OPTION AGREEMENT
This Option Agreement ("Agreement") is made effective this
____ day of January, 2006, by and between RONHOW, LLC, a Georgia
limited liability company (the "Participant") having an office at
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇,
Attention: ▇▇▇ ▇▇▇▇▇▇▇▇ and Harold's Stores, Inc., an Oklahoma
corporation ("Company") with reference to the following
circumstances:
▇. ▇▇▇▇▇ Fargo Retail Finance II, LLC ("WFRF") has entered into
certain secured financing agreements with Company and certain of
its subsidiaries (collectively, the "Borrowers") pursuant to
which WFRF has made and may hereafter make loans to, and has
provided and may hereafter provide financial accommodations for
the benefit of the Borrowers pursuant to the terms of a Loan and
Security Agreement dated February 5, 2003, as amended by
Amendment No. 1 dated July 10, 2003, Amendment No. 2 dated as of
April 30, 2004, and Amendment No. 3 dated as of the date hereof
("Loan Agreement").
B. Participant has previously acquired a $2,000,000 ongoing
participation interest in the WFRF line of credit with the
Borrowers ("First Participation") and another $2,000,000 ongoing
participation ("Second Participation") and Participant is
acquiring from WFRF an additional $3,000,000 ongoing
participation interest ("New Participation") in accordance with
the terms of an Amended and Restated Participation Agreement
dated the date hereof ("Participation Agreement").
C. Participant desires to have an option to acquire shares of
the Company's Series 2006-A Preferred Stock in exchange for all
or a part of the New Participation.
D. The Company has authorized a new Series of 2006-A Preferred
Stock under the terms of the Certificate of Designation of the
Series 2006-A Preferred Stock filed with the Secretary of State
of the State of Oklahoma on January ____, 2006 (the
"Certificate").
E. The existing holders of the Company's outstanding Amended
Series 2001-A Preferred Stock, Series 2002-A Preferred Stock and
Series 2003-A Preferred Stock have all consented to the
transactions contemplated by this Agreement, the Loan Agreement
and the Participation Agreement.
F. WFRF has consented to the terms of this Agreement.
NOW THEREFORE, in consideration of the foregoing recitals
and the mutual promises, representations, warranties and
covenants hereinafter set forth and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Option to Purchase Shares of Series 2006-A Preferred Stock
..
1.1 1.1 Option
. Subject to the terms and conditions of this Agreement,
the Company grants to Participant an option (the "Option")
to purchase at a price per share ("Purchase Price Per
Share") of One Hundred Dollars ($100.00) up to 30,000
shares, plus such additional shares as may be purchased in
exchange for forgiveness of accrued but unpaid interest on
the New Participation (the "2006-A Shares") of authorized
but unissued shares of its Series 2006-A Preferred Stock
which may be exercised at any time prior to the repayment of
the New Participation in full. Unless otherwise agreed to
by the Company and Participant at the time of any repayment,
any repayments of Restricted Advances (as defined in the
Loan Agreement) shall be applied first to repayment of the
First Participation and then to the repayment of the Second
Participation and then to the repayment of the New
Participation. Participant may purchase from the Company
such number of 2006-A Shares as is equal to the principal
amount of the New Participation remaining outstanding, plus
any accrued but unpaid interest, at the date of Closing of
the exercise of the Option divided by the Purchase Price Per
Share. Participant may exercise the Option in whole or in
part at any time after the date hereof and prior to the
repayment in full by the Company of the New Participation by
giving written notice of exercise to the Company. If the
Company intends to repay all or any part of the New
Participation, it shall give at least ten (10) days written
notice to the Participant and during such ten (10) day
period, the Participant may exercise the Option in whole or
in part. Payment of the Purchase Price for the 2006-A
Shares which the Participant purchases by any exercise of
the Option will be paid by the Participant by forgiving such
portion of the principal amount of the New Participation
equal to the purchase price of the 2006-A Shares purchased.
Participant will execute and deliver such documents and
instruments to evidence such forgiveness as either the
Company or WFRF may request.
1.2 Conversion Price
. The Conversion Price (as defined in the Certificate) of
the 2006-A Shares acquired upon any exercise of the Option
shall be equal to the 20 day average of the closing prices
of the Company's Common Stock as quoted on the American
Stock Exchange for the twenty (20) trading days ending on
the day before the date of this Agreement, or $__________
per share. The Conversion Price shall be subject to
adjustment as provided in the Certificate. All other terms
of the 2006-A Shares shall be governed by the Certificate.
