as Senior
Vice-President, Merchandise Hardlines of Zellers, and Bruce Moore, as Senior
Vice-President, Real Estate of HBC;

(2) Target, it refers to the actual knowledge (without further inquiry) of
Douglas Scovanner, as Executive Vice-President and Chief Financial Officer of
Target, and Timothy Baer, as Executive Vice-President and General Counsel of
Target;

in each case, without personal liability on the part of any of them.

Section 1.7 Disclosure Letter.

(1) The Disclosure Letter forms an integral part of this Agreement for all
purposes of it.

(2) The purpose of the Disclosure Letter is to set out the qualifications,
exceptions and other information called for in this Agreement. The Parties
acknowledge and agree that the

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Disclosure Letter and the information and disclosures contained in it do not
constitute or imply, and will not be construed as:

(a) any representation, warranty, covenant or agreement which is not
expressly set out in this Agreement;

(b) an admission of any liability or obligation of any Party;

(c) an admission that the information is material;

(d) a standard of materiality, a standard for what is or is not in the
ordinary course of business, or any other standard contrary to the standards
contained in the Agreement; or

(e) an expansion of the scope of effect of any of the representations,
warranties and covenants set out in the Agreement.

(3) Disclosure of any information in the Disclosure Letter that is not
strictly required under this Agreement has been made for informational purposes
only and does not imply disclosure of all matters of a similar nature. Inclusion
of an item in any section of the Disclosure Letter is deemed to be disclosure
for all purposes for which disclosure is required under this Agreement to the
extent that the relevance of such disclosure to such other purposes is
reasonably apparent.

(4) The Disclosure Letter itself is confidential information and may not be
disclosed unless (i) it is required to be disclosed pursuant to applicable Law,
unless such Law permits the Parties to refrain from disclosing the information
for confidentiality or other purposes or (ii) a Party needs to disclose it in
order to enforce or exercise its rights under this Agreement.

Section 1.8 References to Persons and
Agreements.

Any reference in this Agreement to a Person includes its successors and
permitted assigns. The term “Agreement” and any reference to this Agreement or
any other agreement or document includes, and is a reference to, this Agreement
or such other agreement or document as it may have been, or may from time to
time be amended, restated, replaced, supplemented or novated and includes all
schedules to it.

Section 1.9 Statutes.

Except as otherwise provided in this Agreement, any reference in this
Agreement to a statute refers to such statute and all rules and regulations made
under it, as it or they may have been or may from time to time be amended or
re-enacted.

Section 1.10 Non-Business Days.

Whenever payments are to be made or an action is to be taken on a day which
is not a Business Day, such payment shall be made or such action shall be taken
on or not later than the next succeeding Business Day.

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Section 1.11 Time Periods.

Unless otherwise specified, time periods within or following which any
payment is to be made or act is to be done shall be calculated by excluding the
day on which the period commences and including the day on which the period ends
and by extending the period to the next Business Day following if the last day
of the period is not a Business Day.

Section 1.12 Designation of Target Canada.

Target may, by Notice to Zellers given at least 10 Business Days prior to the
First Tranche Closing Date, designate one or more other subsidiaries of Target
as Target Canada and shall cause such subsidiaries to enter into and become
bound by this Agreement as Target Canada on or prior to the First Tranche
Closing Date. Upon such designation, such entities together with Target Canada
Co. shall be deemed for purposes of this Agreement and all Ancillary Agreements
to be “Target Canada”.

Section 1.13 Leasehold Interests.

Notwithstanding any provision of this Agreement or Ancillary Agreements to
the contrary, for purposes of this Agreement and each Ancillary Agreement, (i)
all references to “Lease” include any sublease or agreement to sublease by which
Zellers (as subtenant) holds its interest in the related Leased Property, (ii)
for the Leased Properties which are subject to a sublease or agreement to
sublease (rather than a lease) in favour of Zellers, all references to Zellers153
“leasehold” interest in such Leased Property shall mean Zellers153 “subleasehold”
interest (rather than a leasehold interest) in such Leased Property, any
reference to “Landlord” shall mean the sublandlord under the applicable sublease
or agreement to sublease pursuant to which Zellers (as subtenant) holds its
interest in such Leased Property, and any reference to “Sublease” shall mean a
sub-sublease in such Leased Property in favour of Zellers, and (iii) all other
similar references relating to the Leases and Leased Properties shall be
interpreted and construed in a similar manner.

ARTICLE 2
AGREEMENT OF PURCHASE AND SALE

Section 2.1 First Tranche Subject Leased
Properties.

(1) From time to time during the First Tranche Selection Period, Target or
Target Canada shall deliver to Zellers a Notice designating up to 110 Leases
that shall be assigned and transferred on the First Tranche Closing Date (such
list, as updated from time to time, including in accordance with Section 2.1(4),
the “First Tranche Selection List“).

(2) Subject to the terms and conditions of this Agreement, Zellers agrees to
assign and transfer to Target Canada or at the direction of Target Canada to a
Designee and Target Canada agrees to acquire and assume or cause to be acquired
and assumed by a Designee on the First Tranche Closing Date in accordance with
the terms of this Agreement, effective as of the Effective Time of the First
Tranche Closing Date, the First Tranche Subject Leases, including all rights of
Zellers relating thereto or arising thereunder

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(inclusive of any options of Zellers therein). On or before the First Tranche
Closing Date:

(i) each of Zellers and Target Canada shall enter into a Lease Assignment and
Assumption Agreement with respect to those First Tranche Subject Leases to be
assigned to Target Canada; and

(ii) Zellers shall, and Target Canada shall cause its Designees to, enter
into a Designee Assignment and Assumption Agreement with respect to those First
Tranche Subject Leases to be assigned to a Designee;

in respect of each of the First Tranche Subject Leases to effect the
aforesaid assignment, transfer and assumption thereof.

(3) Contemporaneous with the assignment and transfer of the First Tranche
Subject Leases, each of Zellers and Target Canada shall enter into (or Target
Canada shall cause its Designee to enter into) Subleases in respect of each of
the First Tranche Subject Leased Properties the terms of which will commence as
of the Effective Time of the First Tranche Closing Date.

(4) If at the end of the First Tranche Selection Period the First Tranche
Selection List includes fewer than 110 Subject Leases, Target Canada shall have
the right to continue to designate additional Leases as First Tranche Subject
Leases (and the relevant Leased Properties shall be First Tranche Subject Leased
Properties), provided that the number of Leases designated on the First Tranche
Selection List plus the number of additional Leases designated as First Tranche
Subject Leases pursuant to this Section 2.1(4) may not exceed 110. Target Canada
shall have the right to take assignments of one or more First Tranche Subject
Leases on one or more dates (each, a “Delivery Date”) after the
First Tranche Closing Date, provided (i) Zellers and Target Canada shall
reasonably cooperate in executing, on the applicable Delivery Date, all
documents and instruments contemplated under this Agreement to be delivered on a
Closing Date, (ii) all such documents, when delivered, shall provide the Parties
with all rights and obligations with respect to each Subject Leased Property
that the Parties would have had if such documents and instruments had been
delivered on the First Tranche Closing Date, (iii) such documents shall in all
events be executed and delivered by the Parties on the earlier of (a) a date
selected by Target Canada on at least 10 days advance written notice from Target
Canada, and (b) the Second Tranche Closing Date, and (iv) no Delivery Date shall
be within 10 Business Days of the Second Tranche Closing Date.

Section 2.2 Second Tranche Subject Leased
Properties.

(1) From time to time during the Second Tranche Selection Period, Target or
Target Canada shall deliver to Zellers a written notice designating additional
Leases that shall be assigned and transferred on the Second Tranche Closing Date
(such list, as updated from time to time, the “Second Tranche Selection
List“), provided that the number of Leases designated on the Second
Tranche Selection List when added to the number of Leases designated on the
First Tranche Selection List shall not be more than 220.

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(2) Subject to the terms and conditions of this Agreement, Zellers agrees to
assign and transfer to Target Canada or at the direction of Target Canada to a
Designee and Target Canada agrees to acquire and assume or cause to be acquired
and assumed by a Designee on the Second Tranche Closing Date in accordance with
the terms of this Agreement, effective as of the Effective Time of the Second
Tranche Closing Date, the Second Tranche Subject Leases, including all rights of
Zellers relating thereto or arising thereunder (inclusive of any options of
Zellers therein). On or before the Second Tranche Closing Date:

(i) each of Zellers and Target Canada shall enter into a Lease Assignment and
Assumption Agreement with respect to those Second Tranche Subject Leases to be
assigned to Target Canada; and

(ii) Zellers shall, and Target Canada shall cause its Designees to, enter
into a Designee Assignment and Assumption Agreement with respect to those Second
Tranche Subject Leases to be assigned to a Designee;

in respect of each of the Second Tranche Subject Leases to effect the
aforesaid assignment, transfer and assumption thereof.

(3) Contemporaneous with the assignment and transfer of the Second Tranche
Subject Leases, each of Zellers and Target Canada shall enter into (or Target
Canada shall cause its Designee to enter into) Subleases in respect of each of
the Second Tranche Subject Leased Properties the terms of which will commence as
of the Effective Time of the Second Tranche Closing Date.

Section 2.3 Right to Terminate Leases.

Instead of taking an assignment of any Subject Lease (or directing the
assignment of such Subject Lease to a Designee) on the applicable Closing Date,
Target Canada may negotiate with the applicable Landlord for the termination of
such Subject Lease, provided that (i) no such termination shall be effective
prior to the applicable Closing Date with respect to such Subject Lease; (ii)
from and after the applicable Closing Date to and including the applicable
Vacancy Date, Zellers shall have the same right to use and occupy the Subject
Leased Property relating to such Subject Lease under a Sublease (or other
agreement providing substantially similar rights) on all the same terms and
conditions that would have applied had such Subject Lease been assigned to
Target Canada (instead of terminated) and subleased to Zellers under a Sublease,
except that all amounts that would have been paid as rent under such Sublease
shall be paid to the Landlord, or as Target Canada may direct; (iii) such
Subject Lease shall count as one of the Leases that Target Canada is entitled to
designate under Section 2.1(1) or 2.2(1), notwithstanding Target Canada153s
election to arrange for the termination (rather than assignment) of such Subject
Lease; and (iv) the Vacancy Date for such Subject Leased Property shall be
established by Target Canada giving a Notice in accordance with Section 2.4.

Section 2.4 Vacancy Date.

(1) Target Canada, Target or a Designee may from time to time provide Notice
to Zellers establishing the Vacancy Date for one or more Subleases.

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(2) On each Vacancy Date, effective as of the applicable Effective Time, the
Sublease(s) identified in the Notice shall be terminated and Target Canada or a
Designee shall accept and take possession of the relevant Subject Leased
Properties, which Subject Leased Properties shall be (i) empty of all inventory,
trade fixtures (including all store shelving, racks, display cases and stockroom
shelving systems), personal property and debris, and (ii) free from any
subtenants, licensees or other Persons in possession of all or any portion of
the relevant Subject Leased Properties. Notwithstanding the foregoing or any
other provision of this Agreement, the Subject Leases or any Ancillary
Agreement, Zellers shall have no obligation (a) to restore the Subject Leased
Properties to a base building condition or standard, (b) to remove any leasehold
improvements from the Subject Leased Properties, or (c) to repair, patch or
replace any walls, ceilings or flooring damaged by the removal of trade
fixtures, provided such removal is accomplished in a commercially reasonable
manner.

Section 2.5 Ordinary Course Operations.

From the Execution Date until the expiration of the Second Tranche Selection
Period, Zellers shall operate and cause to be operated the operations currently
conducted by it and its Affiliates, and use commercially reasonable efforts to
cause its licensees and subtenants to operate the operations currently operated
by each of them, in and on the Leased Properties in the ordinary course of
Zellers153 business and consistent with Zellers153 and Zellers153 Affiliates153,
licensees153 and subtenants153 past practices (including maintaining and updating
all Pharmacy Records in accordance with customary practices of the applicable
pharmacy operator or required by Laws), Laws and in accordance with and subject
to the terms of the Leases (including, with respect to any Lease as to which
there exists a dispute or default that is disclosed in Section 5.1(i)(iii),
5.1(i)(vii) or 5.1(i)(viii) of the Disclosure Letter, using commercially
reasonable efforts to resolve or cure such dispute or default), in each case in
all material respects. As to the Subject Leases and the Subject Leased
Properties only, from the expiration of the Second Tranche Selection Period
until the applicable Vacancy Date, Zellers shall operate and cause to be
operated the operations currently conducted by it and its Affiliates, and use
commercially reasonable efforts to cause its pharmacy licensees and subtenants
to operate the operations currently operated by each of them, in and on the
Subject Leased Properties in the ordinary course of Zellers153 business and
consistent with Zellers153 and Zellers153 Affiliates153, pharmacy licensees153 and
subtenants153 past practices (including maintaining and updating all Pharmacy
Records in accordance with customary practices of the applicable pharmacy
operator or required by Laws), Laws and in accordance with and subject to the
terms of the Subleases, in each case in all material respects. Notwithstanding
the foregoing, (i) nothing in this Section 2.5 will derogate from Zellers153
rights contained in the Subleases or in Section 2.4 during the applicable
portion of the time period during the conduct of the Wind-Down Actions, nor
shall the exercise of such rights constitute a breach of this Section 2.5, (ii)
the Wind-Down Actions shall not constitute a breach of this Section 2.5,
provided such actions are taken in accordance with the terms of the respective
Sublease and all Laws, (iii) the period during which liquidation sales may be
conducted (as established pursuant to the definition of Wind-Down Actions) shall
not be limited as described in such definition with respect to any Subject
Leased Property as to which the conduct of a liquidation sale for such extended
period will not and does not (a) give rise to a Landlord Recapture Right, (b)
give rise to a Lease Default; or (c) diminish or limit any right or privilege of
the tenant under the applicable Subject Lease, and (iv) Zellers has the right to
terminate any sublease, license, concession or other occupancy agreement
relating to the Leased

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Property at any time following the applicable Closing Date, excluding any
pharmacy sublease, license, concession or other occupancy agreement.

Section 2.6 Pharmacy Records.

At the option of Target Canada, which may be exercised by Notice given by
Target Canada to Zellers from time to time no later than 90 days prior to the
applicable Vacancy Date (the “Pharmacy Notice Date“), but
subject to Laws, Zellers shall and shall cause its Affiliates and shall use
commercially reasonable efforts to cause any third-party operator of the
pharmacy in the applicable Subject Leased Property to transfer to or upon the
direction of Target Canada all or any portion of the Pharmacy Records specified
in such Notice (to the extent a pharmacy is operating in the applicable Subject
Leased Property), including paper file backup and a backup tape for all
prescriptions (to the extent such exist), without retaining any copies of such
Pharmacy Records other than such copies as Zellers or applicable pharmacy
operator is required to retain by Laws (and, in such case, only to the extent
and for so long as required by Laws). No additional consideration shall be
payable by Target or Target Canada in connection with such transfer of Pharmacy
Records. Zellers shall, and shall cause its Affiliates to and use commercially
reasonable efforts to cause the applicable pharmacy operator to, make such
transfer in respect of each applicable Subject Leased Property (i) in a format
reasonably requested by Target Canada, (ii) free and clear of all Encumbrances,
(iii) on the applicable Vacancy Date (or such earlier date as is specified in
such Notice, which date shall not be less than 30 days after the date such
Notice is given) in respect of such Subject Leased Property provided Target
Canada has provided appropriate notice by the applicable Pharmacy Notice Date,
and (iv) if requested by Target Canada, pursuant to a mutually agreed upon file
transfer agreement with terms consistent with those set forth in this Section
2.6. The Parties shall cooperate to effect any such transfers in accordance with
Laws. Neither Zellers nor any of its Affiliates will directly or indirectly
solicit the transfer of any of the Pharmacy Records that may be transferred to
or upon the direction of Target Canada pursuant to this Agreement to any stores
or pharmacies operated by Zellers or any of its Affiliates or, subject to Laws,
provide to any other Person any of the Pharmacy Records that are to be
transferred to or upon the direction of Target Canada pursuant to this
Agreement. Zellers shall use commercially reasonable efforts to enforce any
contractual rights it may have with the third-party operator of a pharmacy in
each applicable Subject Leased Property restricting the solicitation or transfer
of any of the Pharmacy Records that are to be transferred to or upon the
direction of Target Canada pursuant to this Agreement where Zellers has
knowledge of any actual or threatened breach of such provisions. For purposes of
this Section 2.6 only, knowledge of Zellers shall include the actual knowledge
of the General Merchandise Manager, Pharmacy of Zellers.

