OPTION
AGREEMENT
This Option Agreement (" Agreement ") is made effective
this 30th day of April, 2004, by and between RONHOW, LLC, a Georgia
limited liability company (the " Participant ") having an
office at 3290 Northside Parkway, Suite 250, Atlanta, Georgia,
30302, Attention: Bob Anderson and Harold's Stores, Inc., an
Oklahoma corporation (" Company ") with reference to the
following circumstances:
A.
Wells 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 and Amendment No. 2 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 (" Existing Participation ") and Participant is
acquiring from WFRF an additional $2,000,000 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 2003-A Preferred Stock in the event that
the New Participation is not repaid by the Borrowers on or before
October 31, 2005 (" Option Start Date ").
D.
The Company has authorized but unissued shares of Series
2003-A Preferred Stock under the terms of the Certificate of
Designation of the Series 2003-A Preferred Stock filed with the
Secretary of State of the State of Oklahoma on February 4, 2003
(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:
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Option to Purchase Shares of Series 2003-A Preferred
Stock
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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
20,000 shares, plus such additional shares as may be purchased in
exchange for forgiveness of accrued but unpaid interest on the New
Participation (the " 2003-A Shares ") of authorized but
unissued shares of its Series 2003-A Preferred Stock which may be
exercised if the Company has not on or before the Option Start Date
caused the New Participation to have been repaid in full. Unless
otherwise designated by the Company at the time of any repayment,
any repayments of Participant Advances (as defined in the Loan
Agreement) shall be applied first to repayment of the New
Participation and then to the repayment of the Existing
Participation. Participant may purchase from the Company such
number of 2003-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
Option Start Date and prior to the repayment in full by the Company
of the New Participation by giving written notice of exercise to
the Company after the Option Start Date. After the Option Start
Date, 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 2003-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 2003-A
Shares purchased. Participant will execute and deliver such
documents and instruments to evidence such forgiveness as either
the Company or WFRF may request.
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Conversion Price
. The Conversion Price (as defined in
the Certificate) of the 2003-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 April 29,
2004, or $2.524 per share. The Conversion Price shall be subject to
adjustment as provided in the Certificate. All other terms of the
2003-A Shares shall be governed by the Certificate.
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Closing
. The closing of the purchase and sale
of the 2003-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 2003-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 " IRA
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. Howard Lester, William A. Haslam,
Margaret A. Gilliam and Clark J. Hinkley, 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. Howard Lester in
order to cause the 2003-A Shares to be considered covered by such
agreement. The obligation of the Company to close the sale of the
2003-A Shares shall be subject to the satisfaction or waiver of any
conditions for such sale under the Loan Agreement.
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Representations and Warranties of the Company
. The Company represents and warrants
to Participant that:
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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