1.3 Closing
. The closing of the purchase and sale of the 2006-A Shares
(the "Closing") upon any exercise of the Option shall occur
within ten (10) business days after the date of the Option
exercise date. At the Closing, the Company shall deliver to
Participant certificates representing the 2006-A Shares that
the Participant is purchasing against payment of the
Purchase Price therefore as provided above. At the Closing,
the Company and Participant shall enter into an amendment
(the "▇▇▇ Amendment") to the Investor Rights Agreement dated
as February 28, 2001 by and between the Company and Inter-
Him, N.V. ("Inter-Him") as amended by that certain First
Amendment to Investor Rights Agreement dated as of August 2,
2002 by and among the Company, Inter-Him, W. ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
and as amended by the Second Amendment to Investor Rights
Agreement dated as of February 5, 2003 by and among the
Company, Inter-Him and W. ▇▇▇▇▇▇ ▇▇▇▇▇▇ in order to cause
the 2006-A Shares to be considered covered by such
agreement. The obligation of the Company to close the sale
of the 2006-A Shares shall be subject to the satisfaction or
waiver of any conditions for such sale under the Loan
Agreement.
2. Representations and Warranties of the Company
.. The Company represents and warrants to Participant that:
2.1 Organization and Good Standing
. The Company is a corporation duly organized and validly
existing under the laws of the state of Oklahoma and is in
good standing under such laws. The Company has all
requisite corporate power and authority to own and operate
its property and assets, and to carry on its business as
presently conducted and as currently proposed to be
conducted.
2.2 Corporate Powers
. The Company has all requisite legal and corporate power
of authority to execute and deliver this Agreement, to sell
and issue the 2006-A Shares hereunder, issue any additional
shares of Series 2006-A Preferred Stock to be issued in
satisfaction of dividends on the 2006-A Shares (the
"Dividend Stock") and to issue the Common Stock issuable
upon conversion of the 2006-A Shares and the Dividend Stock
as set forth in the Certificate (the "Underlying Common
Stock").
2.3 Valid Issuance of Stock
. The 2006-A Shares, when issued, sold and delivered in
compliance with the provisions of this Agreement, will be
duly and validly issued, fully paid and non-assessable and
issued in compliance with all applicable state and federal
securities law. The Dividend Stock and the Underlying
Common Stock have been duly and validly reserved and, when
issued, will be duly and validly issued, fully paid and non-
assessable and issued in compliance with all applicable
state and federal securities laws.
2.4 Authorization
. All corporate action on the part of the Company necessary
for the authorization, execution, delivery and performance
of this Agreement and the ▇▇▇ Amendment by the Company, the
authorization, sale, issuance (or reservation of issuance)
and delivery of the 2006-A Shares and Dividend Stock and the
Underlying Common Stock with respect thereto and the
performance of all of the Company's obligations hereunder
and under the ▇▇▇ Amendment have been taken prior to the
date hereof. This Agreement constitutes and the ▇▇▇
Amendment, when executed will constitute, valid and legally
binding obligations of the Company, enforceable in
accordance with their respective terms, subject to the laws
of general application relating to bankruptcy, insolvency
and the relief of debtors and the rules of law governing
specific performance, injunctive relief or other equitable
remedies.
3. Representations and Warranties of the Participant
.. Participant represents and warrants to the Company as follows:
3.1 Investment Experience
. The Participant is capable of evaluating the merits and
risks of its investment in the Company and has the capacity
to protect its own interests. The Participant is an
"accredited investor" as defined in Rule 501 of Regulation D
promulgated under the Securities Act. The Participant is
able to bear the economic risk of losing its entire
investment in the Company, which is not disproportionate to
the Investor's net worth.
3.2 Investment
. If the Option is exercised, the Participant will acquire
the 2006-A Shares for investment for the Participant's own
account, not as a nominee or agent, and not with the view
to, or for resale in connection with, any distribution
thereof. The Participant understands that the 2006-A Shares
and the Dividend Stock and the Underlying Common Stock with
respect thereto have not been, and will not be when issued,
registered under the Securities Act or any state securities
laws by reason of specific exemptions from the registration
provisions of the Securities Act of 1933 ("Securities Act")
and such state laws, the availability of which depends upon,
among other things, the bona fide nature of the investment
intent and the accuracy of the representations as expressed
herein.
3.3 Rule 144
. The Participant is aware of the provisions of Rule 144
promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to
the satisfaction of certain conditions, which may include,
among other things, the existence of a public market for the
shares, the availability of certain current public
information about the Company, the resale occurring not less
than one years after a party has purchased and paid for the
security to be sold, the sale being effected through a
"broker's transaction" or in transactions directly with a
"market maker" and the number of shares being sold during
any three (3) month period not exceeding specified
limitations.