Section 2.7 Target Canada Assignment of
Rights.

(1) Target Canada may from time to time designate one or more Persons (each,
a “Designee“) to be an immediate or subsequent assignee(s) of
the Subject Leases, as follows:

(a) If Target Canada wishes to have one or more Subject Leases assigned
directly by Zellers to one or more Designee(s), Target Canada may upon at least
10 Business Days153 written notice in advance of a Delivery Date or a Closing
Date, as the case may be, identify the Designee(s) that is or are to be the
assignee(s) of the Subject

15

Leases to be assigned and transferred by Zellers on the applicable Closing
Date or Delivery Date, in which case, on such date, with respect to the Subject
Lease(s) so identified:

(i) the Designee(s) will execute and deliver an Assignment and Assumption of
Lease Agreement in substantially the form specified in Section 2.7(1) of the
Disclosure Letter (as such form may be modified in accordance with Section
2.7(5) of this Agreement, a “Designee Assignment and Assumption
Agreement“) (and Zellers and Target Canada will not execute a Lease
Assignment and Assumption Agreement) with respect to such Subject Leases(s), and

(ii) such Designee(s) (and not Target Canada) will execute and deliver the
Sublease(s) in favour of Zellers with respect to the applicable Subject Leased
Properties.

Zellers need not make any assignment directly to a Designee unless such
Designee executes and delivers a Designee Assignment and Assumption Agreement on
the applicable Closing Date or Delivery Date. If any Designee shall fail or
refuse to execute and deliver a Designee Assignment and Assumption Agreement and
Sublease with respect to any Subject Lease, Target Canada and Zellers shall,
upon Target Canada153s request, enter into a Lease Assignment and Assumption
Agreement and a corresponding Sublease in respect of the applicable Subject
Lease on the Closing Date or Delivery Date.

(b) If Target Canada wishes to assign to one or more Designee(s) one or more
Subject Lease(s) previously assigned to Target Canada, Target Canada may at any
time and from time to time do so without limit or qualification of any kind,
except that any such assignment by Target Canada shall be subject to the rights
of Zellers under any applicable Sublease then in effect.

(2) In connection with the assignment of any Subject Lease(s) to any
Designee(s) pursuant to Section 2.7(1), Target Canada and/or Target may by
separate agreement with such Designee(s) provide representations and warranties
in such form and content as Target Canada and/or Target may elect. Zellers shall
have no direct liability or obligation to any Designee on account of any such
representations or warranties. The assignment of a Subject Lease(s) to
Designee(s) does not relieve Zellers of liability for a breach of any of the
representations or warranties contained in Section 5.1 to the extent that such
breach results in Damages to Target Canada or Target, subject, in all events, to
the limitations contained in this Agreement, including Section 11.5.

(3) Upon assignment of a Subject Lease (whether by Zellers pursuant to
Section 2.7(1)(a) or by Target Canada pursuant to Section 2.7(1)(b)) to an
Investment Grade Designee at any time up to the second anniversary of the
applicable Vacancy Date for such Subject Lease, Target Canada and Target shall
be released from all Subject Lease Obligations relating to such Subject Lease,
to the extent, and only to the extent, (i) assumed by such Investment Grade
Designee and (ii) an indemnity has been provided by such Designee with respect
to such Subject Lease Obligation assumed by such Designee, in each case, in
writing. Such assumption and indemnity by an Investment Grade Designee may be
accomplished:

16

(a) in the case of an assignment pursuant to Section 2.7(1)(a), pursuant to a
Designee Assignment and Assumption Agreement, or pursuant to an assumption and
indemnity agreement by the Investment Grade Designee in favour of Zellers in a
form which is acceptable to Zellers, acting reasonably; or

(b) in the case of an assignment by Target Canada pursuant to Section
2.7(1)(b), pursuant to an assumption and indemnity agreement by the Investment
Grade Designee in favour of Zellers in a form which is acceptable to Zellers,
acting reasonably. If pursuant to an instrument of assignment between Target
Canada and a Designee, such Designee (i) assumes some or all Subject Lease
Obligations with respect to a Subject Lease, and (ii) confirms in writing with
Zellers that such assumption and indemnity runs in favour of Zellers, then
Zellers shall join in (by attached joinder or otherwise) such instrument in
order to (x) accept such assumption and (y) confirm the release of Target and
Target Canada to the extent of the Subject Lease Obligations so assumed and
indemnified.

Any release provided for in this Section 2.7(a)(3) shall be effective upon
the execution by the Investment Grade Designee and receipt by Zellers of the
aforesaid Designee Assignment and Assumption Agreement or other assumption and
indemnity agreement, and shall require no further act, deed or writing. Zellers
agrees from time to time upon request of Target or Target Canada to confirm such
releases, but the failure of Target or Target Canada to request any such
confirmation, and the failure of Zellers to provide any such confirmation, shall
not affect the automatic release provided in the preceding sentence. For
purposes hereof, “Subject Lease Obligations” means all
obligations arising under (i) a Subject Lease assigned to a Designee, (ii) the
Lease Assignment and Assumption Agreement or Designee Assignment and Assumption
Agreement, as applicable, pursuant to which such Subject Lease was assigned,
(iii) the Sublease entered into or to be entered into with respect to such
Subject Lease, and (iv) Sections 11.3(d) and 11.3(e) with respect to such
Subject Lease.

(4) No assignment of a Subject Lease to a Designee that is not an Investment
Grade Designee at the time of assignment shall release Target Canada or Target
from any Subject Lease Obligations.

(5) The form of Designee Assignment and Assumption Agreement may be varied
and modified by Target Canada in its discretion from time to time so long as
such variations and modifications do not (a) expand upon any representations,
warranties, covenants, obligations, or liabilities of Zellers beyond those
contained in the form of Designee Assignment and Assumption Agreement specified
in Section 2.7(1) of the Disclosure Letter, or (b) alter in any material respect
the provisions of Section 5 of the form of Designee Assignment and Assumption
Agreement specified in Section 2.7(1) of the Disclosure Letter.

(6) Target and Target Canada shall remain responsible for and shall not, in
any event, be released from any of their covenants and obligations under this
Agreement in relation to the payment of the entire Purchase Price by reason of
any assignments made pursuant to this Section 2.7.

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Section 2.8 Access and Additional Information
Relating to Leased Properties.

(1) Subject to Target Canada complying with Laws, prior to the final Vacancy
Date, Zellers shall, upon reasonable prior Notice, permit Target Canada and its
representatives and advisers reasonable access to the Leased Properties during
the period commencing two hours prior to the Leased Property opening for
business to the public and ending two hours after the close of business, subject
to the rights of all subtenants, licensees and concessionaires in the Leased
Property (excluding, however, such subtenants, licensees and concessionaires
that are Affiliates of Zellers) in order to make such reasonable investigations
as Target Canada shall reasonably determine are necessary or advisable. Target
Canada shall perform such investigations in compliance with Laws. Subject to
Laws, and at the sole cost and expense of Target Canada, Zellers shall give
Target Canada153s representatives and agents reasonable means necessary to effect
such investigations and shall cause its agents, employees, officers and
directors to aid such representatives and agents in such investigations. Zellers
is not required to disclose any information to Target Canada where such
disclosure is prohibited by Laws or by the terms of any agreement. Any
investigations or tests which require drilling or other invasive actions shall
be performed outside of the hours when the Leased Property is open for business
to the public and shall be done only with the prior written consent of Zellers,
acting reasonably, and all such inspections and tests contemplated by this
Agreement shall not unduly interfere (and Target Canada and Target shall use
their reasonable commercial efforts not to so interfere) with the use, access,
operation and enjoyment by Zellers and its subtenants, licensees,
concessionaries, customers and suppliers of the Leased Properties.

(2) Except as necessary to perform the investigations contemplated by this
Section 2.8, Target Canada and Target shall not make contact with any store
employees of Zellers without the prior written consent of Zellers, such consent
not to be unreasonably withheld.

(3) Prior to entry onto the Leased Properties, Target Canada or Target, as
applicable, shall have in effect a policy of general liability insurance with a
reputable national insurance company and with coverages in accordance with
normal commercial practices in Toronto, Ontario; provided, however, that such
insurance may be carried under a blanket policy or pursuant to Target153s
self-insurance program. At Zellers153 request, Target Canada or Target Canada153s
representatives and agents, as the case may be, shall provide evidence of such
insurance or self-insurance prior to any entry onto any of the Leased
Properties. Target Canada and Target each agree in favour of Zellers to repair
forthwith any damage to the Leased Properties arising from such access or
investigations (including by any Designee or potential Designee pursuant to
Section 2.8(6)) at Target Canada and Target153s expense and shall jointly and
severally indemnify and hold Zellers harmless from and against any and all
losses, Damages (including, for greater certainty, lost profits), claims, costs
(including costs on a solicitor and client basis) or liabilities in respect of
physical injury or property damage that may be directly or indirectly suffered
or incurred by Zellers directly arising from or in respect of the access or
investigations by Target Canada, Target and/or any Designee, potential Designee
and each of their representatives and advisors.

18

(4) Zellers shall, within five days after receipt of a request from Target
Canada or Target Canada153s counsel, execute and deliver to Target Canada all
consents reasonably necessary to permit Target Canada to have inspections made
by and to have existing records released to Target Canada by the municipal
building and zoning departments, fire departments, public works departments,
environmental agencies, elevator inspections branch of the provincial or
territorial departments of labour and other appropriate authorities as Target
Canada may consider advisable, acting reasonably, between the Execution Date and
the Vacancy Date, respectively, for each Subject Lease.

(5) From the Execution Date until the applicable Closing Date or Delivery
Date, Zellers shall afford Target, Target Canada, and their respective
representatives and advisers reasonable access to all Books and Records in
Zellers153 possession or control relating to the Leased Properties or the Leases.

(6) Each Designee and each Person identified by Target Canada as a potential
Designee shall have the same access and inspection rights afforded to Target
Canada under this Section 2.8, on and subject to the terms, conditions and
requirements of this Section 2.8, provided that such potential Designee executes
and delivers in favour of Zellers an access, confidentiality and indemnification
agreement in the form attached as Section 2.8(6) to the Disclosure Letter and
that the covenants and indemnity of Target and Target Canada in favour of
Zellers and set out in Section 2.8(3) shall equally apply in respect of the
examinations, investigations and testing undertaken by any Designee or any
Person designated as a potential Designee. For greater certainty, nothing in
this Section will in any way limit the indemnification obligations of Target and
Target Canada in favour of Zellers under Section 2.8(3).

Section 2.9 Winnipeg Lease Option.

Target Canada has the option to enter into an agreement with HBC to lease the
Winnipeg Premises, which agreement will be based on the terms and conditions set
forth in Section 2.9 to the Disclosure Letter. If Target Canada and HBC have not
executed such lease by the Second Tranche Closing Date, the Purchase Price shall
increase by $12,500,000, which additional $12,500,000 shall be payable on the
Second Tranche Closing Date.

ARTICLE 3
PURCHASE PRICE

Section 3.1 Purchase Price.

(1) The Purchase Price for the Subject Leases is $1,825,000,000, payable as
follows:

(a) the consideration payable by Target Canada to Zellers for the First
Tranche Subject Leases on the First Tranche Closing Date is $912,500,000 (the
“First Tranche Purchase Price”), subject to adjustment in
accordance with Section 3.3; and

(b) the consideration payable by Target Canada to Zellers for the Second
Tranche Subject Leases on the Second Tranche Closing Date is $912,500,000 (the

19

“Second Tranche Purchase Price”), subject to adjustment
pursuant to Section 2.9 and in accordance with Section 3.3.

(2) Zellers and Target Canada agree to allocate the entire amount of the
Purchase Price to the leasehold interests. The Parties agree to (and agree to
cause each of their Affiliates to) execute and file all Tax Returns and prepare
all of their own financial statements and other instruments on the basis of this
allocation.

Section 3.2 Payment of the Purchase Price.

(1) On the First Tranche Closing Date, the First Tranche Purchase Price will
be paid and satisfied, subject to adjustment in accordance with Section 3.3, as
follows:

(a) as to the Cost Basis of the Notes transferred and assigned to or on the
direction of Zellers on the First Tranche Closing Date pursuant to Section
3.8(4), if any, plus any Accrued Interest on such Notes that has not been paid
to Target Canada, by such transfer of such Notes; and

(b) as to the balance, by Target Canada paying to or to the order of Zellers
such amount by wire transfer of immediately available funds in accordance with a
direction delivered by Zellers to Target Canada prior to the First Tranche
Closing Date.

(2) On the Second Tranche Closing Date, the Second Tranche Purchase Price
will be paid and satisfied, subject to adjustment in accordance with Section
3.3, as follows:

(a) as to the Cost Basis of the Notes transferred and assigned to or on the
direction of Zellers on the Second Tranche Closing Date pursuant to Section
3.8(5), if any, plus any Accrued Interest on such Notes that has not been paid
to Target Canada, by such transfer of such Notes; and

(b) as to the balance, by Target Canada paying to or to the order of Zellers
such amount by wire transfer of immediately available funds in accordance with a
direction delivered by Zellers to Target Canada prior to the Second Tranche
Closing Date.

(3) For purposes of this Section 3.2, the conversion of the Cost Basis of any
Note to be transferred and assigned, together with the Accrued Interest thereon,
from United States dollars to Canadian dollars shall be determined by reference
to the applicable exchange rate, as reported by Bloomberg as of noon (Eastern
Time) on the Business Day immediately preceding the date on which such Note was
acquired by Target or Target Canada.

Section 3.3 Adjustments.

(1) Except as otherwise provided in this Section 3.3 and subject to the
rights and obligations of Zellers and Target Canada under the Subleases, all
adjustments for basic rent, additional rents, damage/security deposits paid or
payable to Landlords and interest thereon, if any, prepaid rents and interest
thereon, if any, and operating expenses, utilities

20

and realty taxes, payable or receivable under the Subject Leases, shall be
made as of the relevant Vacancy Date (with all expenses, liabilities and
revenues for the Vacancy Date being allocated to Zellers) and shall be paid on
the relevant Vacancy Date pursuant to a statement of adjustments in respect of
the relevant Leased Property to be prepared by Zellers and approved by Target
Canada, each acting reasonably, at least 10 days prior to the relevant Vacancy
Date (a “Statement of Adjustments“).