3.4 Access to Information
. The Participant has had an opportunity to discuss the
Company's management, business plan and financial condition
with the Company's management. The Investor understands
that any purchase of the 2006-A Shares involves a high
degree of risk, and there can be no assurance that the
Company's business objectives will be obtained.
3.5 Authorization
. The Participant has all requisite legal power and
authority to execute and deliver this Agreement and the ▇▇▇
Amendment and to carry out and perform its obligations under
the terms of this Agreement and the ▇▇▇ Amendment and the
transactions contemplated hereby and thereby. This
Agreement and the ▇▇▇ Amendment, when executed and delivered
by the Participant, will each constitute a valid and legally
binding obligation of the Participant, enforceable in
accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the
relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies.
3.6 Legends
. It is understood that each certificate representing the
2006-A Shares and the Dividend Stock and the Underlying
Common Stock with respect thereto shall bear a legend to the
following effect:
THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD,
OFFERED FOR SALE OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT OR THE AVAILABILITY OF AN EXEMPTION
THEREFROM.
4. Covenants of the Company
..
4.1 Reservation of Shares
. The Company shall at all times reserve and keep available
out of its authorized but unissued shares (i) such number of
shares of Series 2006-A Preferred Stock as shall from time
to time be sufficient to permit the exercise of the Option
and to permit payment of dividends on the 2006-A Shares and
Dividend Stock and (ii) such number of shares of Underlying
Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the
Series 2006-A Preferred Stock; and if at any time the number
of authorized but unissued shares of Series 2006-A Preferred
Stock or Common Stock shall not be sufficient to effect the
payment of dividends or conversion of all then outstanding
shares of the Series 2006-A Preferred Stock, in addition to
such other remedies as shall be available to the holders of
such Series 2006-A Preferred Stock, the Company will take
such corporate action as may, in the opinion of its counsel,
be necessary to increase the authorized but unissued shares
to such number of shares as shall be sufficient for such
purposes.
5. Miscellaneous
..
5.1 Good Faith; Cooperation; Further Assurances
. The parties will in good faith undertake to perform their
obligations in this Agreement, to satisfy all conditions and
to cause the transactions contemplated by this Agreement to
be carried out promptly in accordance with its terms. The
parties will cooperate fully with each other and their
respective representatives in connection with any actions
required to be taken as part of their respective obligations
under this Agreement. Each party will at the Closing and
from time to time after the Closing, deliver to the other
such further instruments necessary or desirable, in the
reasonable opinion of the requesting party and at the
expense of the requesting party, to consummate or document
the transactions contemplated by this Agreement.
5.2 Entire Agreement; Successors and Assigns
. This Agreement, the Loan Agreement and the Participation
Agreement constitute the entire agreement between the
Company and the Participant relative to the subject matter
hereof and supersede any previous agreement between the
Company and the Participant regarding such subject matter.
Subject to the exceptions specifically set forth in this
Agreement, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successors and assigns of
the parties.
5.3 Governing Law
. This Agreement shall be governed by and construed in
accordance with the laws of the State of Oklahoma without
regard to the conflicts of laws principles thereof.
5.4 Counterparts
. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall
constitute one and the same instrument.
5.5 Headings
. The section headings of this Agreement are for
convenience and shall not by themselves determine the
interpretation of this Agreement.
5.6 Notices
. Any notice required or permitted hereunder shall be given
in writing and shall be conclusively deemed effectively
given upon personal delivery, or by delivery by overnight
courier, or telecopy (with confirmation of receipt), or five
(5) days after deposit in the United States mail, by
registered or certified mail, postage prepaid, addressed:
if to the Company: Harold's Stores, Inc.
765 Asp
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Chief Financial
Officer
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
and if to the Participant, to the Participant's address as
set forth in the first paragraph of this Agreement
5.7 Survival of Warranties
. The representations and warranties of the parties
contained in or made pursuant to this Agreement shall
survive for a period of one (1) year from the date of the
Closing.
5.8 Amendment of Agreement
. Any provision of this Agreement may be amended by a
written instrument signed by the Company and the
Participant.
5.9 Finders' Fees
. The Company and the Participant will indemnify each other
against all liabilities incurred by one party with respect
to claims related to investment banking or finders' fees in
connection with the transactions contemplated by this
Agreement, arising out of arrangements between the party
asserting such claims and the indemnifying party, and all
costs and expenses (including reasonable fees of counsel) of
investigating and defending such claims.
[Signature page follows this page]
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date above set forth.
"COMPANY"
Harold's Stores, Inc.
By:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Interim Chief Executive Officer
"PARTICIPANT"
RONHOW, LLC, a Georgia limited
liability company
By: Ronus, Inc., a Georgia
corporation, Managing Member
By:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