(2) If the final cost or amount of any item which is to be adjusted cannot be
determined at the relevant Vacancy Date, then (unless otherwise provided in this
Section 3.3) an initial adjustment for such item shall be made at the relevant
Vacancy Date, such amount to be estimated by Zellers, acting reasonably, as of
the relevant Vacancy Date on the basis of the best evidence available at such
Vacancy Date as to what the final cost or amount of such item will be.
Additional rents and operating cost adjustments to be determined by a Landlord
following a fiscal or calendar year end shall not be adjusted until such
determination. All amounts which have been estimated because they have not been
finally determined by the relevant Vacancy Date shall be finally adjusted in
accordance with this Section 3.3(2) (such final adjustments being the
“Post-Vacancy Adjustments“). In each case when such cost or
amount is determined, Zellers or Target Canada, as the case may be, shall within
30 days thereafter provide a complete statement of such final determination to
the other and within 30 days after such 30-day period (or if there is a dispute
over such amount, after the matter is determined by the Auditor pursuant to this
Section) the necessary Post-Vacancy Adjustment shall be made. In the case of any
dispute between the Parties with respect to any Post-Vacancy Adjustments, the
final cost or amount of an item shall be determined by a national audit firm
(the “Auditor“) appointed jointly by Zellers and Target Canada
within 10 Business Days after the issue is referred by one of the Parties to the
Auditor for such determination. The cost of such determination shall be shared
equally between the relevant Parties. Zellers and Target Canada agree to execute
and deliver on the relevant Vacancy Date an undertaking to re-adjust and pay the
amount of any Post-Vacancy Adjustments as may be owing pursuant to the
provisions of this Agreement. Notwithstanding any other provision of this
Section 3.3, save and except for those Post-Vacancy Adjustments being determined
by the Auditor in the manner set out herein (the “Audited
Claim“), all adjustments and Post-Vacancy Adjustments to be made
pursuant to this Section 3.3 shall, in any event, be completed on or before the
date which is no later than the second anniversary of the relevant Vacancy Date
(the “Final Adjustment Date“) and no claim for any
re-adjustment may be made by either party thereafter, unless and only to the
extent such claim is an Audited Claim or is an adjustment pursuant to Section
3.3(3) or Section 3.5. Subject to the terms of the applicable Sublease, Zellers
shall, without delay, be responsible to conclude all final reconciliations of
all sums payable or receivable by the tenant under the Subject Leases in
accordance with the terms of each Subject Lease and Target Canada shall provide
such assistance as may be reasonably required. Subject to the terms of the
applicable Sublease, Zellers and Target Canada agree that Target Canada shall
not be responsible for any percentage rents attributable to Zellers153 sales,
special service costs (such as additional janitorial services, additional HVAC
supplied) and other costs for special services provided at the request of
Zellers to a standard higher than the norm called for by the terms of the
relevant Lease, or penalties and interest charged by the Landlord in respect of
amounts owing which are attributable to the period prior to the Vacancy Date.

21

(3) Zellers shall be entitled after the Vacancy Date to any amounts payable
to Zellers and responsible for any amounts owing by Zellers, pursuant to, or in
respect of any agreements with Governmental Entities or any owners of property
adjoining the Leased Properties or under or in respect of the Subject Leases or
the Leased Properties whereby any other Person is required to pay, reimburse,
refund or otherwise contribute any amount to Zellers in respect of any
improvements, work, services or costs that have been supplied, constructed,
installed, performed or paid by Zellers prior to the relevant Vacancy Date (in
each case, a “Prepaid Cost Refund“) or whereby any other Person
is entitled to be paid any such similar amount by Zellers. This obligation
survives the relevant Vacancy Date and the Final Adjustment Date,
notwithstanding any other provision of this Agreement or any Ancillary
Agreement. To the extent Target Canada receives any Prepaid Cost Refund, Target
Canada shall hold such Prepaid Cost Refund in trust for Zellers and shall
endorse in favour of Zellers and deliver to Zellers the Prepaid Cost Refund
forthwith upon receipt. Nothing in this Agreement, the Subject Leases or the
Ancillary Agreements, shall preclude Zellers from commencing or maintaining an
action against a third party from whom Zellers is entitled to receive a Prepaid
Cost Refund. Any such amount payable by Zellers shall be paid within 10 days
following a request for payment from Target Canada or the applicable recipient.
Notwithstanding the foregoing, Zellers may, upon prior consultation with Target
Canada, deal directly with a Landlord following the applicable Closing Date in
connection with all claims and disputes (including reconciliation of all
payments and charges thereunder) between the Landlord and Zellers with respect
to the Leased Property arising prior to the applicable Closing Date; provided,
however, such actions shall in no event adversely impact Target Canada153s rights
or obligations under the Subject Lease.

Section 3.4 Sales and Transfer Taxes.

Target Canada or the applicable Designee or Designees shall be liable for and
pay all sales and transfer taxes (including land transfer taxes), registration
charges and transfer fees payable (i) by the assignee in respect of the
assignment of the Subject Leases from Zellers to Target Canada or a Designee or
Designees and (ii) in connection with any transfer of Pharmacy Records. Zellers
and Target Canada shall each be liable for and shall pay 50% of any sales and
transfer taxes (including land transfer taxes), registration charges and
transfer fees payable in connection with the registration of any of the Subject
Leases and any transfer thereof occurring prior to the applicable Closing Date
(to the extent that Target Canada or Target has requested such registration by
reason of such registration being reasonably required in order for Target Canada
or a Designee to register the assignment to Target Canada or such Designee or
obtain title insurance or a title opinion reasonably satisfactory to Target
Canada or such Designee). Zellers shall provide such assistance and execute such
documents as Target Canada may reasonably require to complete such
registrations.

Section 3.5 Goods and Services Tax and Harmonized
Sales Tax.

Subject to Section 3.6, Target Canada shall be liable for and shall pay, or
shall cause the applicable Designee or Designees to be liable for and pay, to
Zellers an amount equal to any goods and services tax and harmonized sales tax
payable by Target Canada and collectible by Zellers under the Excise Tax
Act (Canada), plus an amount equal to any similar value added or
multi-staged tax imposed (including, for greater certainty, any applicable
Quebec Sales Tax) by any applicable provincial or territorial legislation, in
respect of the assignment of the Subject

22

Leases to Target Canada or the Designee or Designees. Any such taxes shall be
paid to Zellers no later than three Business Days before such taxes, if any, are
due to be remitted by Zellers.

Section 3.6 Self-Assessment of GST and HST on Real
Property.

To the extent permitted under subsection 221(2) of the Excise Tax
Act (Canada) and any equivalent or corresponding provision under any
applicable provincial or territorial legislation and provided that Target Canada
delivers or causes to be delivered by the applicable Designee or Designees on
the Closing Date to Zellers the HST Declaration and Indemnity, Target Canada or
the applicable Designee or Designees shall self-assess and remit, where
applicable, directly to the appropriate Governmental Entity any goods and
services tax and harmonized sales tax imposed under the Excise Tax Act
(Canada) and any similar value added or multi-staged tax imposed by any
applicable provincial or territorial legislation payable in connection with the
assignment of the Subject Leases under this Agreement. Target Canada or the
applicable Designee or Designees shall make and file any returns in accordance
with the requirements of subsection 228(4) of the Excise Tax Act
(Canada) and any equivalent or corresponding provision under any applicable
provincial or territorial legislation.

Section 3.7 Tax Refunds.

In the event that there are any realty tax appeals in respect of any Subject
Leased Property for any tax year prior to and including the year in which the
applicable Vacancy Date for such Subject Leased Property occurs (but not any
subsequent tax year), Zellers may, at its option, at no cost to Target Canada,
and provided that it does not and will not materially and adversely affect
future assessments, continue such appeals (or, at Zellers153 election, require
Target Canada to pursue such appeals in good faith at Zellers153 expense, and
without Target Canada being required to incur any liabilities or obligations)
and shall be entitled to receive any rebate, refund, credit, reassessment,
readjustment, payment and/or the like from time to time (the full amounts of
each being a “Tax Refund“) resulting therefrom to the extent
relating to the period prior to the applicable Vacancy Date; provided that
Zellers shall consult with Target Canada (or Target Canada with Zellers as the
case may be) with respect to, and Target Canada (or Zellers as the case may be)
acting reasonably shall have the right to approve, any final settlement or
disposition of any such appeal (such approval shall be deemed to have been given
by Target Canada (or Zellers as the case may be) if Target Canada (or Zellers as
the case may be) has not responded within 15 Business Days of a request by
Zellers (or Target Canada as the case may be) for such approval). Each of Target
Canada and Zellers agrees to co-operate with the other with respect to all such
appeals or reassessments and to provide the other with access to any necessary
documents or materials required to continue any such appeals or reassessments.
Target Canada shall cooperate with Zellers as to any tax appeals and shall, if
requested to do so, execute such applications, authorizations or other documents
as may be necessary for Zellers to undertake and pursue the appeal. To the
extent Target Canada receives any Tax Refund in respect of the period prior to
the applicable Vacancy Date, Target Canada shall hold such Tax Refund in trust
for Zellers and shall endorse in favour of Zellers and deliver to Zellers the
Tax Refund promptly upon receipt; provided that, in all cases, readjustments
with the Landlords under the Subject Leases as the result of any Tax Refund may
be effected by Target Canada prior to the payment of any Tax Refund to Zellers
and the amount otherwise owing to Zellers in accordance with the foregoing shall
be reduced by any amount payable to any Landlord as a result of any such
adjustments (it being agreed that Target Canada shall provide Zellers with
copies of any written communication with the Landlord in respect of the
foregoing). Similarly, to the extent Zellers

23

receives any Tax Refund for the period following the relevant Vacancy Date,
Zellers shall hold such Tax Refund in trust for Target Canada and shall endorse
in favour of Target Canada and deliver to Target Canada the Tax Refund forthwith
upon receipt. If Target Canada sells or otherwise disposes of its interest in
the Subject Lease to any Person (including to any Designee), it shall obtain a
covenant from such Person in favour of Zellers in which such Person agrees to
observe and be bound by the terms of this Section.

Section 3.8 Note Purchase Facility.

(1) Target shall, or shall cause Target Canada or one or more other
Affiliates of Target to, acquire Notes for an acquisition cost of up to
$200,000,000 subject to and in accordance with the terms set out in this Section
3.8 and procedures to be agreed upon by the Parties.

(2) The acquisition cost to Target, Target Canada or such Affiliate of any
Notes (the “Cost Basis” of such Notes) shall not exceed the
principal amount of such Notes plus any interest that has accrued and is unpaid
on such Notes at the time of such acquisition.

(3) Any interest accruing on any Notes from the time of acquisition of such
Notes pursuant to this Section 3.8 to the applicable Closing Date upon which
such Notes are transferred in accordance with Section 3.2 (the “Accrued
Interest“) shall accrue to the benefit of Target, Target Canada or the
applicable Affiliates, as the case may be. Any interest that is paid to Target,
Target Canada or any such Affiliate on the Notes shall be retained by them.

(4) Subject to the terms and conditions of this Agreement, on the First
Tranche Closing Date Target Canada shall transfer and assign or cause to be
transferred and assigned to or at the direction of Zellers all right, title and
interest of Target, Target Canada and such Affiliates, as the case may be, in
and to any and all Notes acquired pursuant to this Section 3.8 prior to such
time.

(5) Subject to the terms and conditions of this Agreement, on the Second
Tranche Closing Date Target Canada shall transfer and assign or cause to be
transferred and assigned to or at the direction of Zellers all right, title and
interest of Target, Target Canada and such Affiliates, as the case may be, in
and to any and all Notes acquired pursuant to this Section 3.8 that have not
been transferred and assigned pursuant to Section 3.8(4).

(6) All Notes transferred and assigned pursuant to Section 3.8(4) and Section
3.8(5) shall be free and clear of any Encumbrances other than any such
Encumbrances that existed when such Notes were acquired by Target, Target Canada
or such Affiliates, as the case may be.

(7) Target and Target Canada shall not be required to acquire any Notes
pursuant to this Section 3.8 prior to the date that is 14 days after the
conditions set forth in Section 3.8(8)(d) and (e) have been satisfied or after
the date that is 14 days before the Second Tranche Closing Date.

(8) The obligations pursuant to this Section 3.8 shall be subject to the
following:

24

(a) the availability of Notes for purchase in the market at prices and on
other terms and conditions consistent with this Section 3.8;

(b) compliance by the Parties with Laws;

(c) each of the Parties being satisfied, in its own discretion, with respect
to any proposed purchase of Notes contemplated by this Section 3.8:

(i) that such purchase is in the best interests of such Party in the context
of the transactions contemplated by this Agreement;

(ii) that such Notes may be acquired and transferred as contemplated by this
Section 3.8;

(iii) with the assets, liabilities, obligations, collateral, conditions,
obligors and guarantors associated with such Notes and any acquisition or
transfer of such Notes; and

(iv) with the tax treatment of the transactions contemplated by this Section
3.8;

(d) in connection with each purchase of Notes, Zellers has obtained and
delivered to Target Canada a Rating Agency Confirmation (as defined in the
Intercreditor Agreement and in the Participation Agreement) with respect to the
transfer of such Notes to Target Canada; and

(e) in connection with each purchase of Notes, Zellers has obtained the
consent of all of the holders of such Notes, and if required, the consent of the
Senior Lender (as defined in the Intercreditor Agreement) and any other consents
as may be required, to allow the transfer of such Notes from Target Canada to
Zellers or its designee without any conditions (except as may be acceptable to
each Party in its own discretion) and has caused to be amended all agreements
that restrict the transfer of such Notes to Zellers or its designee (including
the Intercreditor Agreement and Participation Agreement) to allow such transfer
without any conditions (except as may be acceptable to each Party in its own
discretion), and if required, has delivered a Rating Agency Confirmation with
respect to such amendments; provided that Target Canada agrees to consent to
elimination of any restrictions on transfer of the Notes to Zellers or its
designee.

(9) If, for any reason, Target Canada is not able to transfer and assign any
Notes acquired as contemplated by this Section 3.8 in satisfaction of a portion
of the Purchase Price as contemplated by Section 3.2, HBC will indemnify and
save Target, Target Canada and Target153s other Affiliates harmless from and
against, and shall reimburse them for, the amount, if any, by which the Cost
Basis of such Notes and any Accrued Interest in respect of such Notes exceeds
the amount realized by them upon disposition of such Notes.

25

ARTICLE 4
ASSUMED LIABILITIES

Section 4.1 Assumed Liabilities.

Target Canada agrees to discharge, perform and fulfil the following, except
for the Excluded Liabilities (collectively, the “Assumed
Liabilities“):

(a) all obligations and liabilities incurred or accruing after the Effective
Time on the applicable Closing Date relating to or arising under the Subject
Leases, except obligations and liabilities related to any Lease Default existing
prior to the relevant Closing Date;

(b) any defaults, obligations or claims arising solely as a result of the
failure to obtain the consent of the applicable Landlords under the Subject
Leases to: (i) the transactions contemplated by this Agreement, (ii) the
assignment of the Subject Leases as contemplated by this Agreement, (iii) the
entering into the Subleases, and/or (iv) the Wind-Down Actions; and

(c) all obligations and liabilities for Taxes allocated to Target Canada
under Sections 3.5, 3.6, and 3.7.

Section 4.2 Excluded Liabilities.

Target Canada shall not assume, and shall have no obligation to discharge,
perform or fulfil, the following liabilities and obligations (the
“Excluded Liabilities“):

(a) except as otherwise expressly provided in Section 4.1(b), liabilities
incurred or accruing prior to the Effective Time on the applicable Closing Date
relating to or arising under the Subject Leases, unless otherwise agreed to by
the Parties;

(b) any Taxes, other than (i) Taxes incurred or accruing after the Effective
Time on the applicable Closing Date relating to or arising under the Subject
Leases, and (ii) Taxes allocated to Target Canada under Sections 3.5, 3.6, and
3.7; and

(c) any other obligation or liability which Target Canada has not expressly
agreed to discharge, perform or fulfil under this Agreement.

For the avoidance of doubt:

(d) any liabilities and obligations of Zellers under the Subleases shall be
deemed to be Excluded Liabilities; and

(e) Target Canada shall not assume, and shall have no obligation to
discharge, perform or fulfil, any liabilities or obligations relating to:

(i) contracts or agreements entered into by Zellers or its Affiliates (other
than the Subject Leases); or

26

(ii) employees of Zellers or its Affiliates or benefits relating to those
employees.

Section 4.3 “As Is, Where Is”.

Except for the representations, warranties, covenants and certifications of
Zellers and HBC expressly set out in (i) this Agreement, (ii) the Ancillary
Agreements and (iii) any closing documents delivered by Zellers on any Closing
Date or Delivery Date, Target Canada irrevocably acknowledges and agrees,
without condition, reservation or qualification of any kind whatsoever, that:

(a) in entering into this Agreement and completing the purchase of the
Subject Leases by Target Canada contemplated hereby, Target Canada and Target
have relied and will continue to rely solely and exclusively upon their own
inspections, investigations and due diligence with respect to the Subject Leases
and the Subject Leased Properties;

(b) the Subject Leases are being purchased by Target Canada and the Subject
Leased Properties are being delivered strictly on an “as is, where is” basis, at
Target and Target Canada153s sole risk and peril, without any express or implied
agreement or representation and warranty or certification of any kind whatsoever
or any liability or obligation by or on behalf of Zellers as to any matter
concerning or relating to the Subject Leases or the Subject Leased Properties,
including its or their physical or financial condition, suitability for
development, fitness for a particular purpose, marketability, title, title liens
and Encumbrances (registered or otherwise), physical condition or
characteristics, profitability, use or zoning, environmental condition,
existence of latent defects, quality, or any other condition or characteristic
thereof, or availability or non-availability of any Landlord consent required
for any assignment of the Subject Leases unless such non-availability is due to
a Lease Default; and

(c) as part of Target Canada153s agreement to purchase the Subject Leases and
accept the Subject Leases and the Leased Properties “as-is, where-is”, and not
as a limitation on such agreement, Target Canada and Target hereby
unconditionally and irrevocably waive any and all actual or potential rights or
Damages Target Canada or Target might have against Zellers pursuant to any
warranty, express or implied, of any kind or type, other than those
representations, warranties, covenants and certifications expressly set forth in
this Agreement, the Ancillary Agreements and any closing documents delivered by
Zellers or HBC on any Closing Date or Delivery Date. Such waiver includes waiver
of express warranties, implied warranties, warranties of fitness for a
particular use, warranties of merchantability, warranties of occupancy, strict
liability and claims of every kind and type, including claims regarding defects,
whether or not discoverable, product liability claims, or similar claims, and to
all other extent or later created or conceived of strict liability or strict
liability type claims and rights.

27

ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ZELLERS

Section 5.1 Representations and Warranties of
Zellers.

Zellers represents and warrants as follows to Target and Target Canada and
acknowledges that Target and Target Canada are relying upon the representations
and warranties in connection with Target Canada153s purchase of the Subject Leases
and the assumption by Target Canada of the Assumed Liabilities:

Corporate Matters

(a) Incorporation and Qualification. Zellers is a
corporation incorporated and existing under the Laws of its jurisdiction of
incorporation and has the corporate power to own and operate its property, carry
on its business and enter into and perform its obligations under this Agreement.

(b) Corporate Authorization. The execution and delivery of,
and performance by Zellers of, this Agreement and the Ancillary Agreements have
been authorized by all necessary corporate action on the part of Zellers.

(c) No Conflict. The execution and delivery of this
Agreement and the Ancillary Agreements, and the performance by Zellers of the
transactions contemplated by this Agreement and the Ancillary Agreements, do not
constitute or result in a violation or breach of, or conflict with, or default
under, or give rise to or create an Encumbrance (other than any Permitted
Encumbrance) on any Lease under, or allow any Person to exercise any rights
under, any of the terms or provisions of:

(i) its constating documents or by-laws, or

(ii) any Law applicable to Zellers.

(d) Required Authorizations. Except for the Competition Act
Approval and as disclosed in Section 5.1(d) of the Disclosure Letter, no
material filing with, notice to, or Authorization of, any Governmental Entity is
required on the part of Zellers, as a condition to the lawful completion of the
transactions contemplated by this Agreement, except with respect to any filing
related to the transfer of the Pharmacy Records or except for filings or
Authorizations required as a result of the status or identity of Target Canada.

(e) Execution and Binding Obligation. This Agreement has
been duly executed and delivered by Zellers and constitutes legal, valid and
binding agreements of it enforceable against it in accordance with its terms,
subject to any limitation under applicable laws relating to (i) bankruptcy,
winding-up, insolvency, arrangement, fraudulent preference and conveyance,
assignment and preference and other similar Laws of general application
affecting the enforcement of creditors153 rights, and (ii) the discretion that a
court may exercise in the granting of equitable remedies such as specific
performance and injunction.

28

(f) Residence of Zellers. Zellers is not a non-resident of
Canada within the meaning of the Tax Act.

General Matters

(g) Compliance with Laws. Other than as disclosed in the Due
Diligence File or Section 5.1(g) of the Disclosure Letter, Zellers is operating
the stores on the Leased Properties in compliance with all Laws in all material
respects; provided, nothing in this Section 5.1(g) shall expand the scope of any
representation or warranty contained in Section 5.1(i).

(h) No Options, etc. to Purchase Assets. Except for Target
Canada153s right under this Agreement, and except as disclosed in the Due
Diligence File and in Section 5.1(h) of the Disclosure Letter, no Person has any
contractual right or privilege for the purchase or other acquisition from
Zellers or any of its Affiliates of any of the Subject Leases or to Zellers153
knowledge, as of the Execution Date, any of the Pharmacy Records.

(i) Leases and Leased Properties

(i) Section 5.1(i)(i) of the Disclosure Letter sets forth a true, accurate
and complete list of each Lease by reference to its municipal address or the
name of the shopping centre at which the Leased Properties are located.

(ii) Except as disclosed in Section 5.1(i)(ii) of the Disclosure Letter, the
Due Diligence File contains true, accurate and complete copies of the Leases and
all Default Notices, in each case in all material respects. Except as disclosed
in Section 5.1(i)(ii) of the Disclosure Letter or in the Due Diligence File, and
except for any amendment or other instrument entered into after the Execution
Date with Target Canada153s consent pursuant to Section 7.6, the Leases have not
been altered or amended in any material respect.

(iii) Except as disclosed in Section 5.1(i)(iii) of the Disclosure Letter,
each of the Leases creates a valid and binding leasehold interest which interest
is in full force and effect, excluding any failure of title arising from
non-compliance with the Planning Act (Ontario) or any similar Laws
governing subdivision or severance of real property in other provinces.

(iv) Zellers is the sole legal and beneficial owner of the leasehold interest
in the Leased Properties pursuant to the Leases and has leasehold title under
each of the Leases subject only to the Permitted Encumbrances, excluding any
failure of title arising from non-compliance with the Planning Act
(Ontario) or any similar Laws governing subdivision or severance of real
property in other provinces.

(v) Except as set forth in the Due Diligence File or Section 5.1(i)(v) of the
Disclosure Letter, to Zellers153 knowledge as of the Execution Date, there are no
prohibitions or material restrictions that have impaired the use of a

29

Leased Property for a department store or junior department store including
pharmacy and food sales operations, to the extent that such uses and operations
exist on such Leased Property as of the Execution Date as currently operated by
Zellers, but excluding operations which are not typically conducted in a
“Target” store.

(vi) Zellers has not entered into any agreement to sell, transfer, mortgage,
or otherwise dispose of the leasehold right, title and interest of Zellers in
and to any Leased Property or the air or density rights relating to any Leased
Property other than as set out in the Due Diligence File or in Section
5.1(i)(vi) of the Disclosure Letter.

(vii) To Zellers153 knowledge, all Material Lease Defaults are listed in
Section 5.1(i)(vii) of the Disclosure Letter.

(viii) Except as disclosed in Section 5.1(i)(viii) of the Disclosure Letter
or in the Due Diligence File:

(1) all payments owed by Zellers under each of the Leases are not overdue and
will not be overdue as of the applicable Closing Date or will be adjusted in
accordance with Section 3.3;

(2) there is no Material Lease Default under any Lease;

(3) except in respect of any Failure to Operate caused by force majeure (to
Zellers153 knowledge no such force majeure exists as of the Execution Date), at
each of the Leased Properties with respect to which the Landlord has a Landlord
Recapture Right under the applicable Lease, there is no Failure to Operate; and

(4) as of the Execution Date, Zellers has not given notice to the Landlord of
a material default by the Landlord under any Lease.

(ix) Except as disclosed in the Due Diligence File or in Section 5.1(i)(ix)
of the Disclosure Letter, Zellers has not exercised any option to terminate or
right to terminate any Lease.

(x) Except as disclosed in Section 5.1(i)(x) of the Disclosure Letter neither
Zellers nor any of Zellers153 Affiliates has any option to purchase, right of
first refusal or other similar right to acquire any Leased Property, other than
as set out in the Due Diligence File.

(xi) Except as disclosed in the Due Diligence File or Section 5.1(i)(xi) of
the Disclosure Letter, Zellers has not expressly waived any material rights
under any Lease (i) relating to the use of the Leased Property or (ii) impairing
the visibility, signage, parking or access to the Leased Property

30

in any material respect, which remain uncompleted as of the Execution Date.

(xii) Except as disclosed in the Due Diligence File or in Section 5.1(i)(xii)
of the Disclosure Letter, to the knowledge of Zellers, no written order or
directive (that has not been satisfied) has been received by Zellers from any
Governmental Entity (a) prohibiting the operation of any Leased Property or (b)
requiring the cure or rectification of any material defects in the construction
of the building or improvements on or forming a part of any of the Leased
Properties or relating to any work, in order to comply with any building codes,
land use, zoning by-laws, fire codes, environmental protection registration or
any other Laws which, if not cured or rectified, would have a material adverse
effect on any of the Leased Properties.

(xiii) Except as disclosed in Section 5.1(i)(xiii) of the Disclosure Letter,
no Person has any right to purchase, option to purchase, right of first offer,
right of first refusal or other similar right to acquire the Leased Properties
in favour of any Person which will prevent Target Canada153s acquisition of
Zellers153 leasehold interest of any Leased Property other than Target Canada
pursuant to this Agreement, and subject to generally applicable statutory rights
of a Governmental Entity, no Person other than Zellers and its subtenants,
licensees and concessionaires whose occupancies will be terminated by Zellers by
the applicable Vacancy Date is using or has any right to use, or is in
possession or occupancy of, any part of such Leased Property.

(xiv) Except as disclosed in the Due Diligence File, there is not presently
outstanding in respect of any Leased Property any judgment, decree, injunction
or order of any Governmental Entity or in favour of any Person which would have
a material adverse effect on such Leased Property.

(xv) Except as disclosed in the Due Diligence File or in Section 5.1(i)(xv)
of the Disclosure Letter, Zellers has no knowledge of any expropriation or
condemnation or similar proceeding pending or threatened against any of the
Leased Properties.

Other Matters

(j) Litigation. There are no actions, suits, appeals,
claims, applications, investigations, orders, proceedings, grievances,
arbitrations or alternative dispute resolution processes in progress, pending,
or to Zellers153 knowledge, threatened against Zellers, which, to the extent
outstanding or if determined adversely to Zellers, would prohibit a material
portion of the transactions contemplated by this Agreement.

(k) Taxes. No failure, if any, of Zellers to duly and timely
withhold, collect, report, remit or pay any Taxes as required by Laws will
result in an Encumbrance of any nature on the Subject Leases or the Pharmacy
Records. There are no proceedings,

31

investigations, audits or claims now pending or threatened against Zellers in
respect of any Taxes, and there are no matters under discussion, audit or appeal
with any Governmental Entity relating to Taxes, that may result in an
Encumbrance of any nature on the Subject Leases or the Pharmacy Records. Zellers
is duly registered under Subdivision (d) of Division V of Part IX of the
Excise Tax Act (Canada) with respect to the goods and services tax and
harmonized sales tax and under Division I of Chapter VIII of Title I of An
Act Respecting the Quebec Sales Tax with respect to the Quebec sales tax,
and its registration numbers are: 12196 8549 RT0001 and 101049 4016 TQ1002,
respectively.

(l) Brokers. No broker, agent or other intermediary is
entitled to any fee, commission or other remuneration in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Zellers or any of its Affiliates.

ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF TARGET CANADA AND TARGET

Section 6.1 Representations and Warranties of Target
Canada and Target.

Target Canada and Target represent and warrant as follows to Zellers and
acknowledge and confirm that Zellers is relying on such representations and
warranties in connection with the sale by Zellers of the Subject Leases and the
Pharmacy Records:

(a) Incorporation and Corporate Power. Target is and Target
Canada is or will be a corporation incorporated and existing under the laws of
its jurisdiction of incorporation and it has or will have the corporate power to
enter into and perform its obligations under this Agreement and the Ancillary
Agreements.

(b) Corporate Authorization. The execution and delivery of
and performance by Target and Target Canada of this Agreement and the Ancillary
Agreements have been or will be at or prior to the First Tranche Closing Date
authorized by all necessary corporate action on the part of Target and each
Target Canada.

(c) No Conflict. The execution and delivery of this
Agreement and the Ancillary Agreements, and the performance by Target and Target
Canada of the transactions contemplated by this Agreement and the Ancillary
Agreements, do not constitute or result in a violation or breach of, or conflict
with, or default under, or allow any Person to exercise any rights under, any of
the terms or provisions of:

(i) its constating documents or by-laws; or

(ii) any Laws applicable to Target or a Target Canada, as applicable.

(d) Required Authorizations. Except for the Competition Act
Approval, no material filing with, notice to or Authorization of, any
Governmental Entity is required on the part of Target or Target Canada as a
condition to the lawful

32

completion of the transactions contemplated by this Agreement, except with
respect to any filing related to the transfer of the Pharmacy Records.

(e) Execution and Binding Obligation. This Agreement has
been duly executed and delivered by Target and constitutes legal, valid and
binding agreements of it, enforceable against it in accordance with its terms,
subject to any limitation under applicable Laws relating to (i) bankruptcy,
winding-up insolvency, arrangement, fraudulent preference and conveyance,
assignment and preference and other similar Laws of general application
affecting the enforcement of creditors153 rights, and (ii) the discretion that a
court may exercise in the granting of equitable remedies including specific
performance and injunction.

(f) Financing. Target has, and will have at the relevant
Closing Date, sufficient funds on hand or available to fund the payment of the
Purchase Price by Target Canada.

(g) Litigation. There are no actions, suits, appeals,
claims, applications, investigations, orders, proceedings, grievances,
arbitrations or alternative dispute resolution processes in progress, pending,
or to Target153s knowledge, threatened against Target or Target Canada, which, to
the extent outstanding or if determined adversely to Target or Target Canada,
would prohibit any of the transactions contemplated by this Agreement.

(h) Brokers. No broker, agent or other intermediary is
entitled to any fee, commission or other remuneration in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Target or Target Canada.

(i) Due Diligence. Target and Target Canada have conducted
to their satisfaction an independent investigation of the Subject Leases and
Subject Leased Properties (including all matters relating to the leasehold and
underlying freehold title thereto), and, in making the determination to proceed
with the transactions contemplated by the Agreement, has relied solely on the
results of their own independent investigation, the representations and
warranties of Zellers in this Agreement and the covenants of Zellers pursuant to
this Agreement and the Ancillary Agreements; provided that nothing in this
Section 6.1(i) shall be construed as limiting the scope of Zellers153
representations, warranties, and covenants pursuant to this Agreement and the
Ancillary Agreements or the ability of Target or Target Canada to rely upon
them.

ARTICLE 7
COVENANTS OF THE PARTIES

Section 7.1 Actions to Satisfy Closing
Conditions.

Subject to this Article 7, Zellers will use its commercially reasonable
efforts to ensure compliance with all of the conditions set forth in Section 8.1
(provided that, solely for purposes of this Section 7.1, the condition set forth
in Section 8.1(a)(ii) shall be deemed to require the representations and
warranties contained in Section 5.1(i) to be true and correct in all material

33

respects as of the relevant Closing Date with respect to each of the First
Tranche Subject Leases or the Second Tranche Subject Leases, as the case may be)
and Target will use its commercially reasonable efforts to ensure compliance
with all of the conditions set forth in Section 8.2.

Section 7.2 Request for Consents.

(1) From and after the Execution Date, Target and Target Canada shall request
such consents, approvals, licenses and agreements (including amendments to
Leases) from such Landlords and other Persons as Target may determine to be
necessary or desirable. Subject to Section 7.2(4), Zellers agrees to reasonably
cooperate with Target and Target Canada in such efforts, as Target may from time
to time request.

(2) Target agrees that, if it elects to approach a Landlord with a request
for a consent or approval, Target will include among its requests to such
Landlord a request that Zellers be released from all Lease obligations accruing
after the relevant Closing Date (provided that nothing in this Section 7.2(2)
shall limit the obligations of Zellers as subtenant under the Subleases).
Obtaining the agreement of any Landlord to any such request shall not be a
condition to Closing and in no event will Target have any liability to Zellers
if any request for such release is not granted.

(3) If Target or Target Canada has designated a Lease as a Subject Lease for
assignment on a Closing Date but has not obtained all consents and approvals
determined by Target or Target Canada to be necessary or desirable, Target shall
have the option to exclude such Lease from the Subject Leases to be assigned at
the Closing and such excluded Lease shall no longer be a Subject Lease, but
there shall be no reduction in the Purchase Price on account of such exclusion.

(4) In no event shall Zellers or HBC be obligated to bear any expense or pay
any fee or grant any concession in connection with Target or Target Canada
seeking to obtain consents, authorizations or approvals to the assignment of
Subject Leases. All fees, costs and expenses payable to third parties in
connection with obtaining consents, including increased rents, landlord
administration and consent fees and landlord counsel fees shall be paid by
Target Canada.

(5) If any Landlord fails or refuses to provide any consent requested by
Target or Target Canada (or requested by Zellers, at the request of Target or
Target Canada), Zellers shall assign to Target Canada with respect to Subject
Leases that are assigned to Target Canada or its Designee any rights, claims or
Damages that may be available by reason of such failure or refusal (including
any right to commence and prosecute any legal action against such Landlord on
account of such failure or refusal), and Zellers will cooperate with Target
Canada153s efforts in connection with any such action.

(6) Target and Target Canada acknowledge and agree as follows:

(a) Target Canada and Target shall be solely responsible for any costs, fees,
Damages, Lease Defaults, any increase in any base rent, operating costs,
additional rents, percentage rents, and other charges payable under any of the
Subject Leases and any other consequences as a result of the failure to request
or to obtain any consents, authorizations or approvals to the assignment of the

34

Subject Leases to Target Canada or a Designee or Designees (whether on or any
time after the relevant Closing Date) or to the Subleases or to the Wind-Down
Actions of Zellers and furthermore that such failure to request or obtain said
consents, authorizations or approvals does not in any way limit or otherwise
impact the obligations of Target or Target Canada under this Agreement,
including Target Canada153s obligation to complete the transactions contemplated
herein on the relevant Closing Date; and

(b) that it shall indemnify and hold harmless Zellers and HBC of and from any
costs, fees and Damages resulting from the actions of Target or Target Canada or
any Designee or those acting by or on behalf of Target or Target Canada or any
Designees in seeking consents and approvals to assign the Subject Leases to
Target Canada or its Designee or Designees (whether on or anytime after the
relevant Closing Dates), the Subleases and the Wind-Down Actions (including
under Section 7.2(6)(a) and Section 7.2(4)).

Section 7.3 Filings and Authorizations.

(1) Each of Zellers and Target Canada, as promptly as practicable after the
execution of this Agreement, will use its commercially reasonable efforts to
make, or cause to be made, all filings with, give all notices to, and obtain all
Authorizations from, Governmental Entities that are necessary and desirable for
the lawful completion of the assignment of the Subject Leases to Target Canada
or applicable Designee or Designees and where the failure to do so would have a
material adverse effect on the business of Target Canada, after the First
Tranche Closing Date, taken as a whole. Target Canada will pay all filing fees
incurred in connection with any such required Authorization, including
Competition Act Approval.

(2) Notwithstanding any other provision in this Agreement, Target will take
and will cause Target Canada to take all actions necessary to obtain as
expeditiously as possible (and in any event so as to permit the First Tranche
Closing Date to occur as soon as possible), at its own expense, all
Authorizations (including Competition Act Approval) required in connection with
the lawful assignment of the Subject Leases to Target Canada or applicable
Designee or Designees, including negotiating and effecting by consent agreement
or order, hold separate arrangement, undertakings or any form of behavioural
remedy or commitment.

(3) The Parties will coordinate and cooperate in exchanging information and
supplying assistance that is reasonably requested in connection with this
Section 7.3(3) and Section 7.3(2) including providing each other with advance
copies and reasonable opportunity to comment on all notices and information
supplied to or filed with any Governmental Entity (including notices and
information which Zellers or Target Canada, in each case acting reasonably,
consider highly confidential and sensitive, which notices and information may be
provided on a confidential and privileged basis to outside counsel of the other
Party), and all notices and correspondences received from any Governmental
Entity. Each of Zellers and Target Canada shall keep the other apprised of the
status of any such communications with, and any such inquiries or requests for
additional information from, any Governmental Entities, and each Party shall
comply promptly with such inquiry or request. No Party shall independently
participate in any meeting,

35

negotiation or material discussion with any Governmental Entity in respect of
any such filings, inquiries, or requests, without giving the other prior notice
of the meeting and, to the extent permitted by such Governmental Entity, the
opportunity to attend and participate.

(4) As used in this Agreement, “Competition Act Approval”
means the earlier of:

(a) either (A) the issuance to Target Canada of an advance ruling certificate
by the Commissioner of Competition under Subsection 102(1) of the Competition
Act to the effect that the Commissioner of Competition is satisfied that she
would not have sufficient grounds upon which to apply to the Competition
Tribunal for an order under Section 92 of the Competition Act with respect to
the transactions contemplated by this Agreement, or (B) Target Canada shall have
been advised in writing by the Commissioner of Competition that she is of the
view that grounds do not exist as of the date of the advice to initiate
proceedings under the merger provisions of the Competition Act in respect of the
transactions contemplated by this Agreement; and

(b) the waiting period, including any extension thereof, under Section 123 of
the Competition Act shall have expired or been terminated or the obligation to
provide a pre-merger notification in accordance with Part IX of the Competition
Act shall have been waived in accordance with paragraph 113(c) of the
Competition Act.

Section 7.4 Risk of Loss.

If, prior to the relevant Closing Date, all or any part of the Subject Leased
Properties are destroyed or damaged by fire or any other casualty or are
appropriated, expropriated or seized by any Governmental Entity, the
representations and warranties of Zellers that are not true and correct in all
material respects as of the relevant Closing Date solely as a result of such
destruction, damage, appropriation, expropriation or seizure will be deemed to
be true and correct in all material respects as of the relevant Closing Date for
all purposes of this Agreement, and Target Canada will complete the transactions
contemplated by this Agreement without reduction of the Purchase Price, in which
event all proceeds of any insurance (or which would have been available except
for Zellers153 election of deductibles or self-insurance, which amounts Zellers
shall be responsible to contribute) or compensation will be payable to Target
Canada and all right and claim of Zellers to any such amounts not paid by the
relevant Closing Date will be assigned to Target Canada.

Section 7.5 Confidentiality.

Target acknowledges having signed a confidentiality agreement between Target
and Zellers. Subject to Section 7.2, Target Canada agrees that except as
provided in this Agreement and the Ancillary Agreements, the confidentiality
agreement continues to apply and Target Canada is bound by its terms. The
confidentiality agreement will cease to apply with respect to each Subject Lease
and Subject Leased Property upon the assignment of such Subject Lease in
accordance with this Agreement, and following the Second Tranche Closing Date
the confidentiality agreement will terminate except as to Leases that are not
Subject Leases. Zellers

36

acknowledges that Target will be filing a copy of this Agreement with the
United States Securities and Exchange Commission in accordance with Laws.

Section 7.6 Lease Amendments, Renewals and
Notices.

(1) From and after the Execution Date to and including the Second Tranche
Closing Date Zellers will not amend, modify, consent to, grant any approval or
take any action, or omit to take any action, under or with respect to any Lease
(other than the enforcement of rights under or with respect to any Lease),
without the prior written consent of Target Canada, provided (i) if the action
taken with respect to the Lease in question is required to allow the continued
operation of the Zellers store, then Target Canada153s consent may not be
unreasonably conditioned or withheld, and (ii) if the immediately preceding
clause (i) does not apply, then Target Canada may provide, condition or withhold
such consent in its sole and absolute discretion. For the purposes of each of
the foregoing matters referred to in this Section 7.6(1) in respect of any Lease
and/or any other matter relating to the operation and administration of any
Leased Property prior to the Second Tranche Closing Date that require Target
Canada153s consent or approval (each a “Consent Matter“),
Zellers, through Brian Pall or Bruce Moore (each an “Authorized Zellers
Representative“), may make requests from time to time for Target
Canada153s consent or approval with respect to any Consent Matter directly to Joan
Ahrens (the “Authorized Target Representative“). For the
purposes of this Agreement, any consent or approval with respect to any Consent
Matter given by the Authorized Target Representative to an Authorized Zellers
Representative from time to time, by email or other form of written
communication (which email or other communication shall clearly reference this
Section 7.6), shall constitute written consent of Target Canada for all purposes
with respect to such Consent Matter.

(2) Section 7.6(2) of the Disclosure Letter lists each Lease (if any) that
requires Zellers to deliver notice or otherwise take steps in order to extend or
renew the term of such Lease after the Execution Date and prior to December 31,
2011, and the last date (the “Renewal Notice Expiration Date“)
by which such notice must be given or such steps taken. Target Canada shall
elect by Notice given to Zellers no later than 30 days (or 14 days, with respect
to Leases with a Renewal Notice Expiration Date prior to February 28, 2011)
prior to the Renewal Notice Expiration Date as to whether the Lease is a Subject
Lease and if so, whether Target Canada wishes to have the term extended or
renewed. Failing delivery of Target Canada153s Notice as aforesaid, Zellers may
elect whether or not to renew or extend such Lease in its discretion, and in no
event will Zellers have any liability to Target or Target Canada if such Notice
is not delivered.

(3) From and after the Execution Date, to and including the Second Tranche
Closing Date, Zellers will use its commercially reasonable efforts to provide to
Target Canada (a) a copy of each Default Notice relating to the Leased
Properties within two Business Days of receipt by Zellers or any Affiliate of
Zellers of such Default Notice, and (b) a copy of each notice of default or
claimed default sent by Zellers to any Landlord within two Business Days of the
date any such notice is sent.

(4) The terms of this Section 7.6 do not apply in respect of any Lease which
Target Canada or Target notifies Zellers will not be a Subject Lease.

37

Section 7.7 Zellers Entity Cooperation.

(1) Zellers, HBC and their Affiliates (each, a “Zellers
Entity“) currently own, lease, ground lease or hold other similar
interests in one or more of the developments in which a Subject Leased Property
was or is located (each, a “Subject Development“).

(2) Zellers and HBC, on behalf of each Zellers Entity, agree to fully
cooperate, subject to the allocation of costs set out in Section 7.7(2)(h), in
order to allow Target Canada, Target, any Designee permitted under Section 2.7
and any of their respective Affiliates (each, a “Target
Entity“), to enter, operate, develop, remodel and/or redevelop each
Subject Development for any uses which are consistent with a first class retail
shopping centre in Canada, including a Target discount department store (which
store may include, pharmacy, restaurant and food sales operations without
restriction as to product types or size of areas devoted to such items) as is
typically operated, from time to time, in the United States or Canada (the
“Permitted Use“). Zellers and HBC will cause each Zellers
Entity on its own behalf and on behalf of those claiming, by, through and under
such Zellers Entity, with respect to a Subject Development only:

(a) to modify, waive, release and terminate all use restrictions and use
exclusives benefiting or enforceable by the Zellers Entity that would limit or
prohibit the operation of any Permitted Use by a Target Entity.

(b) to consent to the temporary reduction, cessation or reasonable
modification of operations of the Target Entity at any Subject Leased Property
so as to allow for the remodelling, development or redevelopment of such Subject
Leased Property which consent shall be given without such Zellers Entity
availing itself of any rights in connection with such consent, including a
reduction of rent, right to cease operations, right of termination or any other
similar provision, if such consent relates to any Subject Development;

(c) to grant all consents and approvals for the remodelling, developing or
redeveloping the interior of any building (provided that any change to the
location or size of such building shall be subject to the provisions of Section
7.7(2)(e)) located or to be located on or within a Subject Development;

(d) to grant all consents and approvals for the remodelling, developing or
redeveloping the exterior elevations of any building (including building
signage, branding, architectural details and closure of entrances to the Target
Entity153s building) located or to be located on or within a Subject Development
(provided that any change to the location or size of such building shall be
subject to the provisions of Section 7.7(2)(e)), as well as any appurtenances
immediately adjacent to the Target Entity153s building (e.g., sidewalks,
landscaping and loading docks), but not other common areas;

(e) to grant all consents and approvals for remodelling, developing or
redeveloping any Subject Development (including the relocation or any change in
the size of any building) and any freestanding signage; provided however, that
notwithstanding the foregoing, the Zellers Entities shall have no obligation
under this Section 7.7(2)(e) to (i) incur any Damages, liability, costs or
expenses from a

38

third party claim (other than those contemplated to be incurred by a Zellers
Entity pursuant to Section 7.7(2)(h)); (ii) take or to refrain from taking any
action, or to consent, approve, support or withhold objection to any matter or
thing, which would or could reasonably be expected to result in Damages,
liability, costs or expenses to any Zellers Entity from a third party claim
(other than those contemplated to be incurred by a Zellers Entity pursuant to
Section 7.7(2)(h)), in connection with the breach of any Laws or any
Encumbrances existing as of the Execution Date by or to which a Zellers Entity
is a party or to which it is subject, or which affects a Subject Development; or
(iii) take or to refrain from taking any action, or to consent, approve, support
or withhold objection to any matter or thing which would, or could reasonably be
expected to, materially adversely affect the use, operation, signage, parking
rights in any “primary parking field”, access to common areas, full pedestrian
and vehicular access to all existing internal and external roadways and walkways
of any Bay store or the business conducted therein (clauses (i), (ii) and (iii)
are collectively, the “Approval Restrictions“). If any Approval
Restrictions do exist under item (ii) above, each Zellers Entity will use its
commercially reasonable efforts (without payment of consideration or repayment
of debt) to (a) obtain the consent from any Person benefiting from such Approval
Restriction and/or (b) allow for the requested co-operation of the Zellers
Entity to be given in accordance with this Section 7.7;

(f) to join in applications for all permits, variances, special uses,
licenses or authorizations deemed necessary or desirable by the Target Entity in
connection with remodelling, development or redevelopment of the Subject Leased
Property for the foregoing purposes, and to the extent such request is in
compliance with Section 7.7(2)(e), the balance of any Subject Development;
provided however, that no Zellers Entity shall have any obligation to join in
any of the foregoing to the extent that such item would expose such Zellers
Entity to Damages, liability, costs or expenses except to the extent the
foregoing relate to the Zellers Entity153s authority to issue such authorization
or the Target Entity agrees to protect the Zellers Entity with respect to risks
through an indemnity or other arrangement satisfactory to Zellers;

(g) not to seek, request or demand any charge or concession from any Target
Entity or any other third party in connection with fulfilling its obligations
under this Section 7.7, except as set forth in Section 7.7(2)(h); and

(h) for each of the first 10 locations selected by any Target Entity (on an
aggregate basis for all Target Entities) for cooperation by any Zellers Entity
under this Section 7.7, such Zellers Entity shall be responsible and pay for all
of the out of pocket costs incurred by such Zellers Entity in connection with
any requests for cooperation made by such Target Entity relating to the initial
redevelopment of such location by the Target Entity. Thereafter, all requests
for cooperation by any Target Entity relating to (i) each additional location,
or (ii) to the extent unrelated to the initial redevelopment, each of the
initial 10 locations, the related Zellers Entity and the Target Entity shall
each be responsible for paying 50% of the out of pocket costs incurred by such
Zellers Entity with respect to any such requests, and the Target Entity shall
reimburse the Zellers Entity for its share of such costs

39

in accordance with arrangements to be made between the related Target Entity
and the Zellers Entity each acting reasonably.

(3) Target Canada acknowledges that five Subject Developments (which are the
following: Devonshire Mall, Windsor; Square One, Mississauga; Centrepoint Mall,
North York; Les Promenades, St Bruno; and downtown Winnipeg, Manitoba) held by
Zellers Entity Affiliates are subject to an existing Mortgage in favour of GE
Capital Canada Finance Inc. which may be breached by the actions contemplated
under Sections 7.7(2)(a) through (d) above. The remaining Subject Developments
are not subject to any other material restrictions relating to such actions
under any Mortgage known to Zellers relating to the Subject Development as of
the Execution Date. If the Zellers Entity reasonably determines that such a
breach will occur, then the Zellers Entity will use its commercially reasonable
efforts (without payment of consideration or repayment of debt) to (i) obtain
the consent from the Mortgage holder benefiting from the Approval Restriction in
Section 7.7(2)(e)(ii) and/or (ii) allow for the requested co-operation of the
Zellers Entity to be given in accordance with this Section 7.7.

(4) So as to allow each Target Entity to confirm a Zellers Entity153s
compliance with the provisions of this Section 7.7 prior to commencing any of
the above activities, each Zellers Entity will, upon a request of a Target
Entity, enter into reasonable written documentation evidencing its agreement
with respect to all approvals, consents and other requests of such Target Entity
with respect to such contemplated location prior to the acquisition by such
party.

(5) Zellers and HBC, on behalf of each Zellers Entity, each agree that no
Zellers Entity will subordinate its interest (or further restrict its rights to
comply with the provisions of this Section 7.7) in any Subject Development to
any future encumbrance unless such Zellers Entity receives a written
non-disturbance agreement from the holder of such encumbrance with respect to
the provisions of this Section 7.7.

(6) The obligations of Zellers, HBC and each Zellers Entity pursuant to this
Section 7.7 shall be binding upon the successors and assigns of each such
Zellers Entity, including each successor owner of the Zellers Entity153s interest
in the Subject Development to which such obligations may now or in the future
relate. Such obligations shall bind and benefit, as the case may require, the
heirs, legal representatives, assigns and successors of the respective parties,
and all covenants, conditions and agreements contained in this Section 7.7 shall
be construed (to the extent permitted by Laws) as covenants running with the
land with respect to each Subject Development. Without limiting the generality
of the foregoing, each Zellers Entity shall, at its sole cost and expense (a)
inform in writing each successor, assign and purchaser of each Subject
Development of the provisions of this Section 7.7, and (b) cause each such
successor, assign and purchaser to assume in writing the obligations of this
Section 7.7.

(7) Zellers and HBC, on behalf of each Zellers Entity, each agree that upon
the request of any Target Entity, it shall execute, or cause the relevant
Zellers Entity to execute, to the extent permitted by Laws (with such
recordation being at the sole cost of such Target Entity), a recordable
memorandum evidencing (i) the agreements contained in this Section 7.7 which may
(at the Target Entity153s option and cost) be registered on title in the

40

applicable real estate records and (ii) all actions taken by such Zellers
Entity pursuant to this Section 7.7.

(8) Notwithstanding anything to the contrary in this Agreement, the
obligations of each Zellers Entity and Target Entity under this Section 7.7
shall commence on the Execution Date and expire on that date that is 10 years
after the Second Tranche Closing Date.

ARTICLE 8
CONDITIONS OF CLOSING

Section 8.1 Conditions for the Benefit of Target and
Target Canada.

The assignment and transfer of the Subject Leases and the payment of the
applicable portion of the Purchase Price are subject to the following conditions
being satisfied on or prior to the relevant Closing Date, which conditions are
for the exclusive benefit of Target Canada and Target and may be waived, in
whole or in part, by Target in its sole discretion:

(a) Truth of Representations and Warranties.

(i) The representations and warranties of Zellers contained in this Agreement
other than the representations and warranties contained in Sections 5.1(g),
5.1(h) and 5.1(i) must be true and correct in all material respects as of the
relevant Closing Date with the same force and effect as if such representations
and warranties were made on and as of such date. However, (A) any such
representations or warranties relating to Subject Leases as of the First Tranche
Closing Date need only be true and correct in all material respects as they
relate to the First Tranche Subject Leases, (B) any such representations or
warranties relating to Subject Leases as of the Second Tranche Closing Date need
only be true and correct in all material respects as they relate to the Second
Tranche Subject Leases, (C) if any such representation and warranty is qualified
by materiality, it must be true and correct in all respects after giving effect
to such qualification and (D) if any such representation and warranty speaks
only as of a specific date it only needs to be true and correct as of that date.

(ii) The failure of the representations and warranties of Zellers contained
in Sections 5.1(g), 5.1(h) and 5.1(i) (without regard, in the case of the
representations and warranties contained in Sections 5.1(i)(iii), 5.1(i)(vii),
and 5.1(i)(viii), to any qualification to such representations and warranties
made in the Disclosure Letter) to be true and correct in all material respects
as of the relevant Closing Date shall not affect 100 or more Leases designated
at any time on (even if later removed from) the First Tranche Selection List or
the Second Tranche Selection List in the aggregate for all Closing Dates.
However, (A) any such representations or warranties relating to Subject Leases
as of the First Tranche Closing Date need only be true and correct in all
material respects as they relate to the First Tranche Subject Leases, (B) any
such representations or warranties relating to Subject Leases as of the Second
Tranche Closing Date need only be true and correct in all material respects as
they relate to the Second

41

Tranche Subject Leases, (C) if any such representation and warranty is
qualified by materiality, it must be true and correct in all respects after
giving effect to such qualification, and (D) if any such representation and
warranty speaks only as of a specific date it only needs to be true and correct
as of that date.

(iii) Target Canada must receive a certificate of a senior officer of Zellers
as to the matters in this Section 8.1(a).

(b) Performance of Covenants. Zellers must have fulfilled,
or complied with, in all material respects, all covenants contained in this
Agreement to be fulfilled or complied with by it at or prior to the relevant
Closing Date (except for any such covenants requiring Zellers to use
commercially reasonable or similar efforts), and Target Canada must receive a
certificate of a senior officer of Zellers to that effect.

(c) Competition Act Approval. The Competition Act Approval
must have been obtained.

(d) No Legal Action. No action, proceeding, order or notice
will have been made, issued or delivered by any Governmental Entity prohibiting
a material portion of the transactions contemplated by this Agreement.

(e) Release of Monetary Liens. Target shall have received
evidence reasonably satisfactory to it of the release of any Monetary Liens on
Zellers153 leasehold interest in any of the First Tranche Subject Leased
Properties (as of the First Tranche Closing Date) or the Second Tranche Subject
Leased Properties (as of the Second Tranche Closing Date), except that, with
respect to any Monetary Lien under clause (3) of the definition of Monetary
Lien, Target shall have received evidence reasonably satisfactory to it of the
payment of the obligation underlying such Monetary Lien or such underlying
obligation shall be the subject of an adjustment under Section 3.3.

Section 8.2 Conditions for the Benefit of
Zellers.

The assignment and transfer of the Subject Leases and the payment of the
applicable portion of the Purchase Price are subject to the following conditions
being satisfied on or prior to the relevant Closing Date, which conditions are
for the exclusive benefit of Zellers and may be waived, in whole or in part, by
Zellers in its sole discretion:

(a) Truth of Representations and Warranties. The
representations and warranties of each of Target Canada and Target contained in
this Agreement must be true and correct in all material respects as of the
relevant Closing Date with the same force and effect as if such representations
and warranties had been made on and as of such date. However, if a
representation and warranty is qualified by materiality, it must be true and
correct in all respects after giving effect to such qualification. Zellers must
receive a certificate of a senior officer of each of Target Canada and Target to
the matters in this paragraph.

42

(b) Performance of Covenants. Each of Target Canada and
Target must have fulfilled or complied with all covenants contained in this
Agreement to be fulfilled or complied with by it at or prior to the relevant
Closing Date (except for any such covenants requiring Target or Target Canada to
use commercially reasonable or similar efforts), and Zellers must receive a
certificate of a senior officer of each of Target Canada and Target to that
effect.

(c) Competition Act Approval. The Competition Act Approval
must have been obtained.

(d) No Legal Action. No action, proceeding, order or notice
will have been made, issued or delivered by any Governmental Entity prohibiting
a material portion of the transactions contemplated by this Agreement.

(e) Tax Registration. Target Canada will be duly registered
under subdivision (d) of Division V of Part IX of the Excise Tax Act
(Canada) with respect to goods and service tax and harmonized sales tax and,
where applicable, under Division I of Chapter VIII of Title I of An Act
Respecting the Quebec Sales Tax, and its registration numbers will have
been provided to Zellers prior to the First Tranche Closing Date.

ARTICLE 9
CLOSING

Section 9.1 Date, Time and Place of
Closing.

The completion of the transaction of purchase and sale contemplated by this
Agreement will take place at the offices of Stikeman Elliott LLP, Suite 5300,
Commerce Court West, Toronto, Ontario, at 10:00 a.m. (Toronto time) on each
Closing Date or at such other place, on such other date and at such other time
as Zellers and Target Canada may agree to in writing.

Section 9.2 Zellers153 Closing Deliveries.

On each Closing Date Zellers shall deliver or cause to be delivered to Target
Canada the following documents (other than the Brand Waiver, which shall only be
delivered on the First Tranche Closing Date), executed by Zellers or such other
necessary Persons where applicable:

(a) (i) an assignment and assumption agreement with respect to each of the
relevant Subject Leases which Target Canada has not identified for assignment to
a Designee, substantially in the form attached as Section 9.2(a) of the
Disclosure Letter (the “Lease Assignment and Assumption
Agreement“), and (ii) a Designee Assignment and Assumption Agreement
with respect to each of the relevant Subject Leases which Target Canada has
identified for assignment to a Designee;

(b) the Subleases with respect to the relevant Subject Leased Properties;

(c) a certificate of a duly authorized officer of Zellers certifying: (i) the
constating documents and by-laws of Zellers; (ii) resolutions of the directors
of Zellers

43

authorizing this Agreement and the consummation of the transactions
contemplated by this Agreement; (iii) the incumbency and signatures of the
officers of Zellers executing this Agreement; and (iv) the matters set forth in
Section 8.1(a) and Section 8.1(b);

(d) a certificate of a duly authorized officer of HBC certifying: (i) the
constating documents and by-laws of HBC; (ii) resolutions of the directors of
HBC authorizing this Agreement and its obligations under this Agreement; (iii)
the incumbency and signatures of the officers of HBC executing this Agreement;

(e) an agreement waiving exclusivity by Zellers and HBC, on their own behalf
and on behalf of their Affiliates, with respect to brands licensed to or
controlled by Zellers and agreeing not to enforce by any means any of their
current trademarks against any trademarks used by, applied for, or registered to
Target, in the form attached as Section 9.2(e) of the Disclosure Letter (the
“Brand Waiver“);

(f) such documentation, including declarations and certificates, as may be
customarily required by any title insurer (provided Zellers and any officer
thereof shall not be required to provide any such documentation to the extent
same expands the scope of any representation or covenant furnished to Target
Canada in this Agreement or which creates personal liability to the title
insurer) and shall execute the statements required of a vendor in s. 50(22) of
the Planning Act (Ontario) and similar legislation in other provinces
(to the extent Zellers does not have knowledge contrary to such statements);

(g) an undertaking by Zellers to re-adjust the Final Adjustments in
accordance with Section 3.3;

(h) all Books and Records of Zellers and its Affiliates in their possession
or control relating to the relevant Subject Leased Properties or the relevant
Subject Leases; provided that, subject to Zellers153 execution of a
confidentiality agreement in a form reasonably acceptable to Zellers and Target
Canada with respect to such Books and Records, Zellers shall have the right to
retain a copy of any Books and Records for use in compliance with Laws or in
connection with investigations or litigation; and

(i) all other documents which Target Canada reasonably requests to give
effect to the transactions contemplated by this Agreement.

Section 9.3 Target Canada153s Closing
Deliveries.

On each Closing Date Target Canada shall deliver or cause to be delivered to
Zellers the following documents (other than the Brand Waiver, which shall only
be delivered on the First Tranche Closing Date), executed by Target Canada or
such other necessary Persons (other than Zellers or Affiliate of Zellers that is
transferring Pharmacy Records hereunder) where applicable:

(a) a wire transfer in satisfaction of the First Tranche Purchase Price or
the Second Tranche Purchase Price, as applicable, in accordance with Section
3.2;

44

(b) (i) a Lease Assignment and Assumption Agreement with respect to each of
the relevant Subject Leases which Target Canada has not identified for
assignment to a Designee, and (ii) a Designee Assignment and Assumption
Agreement, duly executed by the applicable Designee (and not by Target Canada),
with respect to each of the relevant Subject Leases which Target Canada has
identified for assignment to a Designee;

(c) the Subleases with respect to the relevant Subject Leased Properties duly
executed by Target Canada, or if applicable, its Designees;

(d) a certificate of a duly authorized officer of Target Canada certifying:
(i) the constating documents and by-laws of Target Canada; (ii) resolutions of
the directors of Target Canada authorizing this Agreement and the consummation
of the transactions contemplated by Target Canada; (iii) the incumbency and
signatures of the officers of Target Canada executing this Agreement; and (iv)
the matters set forth in Section 8.2(a) and Section 8.2(b);

(e) a certificate of a duly authorized officer of Target certifying: (i) the
constating documents and by-laws of Target; (ii) resolutions of the directors of
Target authorizing this Agreement and its obligations under this Agreement;
(iii) the incumbency and signatures of the officers of Target executing this
Agreement; and (iv) the matters set forth in Section 8.2(a) and Section 8.2(b);

(f) an undertaking by Target Canada to re-adjust the Final Adjustments in
accordance with Section 3.3;

(g) a Goods and Services Tax, Harmonized Sales Tax and Quebec Sales Tax
Declaration and Indemnity in the form specified in Section 9.3(g) of the
Disclosure Letter; and

(h) all other documents which Zellers reasonably requests to give effect to
the transactions contemplated by this Agreement.

Section 9.4 Closing Procedures.

(1) Subject to satisfaction or waiver by the relevant Party of the conditions
of closing, on each Closing Date, Zellers will deliver the instruments of
conveyance described in Section 9.2 to Target Canada and upon such delivery
Target Canada will pay or satisfy the Purchase Price in accordance with Section
3.2. The assignment of a Subject Lease will take effect at the Effective Time on
the applicable Closing Date or Delivery Date.

(2) Zellers and Target Canada covenant and agree to enter into and to cause
their respective solicitors to enter into a closing arrangement as is customary
for each province providing for the delivery of closing documents, the
electronic submission or physical submission of documents for registration, as
applicable, and other details relating to closing and registration.

45

ARTICLE 10
TERMINATION

Section 10.1 Termination Rights.

This Agreement may, by notice in writing, be terminated on the Outside Date:

(a) by Target Canada if any of the conditions in Section 8.1 have not been
satisfied in respect of the First Tranche Subject Leased Properties as of the
Outside Date and Target Canada has not waived such conditions at or prior to the
First Tranche Closing Date, provided that Target Canada may not terminate this
Agreement under this Section 10.1(a) to the extent that such conditions have not
been satisfied as a result of the failure of Target or Target Canada to perform
any one or more of its obligations or covenants under this Agreement to be
performed at or prior to the First Tranche Closing Date; or

(b) by Zellers if any of the conditions in Section 8.2 have not been
satisfied as in respect of the First Tranche Subject Leased Properties as of the
Outside Date and Zellers has not waived such condition at or prior to the First
Tranche Closing Date, provided that Zellers may not terminate this Agreement
under this Section 10.1(b) to the extent that such conditions have not been
satisfied as a result of a failure of Zellers or HBC to perform any one or more
of its obligations or covenants under this Agreement to be performed at or prior
to the First Tranche Closing Date.

Section 10.2 Effect of Termination.

If a Party waives compliance with any of the conditions, obligations or
covenants contained in this Agreement, the waiver will be without prejudice to
any of its rights in the event of non-fulfilment, non-observance or
non-performance of any other representation, warranty, condition, obligation or
covenant in whole or in part or to its rights to recover Damages for any
incorrectness in or breach of any representation, warranty, condition,
obligation or covenant in whole or in part.

ARTICLE 11
INDEMNIFICATION

Section 11.1 Liability for Representations and
Warranties.

The representations and warranties contained in this Agreement and the
certificates delivered pursuant to Section 8.1(a) and Section 8.2(a) continue in
full force and effect for a period of one year after the relevant Closing Date,
except that:

(a) the representations and warranties set out in Section 5.1(a), Section
5.1(b), Section 5.1(e), Section 5.1(f), Section 6.1(a), Section 6.1(b), and
Section 6.1(e) and the corresponding representations and warranties set out in
the certificates delivered pursuant to Section 8.1(a) and Section 8.2(a) survive
and continue in full force and effect without limitation of time;

46

(b) the representations and warranties set out in Section 5.1(k) (and the
corresponding representations and warranties set out in the certificates to be
delivered pursuant to Section 8.1(a)), will survive and continue in full force
and effect until 6 months after the expiration of the period during which any
tax assessment may be issued by a Governmental Entity in respect of any taxation
year to which such representations and warranties extend. Such period will be
determined without regard to any consent, waiver, agreement or other document,
made or filed after the Closing Date that extends the period during which a
Governmental Entity may issue a tax assessment. A tax assessment includes any
assessment, reassessment or other form of recognized document assessing
liability for Taxes under Laws;

(c) the representations and warranties set out in Section 5.1(h) and Section
5.1(i) (and the corresponding representations and warranties set out in the
certificates to be delivered pursuant to Section 8.1(a)) as they relate to a
Subject Lease will survive and continue in full force and effect until the date
that is one year after the relevant Vacancy Date for such Subject Lease; and

(d) there is no limitation as to time for claims against a Party based on
fraudulent misrepresentation by that Party.

Section 11.2 Indemnification in Favour of Target and
Target Canada.

Subject to Section 11.5, Zellers will indemnify and save Target and Target
Canada and their respective directors, officers, employees, agents and
shareholders harmless from and against, and will pay for, all Damages suffered
by, imposed upon or asserted against any of them as a result of, in respect of,
connected with, or arising out of, under, or pursuant to:

(a) any failure of any representation or warranty in Article 5 to be true and
correct as of the Execution Date or to be true and correct in all material
respects as of the relevant Closing Date (or, with respect to any such
representation or warranty that speaks only as of a specific date, any failure
of such representation or warranty to be true and correct as of such date), in
each case for which a notice of claim under Section 11.6 has been provided to
Zellers within the applicable time period specified in Section 11.1;

(b) any failure of Zellers to perform or fulfil any of its covenants or
obligations under this Agreement;

(c) the use or occupancy of any Subject Leased Property on or prior to the
applicable Closing Date;

(d) the ownership, management or control of the operations conducted on any
Subject Leased Property on or prior to the relevant Closing Date by Zellers (or
any of its Affiliates, subtenants or licensees) where such ownership, management
or control results in the release of contaminants for which Target or Target
Canada is found liable by a Governmental Entity; and

(e) any Excluded Liabilities.

47

Section 11.3 Indemnification in Favour of
Zellers.

Subject to Section 11.5, Target Canada will indemnify and save Zellers and
its directors, officers, employees, agents and shareholders harmless from and
against, and will pay for, all Damages suffered by, imposed upon or asserted
against any of them as a result of, in respect of, connected with, or arising
out of, under, or pursuant to:

(a) any failure of any representation or warranty in Article 6 to be true and
correct as of the Execution Date or to be true and correct in all material
respects as of the relevant Closing Date (or, with respect to any such
representation or warranty that speaks only as of a specific date, any failure
of such representation or warranty to be true and correct as of such date), in
each case for which a notice of claim under Section 11.6 has been provided to
Target Canada within the applicable time period specified in Section 11.1;

(b) any failure of Target Canada to perform or fulfil any of its covenants or
obligations under this Agreement;

(c) the Assumed Liabilities;

(d) the use or occupancy of any Subject Leased Property after the applicable
Closing Date, subject to the obligations of Zellers under the applicable
Sublease; and

(e) the ownership, management or control of the operations conducted on any
of the Subject Leased Properties after the relevant Closing Date by Target
Canada (or any of its Affiliates, subtenants or licensees) where such ownership,
management or control results in the release of contaminants for which Zellers
is found liable by a Governmental Entity, subject to the obligations of Zellers
under the applicable Sublease.

Section 11.4 Bulk Sales and Retail Sales Tax
Waiver.

In respect of the transactions contemplated by this Agreement, Target Canada
and the applicable Designee or Designees shall not require Zellers to comply, or
to assist Target Canada or the applicable Designee or Designees to comply, with
the requirements of (a) the Bulk Sales Act (Ontario), if applicable, or
(b) section 6 of the Retail Sales Tax Act (Ontario) or any equivalent
or corresponding provisions under any other applicable legislation.
Notwithstanding the foregoing, Zellers shall indemnify and save harmless Target,
Target Canada and the applicable Designee or Designees and their respective
directors, officers, employees, agents and shareholders, on an after-Tax basis,
from and against, and will pay for, all Damages suffered by, imposed upon or
asserted against any of them as a result of, in respect of, connected with, or
arising out of, under or pursuant to such non-compliance.

Section 11.5 Limitations.

(1) A Party has no obligation or liability for indemnification or otherwise
with respect to any representation or warranty made by such Party in this
Agreement, or the certificates delivered pursuant to Section 8.1(a) and Section
8.2(a), after the end of the applicable

48

time period specified in Section 11.1, except for claims relating to the
representations and warranties that the Party has been notified of prior to the
end of the applicable time period.

(2) A Party has no liability for, or obligation with respect to, any punitive
or aggravated damages, except to the extent awarded to a third party in a Third
Party Claim.

(3) A Party has no obligation to make any payment for Damages for
indemnification or otherwise with respect to the matters described in Section
11.2 or Section 11.3, as applicable:

(a) until the total of all Damages with respect to such matters exceeds $18
million, after which such Party shall be liable to make payment for all such
Damages including such $18 million; and

(b) to the extent such Damages exceed a maximum of $450 million;

provided that the forgoing limitations shall not apply to Damages with
respect to any breach of covenant, Excluded Liabilities, Assumed Liabilities or
any of the matters referred to in Section 11.1(a), Section 11.1(b), Section
11.1(d), Section 11.2(c), Section 11.2(d), Section 11.3(d) or Section 11.3(e).

(4) A Party has no obligation to make any payment for Damages for
indemnification or otherwise to the extent such Damages exceed a maximum of
$1,825,000,000.

Section 11.6 Notification.

(1) If a Third Party Claim is instituted or asserted against an Indemnified
Party, the Indemnified Party will promptly notify the Indemnifying Party in
writing of the Third Party Claim. The notice must specify in reasonable detail,
the identity of the Person making the Third Party Claim and, to the extent
known, the nature of the Damages and the estimated amount needed to investigate,
defend, remedy or address the Third Party Claim.

(2) If an Indemnified Party becomes aware of a Direct Claim, the Indemnified
Party will promptly notify the Indemnifying Party in writing of the Direct
Claim.

(3) Notice to an Indemnifying Party under this Section 11.6 of a Direct Claim
or a Third Party Claim is assertion of a claim for indemnification against the
Indemnifying Party under this Agreement. Upon receipt of such notice, the
provisions of Section 11.9 will apply to any Third Party Claim and the
provisions of Section 11.8 will apply to any Direct Claim.

Section 11.7 Limitation Periods.

Notwithstanding the provisions of the Limitations Act, 2002
(Ontario) or any other statute, a proceeding in respect of a claim for
indemnification or otherwise arising from any breach or inaccuracy of any
representation or warranty in this Agreement may be commenced in accordance with
this Agreement. Any applicable limitation period is extended or varied to the
full extent permitted by law to give effect to this Section 11.7.

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Section 11.8 Procedure for Direct Claims.

(1) Following receipt of notice of a Direct Claim, the Indemnifying Party has
60 days to investigate the Direct Claim and respond in writing. For purposes of
the investigation, the Indemnified Party shall make available to the
Indemnifying Party the information relied upon by the Indemnified Party to
substantiate the Direct Claim, together with such other information as the
Indemnifying Party may reasonably request.

(2) If the Indemnifying Party disputes the validity or amount of the Direct
Claim, the Indemnifying Party shall provide written notice of the dispute to the
Indemnified Party within the 60-day period specified in Section 11.8(1). The
dispute notice must describe in reasonable detail the nature of the Indemnifying
Party153s dispute. During the 30-day period immediately following receipt of a
dispute notice by the Indemnified Party, the Indemnifying Party and the
Indemnified Party shall attempt in good faith to resolve the dispute. If the
Indemnifying Party and the Indemnified Party fail to resolve the dispute within
that 30-day time period, the Indemnified Party is free to pursue all rights and
remedies available to it, subject to this Agreement. If the Indemnifying Party
fails to respond in writing to the Direct Claim within the 60-day period
specified in Section 11.8(1), the Indemnifying Party is deemed to have rejected
the Direct Claim, in which event the Indemnified Party is free to pursue all
rights remedies available to it, subject to this Agreement.

Section 11.9 Procedure for Third Party
Claims.

(1) Upon receiving notice of a Third Party Claim, the Indemnifying Party may
participate in the investigation and defence of the Third Party Claim and may
also elect to assume the investigation and defence of the Third Party Claim.

(2) In order to assume the investigation and defence of a Third Party Claim,
the Indemnifying Party must give the Indemnified Party written notice of its
election within 30 days of Indemnifying Party153s receipt of notice of the Third
Party Claim and acknowledge that the Third Party Claim is within the scope of
its obligation to indemnify the Indemnified Party in accordance with and subject
to the terms of this Article 11.

(3) If the Indemnifying Party assumes the investigation and defence of a
Third Party Claim:

(a) the Indemnifying Party will pay for all costs and expenses of the
investigation and defence of the Third Party Claim except that the Indemnifying
Party will not, so long as it diligently conducts such defence, be liable to the
Indemnified Party for any fees of other counsel or any other expenses with
respect to the defence of the Third Party Claim, incurred by the Indemnified
Party after the date the Indemnifying Party validly exercised its right to
assume the investigation and defence of the Third Party Claim; provided,
however, that if the defendants named in the Third Party Claim include both the
Indemnified Party and the Indemnifying Party, and the Indemnified Party shall
have reasonably concluded that there are legal defences or rights available to
it that are in actual or potential conflict with those available to the
Indemnifying Party, then the Indemnified Party shall have the right to select
one law firm to act, at the Indemnifying Party153s expense, as separate counsel on
behalf of the Indemnified Party; and

50

(b) the Indemnifying Party will reimburse the Indemnified Party for all costs
and expenses incurred by the Indemnified Party in connection with the
investigation and defence of the Third Party Claim prior to the date the
Indemnifying Party validly exercised its right to assume the investigation and
defence of the Third Party Claim.

(4) If the Indemnified Party undertakes the defence of the Third Party Claim,
the Indemnifying Party will not be bound by any compromise or settlement of the
Third Party Claim effected without the consent of the Indemnifying Party (which
consent may not be unreasonably withheld or delayed).

(5) The Indemnifying Party will not be permitted to compromise and settle or
to cause a compromise and settlement of a Third Party Claim without the prior
written consent of the Indemnified Party, which consent may not be unreasonably
withheld or delayed, unless:

(a) the terms of the compromise and settlement require only the payment of
money for which the Indemnified Party is entitled to full indemnification under
this Agreement; and

(b) the Indemnified Party is not required to admit any wrongdoing, take or
refrain from taking any action, acknowledge any rights of the Person making the
Third Party Claim or waive any rights that the Indemnified Party may have
against the Person making the Third Party Claim.

(6) The Indemnified Party and the Indemnifying Party agree to keep the other
fully informed of the status of any Third Party Claim and any related
proceedings. If the Indemnifying Party assumes the investigation and defence of
a Third Party Claim, the Indemnified Party will, at the request and expense of
the Indemnifying Party, use its reasonable efforts to make available to the
Indemnifying Party, on a timely basis, those employees whose assistance,
testimony or presence is necessary to assist the Indemnifying Party in
investigating and defending the Third Party Claim. The Indemnified Party shall,
at the request and expense of the Indemnifying Party, make available to the
Indemnifying Party, or its representatives, on a timely basis all documents,
records and other materials in the possession, control or power of the
Indemnified Party, reasonably required by the Indemnifying Party for its use
solely in defending any Third Party Claim which it has elected to assume the
investigation and defence of. The Indemnified Party shall cooperate on a timely
basis with the Indemnifying Party in the defence of any Third Party Claim.

Section 11.10 Remedies.

(1) Except as provided in this Section 11.10, the indemnities provided in
this Agreement constitute the only remedy of a Party against another Party in
the event of any breach of a representation, warranty, covenant or agreement of
such Party contained in this Agreement.

(2) The Parties may exercise their rights of termination in Section 10.1 and
their rights of indemnity in Section 13.3.

51

(3) Target and Target Canada may set off against any amounts payable by
either or both of them to Zellers or HBC under this Agreement, any amounts owing
to either or both of them by Zellers, HBC or any of their Affiliates under this
Agreement or any Ancillary Agreement, including any amounts so owing under any
indemnification obligations, up to a maximum aggregate amount to be so set off
of $90 million.

(4) The Parties acknowledge that the failure to comply with a covenant or
obligation contained in this Agreement may give rise to irreparable injury to a
Party inadequately compensable in damages. Accordingly, a Party may seek to
enforce the performance of this Agreement by injunction or specific performance
upon application to a court of competent jurisdiction without proof of actual
damage (and without requirement of posting a bond or other security).

(5) Each of the Parties expressly waives and renounces any other remedies
whatsoever, whether at law or in equity, which it would otherwise be entitled to
as against any other Party.

Section 11.11 One Recovery.

An Indemnified Party is not entitled to double recovery for any claims even
though they may have resulted from the breach, inaccuracy or failure to perform
of more than one of the representations, warranties, covenants and obligations
of the Indemnifying Party in this Agreement.

Section 11.12 Duty to Mitigate.

Nothing in this Agreement in any way restricts or limits the general
obligation at Law of an Indemnified Party to mitigate any loss which it may
suffer or incur by reason of the breach, inaccuracy or failure to perform of any
representation, warranty, covenant or obligation of the Indemnifying Party under
this Agreement. If any claim can be reduced by any recovery, settlement or
otherwise under or pursuant to any insurance coverage, or pursuant to any claim,
recovery, settlement or payment by or against any other Person, the Indemnified
Party shall take all appropriate steps to enforce such recovery, settlement or
payment and the amount of any Damages of the Indemnified Party will be reduced
by the amount of insurance proceeds actually recovered by the Indemnified Party,
net of any out-of-pocket costs incurred in obtaining such recovery and net of
the present value of any increase in insurance premiums reasonably attributable
to such recovery.

Section 11.13 Adjustment to Purchase Price.

Any payment made by Zellers or HBC to Target Canada under this Article 11
shall be deemed to be a dollar-for-dollar decrease in the Purchase Price. A
payment made by Target Canada or Target under this Article 11 shall be deemed to
be a dollar-for-dollar increase in the Purchase Price.

52

ARTICLE 12
OTHER COVENANTS

Section 12.1 Guarantee by HBC.

(1) HBC hereby unconditionally, absolutely, continuingly and irrevocably
guarantees to Target Canada and the Indemnified Parties listed in Section 11.2
the timely payment, if any, and performance by Zellers (and its permitted
assignees) of its obligations and liabilities arising under or pursuant to this
Agreement and the Ancillary Agreements whether direct or indirect, absolute or
contingent, now or hereafter existing, or due or to become due (collectively,
the “Zellers Liabilities”).

(2) Target Canada shall not be required to prosecute collection or seek to
enforce or resort to any remedies against Zellers or any other Person liable to
Target Canada or any such Indemnified Parties on account of Zellers Liabilities
or any guaranty thereof. HBC153s liabilities shall in no way be impaired,
affected, reduced or released by reason of (i) the failure or delay by Target
Canada or any of such Indemnified Parties to do or take any of the actions or
things described in this Agreement, (ii) the voluntary or involuntary
liquidation, dissolution, sale or other disposition of all or substantially all
the assets of Zellers (or its permitted assignees) or the marshalling of assets
and liabilities, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition with creditors or
readjustment of, or other similar proceedings or any other inability to pay or
perform affecting, Zellers (or its permitted assignees) or any of its respective
assets, or (iii) any allegation concerning, or contest of the legality or
validity of, the indemnification obligations under this Agreement.

(3) HBC hereby expressly waives the right to interpose all substantive and
procedural defences of the law of guaranty, indemnification and suretyship,
except the defences of prior payment or prior performance.

(4) Without limiting the generality of Section 12.1(1), Section 12.1(2) or
Section 12.1(3), the liability of HBC under this Section 12.1 shall not be
deemed to have been waived, released, discharged, impaired or affected by (a)
the granting of any indulgence or extension of time to Zellers as subtenant
under any Sublease, (b) the assignment of any Sublease, or the subletting of the
premises under any Sublease by Zellers as subtenant under any Sublease, with or
without Target Canada153s consent, (c) the expiration of the term of any Sublease,
(d) if Zellers, as subtenant under any Sublease, holds over beyond the term of
the Sublease, (e) the rejection, disaffirmance or disclaimer of any Sublease by
any party in any action or proceeding, (f) any defect or invalidity of any
Sublease, or (g) any amendment, supplement or replacement of any Sublease. The
liability of HBC shall not be affected by any repossession, re-entry or
re-letting of any Subject Leased Property by Target Canada as sublandlord under
any Sublease.

(5) In addition to the guarantee specified in Section 12.1(1), HBC shall
indemnify and save Target Canada and the Indemnified Parties listed in Section
11.2 harmless from and against all Damages it or they may suffer as a result or
consequence of any inability by Target Canada or such Indemnified Parties to
recover the ultimate balance due or

53

remaining due or remaining unpaid to Target Canada and such Indemnified
Parties in respect of Zellers Liabilities.

Section 12.2 Target Guarantee.

(1) Target hereby unconditionally, absolutely, continuingly and irrevocably
guarantees to Zellers, HBC, and the Indemnified Parties listed in Section 11.3
the timely payment, if any, and performance by Target Canada (and its permitted
assignees, including any Designee pursuant to Section 2.7, but excluding each
Investment Grade Designee who enters into a Designee Assignment and Assumption
Agreement or other assumption document pursuant to Section 2.7 (the
“Assignees“)), of its obligations and liabilities arising under
or pursuant to this Agreement and the Ancillary Agreements, whether direct or
indirect, absolute or contingent, now or hereafter existing, or due or to become
due (collectively, the “Target Canada Liabilities”).

(2) Zellers shall not be required to prosecute collection or seek to enforce
or resort to any remedies against Target Canada, any Assignee or any other
Person liable to Zellers or any such Indemnified Parties on account of Target
Canada Liabilities or any guaranty thereof. Target153s liabilities shall in no way
be impaired, affected, reduced or released by reason of (i) the failure or delay
by Zellers or any of such Indemnified Parties to do or take any of the actions
or things described in this Agreement, (ii) the voluntary or involuntary
liquidation, dissolution, sale or other disposition of all or substantially all
the assets of Target Canada (or Assignees153) or the marshalling of assets and
liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition with creditors or
readjustment of, or other similar proceedings or any other inability to pay or
perform affecting, Target Canada (or its Assignees) or any of its respective
assets, or (iii) any allegation concerning, or contest of the legality or
validity of, the indemnification obligations under this Agreement.

(3) Target hereby expressly waives the right to interpose all substantive and
procedural defences of the law of guaranty, indemnification and suretyship,
except the defences of prior payment or prior performance.

(4) In addition to the guarantee specified in Section 12.2(1), Target shall
indemnify and save Zellers, HBC and the Indemnified Parties listed in Section
11.3 harmless from and against all Damages it or they may suffer as a result or
consequence of any inability by Zellers, HBC or such Indemnified Parties to
recover the ultimate balance due or remaining due or remaining unpaid to
Zellers, HBC and such Indemnified Parties in respect of Target Canada
Liabilities.

Section 12.3 Further Assurances.

From time to time before and after the relevant Closing Date, each Party
will, at the request of any other Party, execute and deliver such additional
conveyances, transfers, documents, instruments and other assurances as may be
reasonably required to effectively consummate the transactions contemplated by
this Agreement and carry out the intent of this Agreement.

54

ARTICLE 13
MISCELLANEOUS

Section 13.1 Notices.

Any notice, direction or other communication given regarding the matters
contemplated by this Agreement or any Ancillary Agreement (each a
“Notice”) must be in writing, sent by personal delivery,
courier or facsimile (but not by electronic mail) and addressed:

(a) to Zellers and HBC at:

401 Bay Street
Suite 500
Toronto, Ontario M5H 2Y4

with a copy (which shall not constitute notice) to:

Hudson153s Bay Trading Company, LP
3 Manhattanville Road, 2nd Floor
Purchase, New York 10577

with a copy (which shall not constitute notice) to:

Stikeman Elliott LLP
5300 Commerce Court West
199 Bay Street
Toronto, Ontario M5L 1B9

(b) to Target Canada and Target at:

Target Corporation

1000 Nicollet Mall, TPS-2670

Minneapolis, MN 55403

55

with a copy (which shall not constitute notice) to:

Osler, Hoskin & Harcourt LLP
Box 50, Suite 6100
1 First Canadian Place
Toronto, Ontario M5X 1B8

with a further copy (which shall not constitute notice) to:

Faegre & Benson LLP
2200 Wells Fargo Center
90 South Seventh Street
Minneapolis, Minnesota 55402

Attention: Michael A. Stanchfield and John R. Wheaton
Telephone: (612) 766-7000
Facsimile: (612) 766-1600

A Notice is deemed to be given and received (i) if sent by personal delivery
or same-day courier, on the date of delivery if it is a Business Day and the
delivery was made prior to 4:00 p.m. (local time in place of receipt) and
otherwise on the next Business Day, (ii) if sent by overnight courier, on the
next Business Day, or (iii) if sent by facsimile, on the Business Day following
the date of confirmation of transmission by the originating facsimile. A Party
may change its address for service from time to time by providing a Notice in
accordance with the foregoing. Any subsequent Notice must be sent to the Party
at its changed address. Any element of a Party153s address that is not
specifically changed in a Notice will be assumed not to be changed.

Section 13.2 Time of the Essence.

Time is of the essence in this Agreement.

Section 13.3 Brokers.

Zellers shall indemnify and save harmless Target Canada and Target from and
against any and all Damages and Third Party Claims whatsoever for any fee,
commission or other remuneration payable or alleged to be payable to any broker,
agent or other intermediary who purports to act or have acted for Zellers or any
of its Affiliates. Target Canada shall indemnify and save harmless Zellers and
HBC from and against any and all Damages and Third Party Claims whatsoever for
any fee, commission or other remuneration payable or alleged to be payable to
any broker, agent or other intermediary who purports to act or have acted for
Target Canada or any of its Affiliates. These indemnities are not subject to any
of the limitations set out in Article 11.

56

Section 13.4 Announcements.

No press release, public statement or announcement or other public disclosure
with respect to this Agreement or the transactions contemplated in this
Agreement may be made except with the prior written consent and approval of
Target, or except if required by Law or a Governmental Entity. Where the public
disclosure is required by Law or a Governmental Entity, the Party required to
make the public disclosure (if not Target) will use its commercially reasonable
efforts to obtain the approval of Target as to the form, nature and extent of
the disclosure. The initial announcements of the transactions contemplated by
this Agreement will be made in the form of attached as Section 13.4 of the
Disclosure Letter.

Section 13.5 Third Party Beneficiaries.

Except as provided in Section 7.7, Zellers, HBC, Target and Target Canada
intend that this Agreement will not benefit or create any right or cause of
action directly in favour of any Person, other than the Parties; provided
however, that the foregoing shall not limit or prohibit (i) Target or Target
Canada from pursuing any and all claims, damages, remedies and rights provided
hereunder on behalf of itself or for the benefit of any Designee or other
assignee of Target Canada or (ii) any Designee from directly pursuing any rights
under any Ancillary Agreements to which such Designee is a party. Except for the
Indemnified Parties, no Person, other than the Parties, shall be entitled to
directly rely on the provisions of this Agreement in any action, suit,
proceeding, hearing or other forum. To the extent required by law to give full
effect to these direct rights, Target Canada agrees and acknowledges that it is
acting as agent and/or as trustee of its Indemnified Parties. The Parties
reserve their right, subject to unanimous agreement among the Parties, to vary
or rescind the rights, granted by or under this Agreement to any Person who is
not a Party, at any time and in any way whatsoever, without notice to or consent
of that Person, including any Indemnified Party.

Section 13.6 Expenses.

Except as otherwise expressly provided in this Agreement, each Party will pay
for its own costs and expenses incurred in connection with this Agreement and
the transactions contemplated by this Agreement. The fees and expenses referred
to in this Section are those which are incurred in connection with the
negotiation, preparation, execution and performance of this Agreement and the
Ancillary Agreements, and the transactions contemplated by this Agreement and
the Ancillary Agreements, including the fees and expenses of legal counsel,
investment advisers and accountants.

Section 13.7 Amendments.

This Agreement may only be amended, supplemented or otherwise modified by
written agreement signed by Zellers and Target.

Section 13.8 Waiver.

No waiver of any of the provisions of this Agreement will constitute a waiver
of any other provision (whether or not similar). No waiver will be binding
unless executed in writing by the Party to be bound by the waiver. A Party153s
failure or delay in exercising any right under this Agreement will not operate
as a waiver of that right. A single or partial exercise of any right will

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not preclude a Party from any other or further exercise of that right or the
exercise of any other right.

Section 13.9 Non-Merger.

Except as otherwise expressly provided in this Agreement, the covenants,
representations and warranties shall not merge on and shall survive each of the
relevant Closing Dates.

Section 13.10 Subdivision Laws.

This Agreement shall only be effective to create an interest in the Subject
Leased Properties if the subdivision control provisions of the Planning
Act (Ontario) and similar Laws governing the subdivision or severance of
real property in other provinces are complied with on or before the relevant
Closing Date in respect of such Subject Leased Properties. If necessary at any
time and from time to time, Zellers shall forthwith apply for and use reasonable
commercial efforts to obtain all necessary consents under such Laws as required
in order to carry out the transactions contemplated by this Agreement in respect
of the Subject Leased Properties including, without limitation:

(i) any necessary consents that were or are required in respect of any
Subject Lease and any transfer occurring prior to the Execution Date; and

(ii) any necessary consents that were or are required to allow Target Canada
to obtain the benefit of the full term (including renewal rights) in excess of
any reduced term that is deemed to be incorporated in the Subject Lease in the
event a required consent was not obtained;

on or before the relevant Closing, and comply with any and all conditions
imposed in respect of such consent, at its sole cost and expense. Nothing in
this Section 13.10, including non-compliance with the Planning Act
(Ontario) and similar Laws governing subdivision or severance of real property
in other provinces, will in any way affect Target Canada153s obligation to
complete the transactions contemplated by this Agreement, including paying the
entire Purchase Price as contemplated by Section 3.1 without deduction or
abatement of any kind; provided, however, that if such a consent will not
reasonably be obtained by the relevant Closing Date, Target or Target Canada may
take such interest, subject to such consent being obtained by Target or Target
Canada at its expense following the relevant Closing Date or select another
Subject Lease by notice given to Zellers.

Section 13.11 Entire Agreement.

This Agreement, together with Ancillary Agreements, constitutes the entire
agreement between the Parties with respect to the transactions contemplated by
this Agreement and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the Parties. There are no
representations, warranties, covenants, conditions or other agreements, express
or implied, collateral, statutory or otherwise, between the Parties in
connection with the subject matter of this Agreement, except as specifically set
forth in this Agreement or the Ancillary Agreements. The Parties have not relied
and are not relying on any other information, discussion or understanding in
entering into and completing the transactions contemplated by this Agreement.

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Section 13.12 Successors and Assigns.

(1) This Agreement becomes effective only when executed by Zellers, HBC and
Target. After that time, it is binding on and enures to the benefit of Zellers,
HBC and Target, and Target Canada upon compliance with Section 1.12, and their
respective successors and permitted assigns.

(2) Other than as contemplated in Section 13.12 and Section 2.7, neither this
Agreement nor any of the rights or obligations under this Agreement are
assignable or transferable by any Party without the prior written consent of the
other Parties.

Section 13.13 Severability.

If, in any jurisdiction, any provision of this Agreement or its application
to any Party or circumstance is restricted, prohibited or unenforceable, such
provision shall, as to such jurisdiction, be ineffective only to the extent of
such restriction, prohibition or unenforceability without invalidating the
remaining provisions of this Agreement and without affecting the validity or
enforceability of such provision in any other jurisdiction or without affecting
its application to other Parties or circumstances.

Section 13.14 Governing Law.

(1) This Agreement is governed by and interpreted and enforced in accordance
with the laws of the Province of Ontario and the federal laws of Canada
applicable therein.

(2) Each Party irrevocably attorns and submits to the exclusive jurisdiction
of the Ontario courts situated in the City of Toronto and waives objection to
the venue of any proceeding in such court or that such court provides an
inconvenient forum.

Section 13.15 Counterparts.

This Agreement may be executed in any number of counterparts (including
counterparts by facsimile) and all such counterparts taken together shall be
deemed to constitute one and the same instrument.

[Remainder of page intentionally left blank.
Signature page follows.]

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IN WITNESS WHEREOF the Parties have executed this
Transaction Agreement.