EXHIBIT 10.1
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OPTION AGREEMENT
This Option Agreement ("AGREEMENT") is made effective this 4th day
of
January, 2007, by and between RonHow, LLC, a Georgia limited
liability company
("RONHOW"), and Harold's Stores, Inc., an Oklahoma corporation
("COMPANY") with
reference to the following circumstances:
A. RonHow and the Company have entered into that certain
Subordinated Loan Agreement dated August 31, 2006 (the
"SUBORDINATED
LOAN AGREEMENT") pursuant to which the Company and certain of
its
subsidiaries (collectively, the "BORROWERS") may borrow an
aggregate
principal amount of up to $10,000,000.
B. The Company has authorized a Series of 2006-B Preferred
Stock under the terms of the Certificate of Designation of the
Series
2006-B Preferred Stock filed with the Secretary of State of the
State
of Oklahoma on August 31, 2006 (the "CERTIFICATE").
C. On August 31, 2006, pursuant to the terms of the
Subordinated Loan Agreement, RonHow made an initial advance in
the
amount of $5,000,000 (the "INITIAL ADVANCE"), which is convertible
into
shares of the Company's Series 2006-B Preferred Stock at the
Purchase
Price Per Share (as defined in the Initial Option Agreement) in
exchange for RonHow's the forgiveness of any outstanding principal
or
accrued but unpaid interest resulting from the Initial Advance
(the
"INITIAL OPTION AGREEMENT").
D. On the date hereof, RonHow is making an additional advance
pursuant to the terms of the Subordinated Loan Agreement in the
amount
of $2,000,000 (the "SECOND ADVANCE").
E. The Company has agreed to grant the option set forth in
this Agreement to enable RonHow to convert, in whole or in part,
the
principal balance and any accrued but unpaid interest due relating
to
the Second Advance into shares of the Company's Series 2006-B
Preferred
Stock.
F. The existing holders of the Company's outstanding Amended
Series 2001-A Preferred Stock, Series 2002-A Preferred Stock,
Series
2003-A Preferred Stock and 2006-A Preferred Stock have all
consented to
the transactions contemplated by this Agreement and the
Subordinated
Loan Agreement and waived their preemptive rights with respect to
the
right to acquire shares of Series 2006-B Preferred Stock by reason
of
their prior approval of the Subordinated Loan Agreement.
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-B PREFERRED STOCK.
1.1 OPTION. Subject to the terms and conditions of this
Agreement, the Company grants to RonHow an option (the "OPTION")
to
purchase at a price per share ("PURCHASE PRICE PER SHARE") of
One
Thousand Dollars ($1,000.00), up to 2,000 shares,
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plus such additional shares as may be purchased in exchange for
forgiveness of accrued but unpaid interest pursuant to the
Second
Advance (the "2006-B SHARES"), of authorized but unissued shares of
its
Series 2006-B Preferred Stock which may be exercised at any time
prior
to the repayment in full of the Subordinated Loan Agreement;
provided,
however, that for the purposes of Option granted pursuant to
this
Agreement only, any repayment by the Company of any outstanding
principal amount and accrued interest due under the terms of
the
Subordinated Loan Agreement shall be deemed to have been paid
(i)
first, on any outstanding principal amount and accrued interest
due
under the terms of the Second Advance; and (ii) second, to the
extent
such payment by the Company exceeds the amount contemplated by
Section
1.1(i), to any amounts due under the terms of the Initial
Advance.
RonHow may purchase from the Company such number of 2006-B Shares
as is
equal to the principal amount outstanding, plus any accrued but
unpaid
interest deemed by this Section 1.1 to be due under the terms of
the
Second Advance, at the date of Closing divided by the Purchase
Price
Per Share. RonHow 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 amounts deemed due under the Second Advance by
giving
written notice of exercise to the Company. If the Company intends
to
repay all or any part of the principal balance deemed due under
the
Second Advance, it shall give at least ten (10) days' written
notice to
RonHow and during such ten (10) day period, RonHow may exercise
the
Option in whole or in part. Payment of the Purchase Price for
the
2006-B Shares which RonHow purchases by any exercise of the Option
will
be paid by RonHow by forgiving such portion of the Second
Advance
principal amount and accrued but unpaid interest deemed to be
pursuant
to such advance equal to the purchase price of the 2006-B
Shares
purchased. RonHow will execute and deliver such documents and
instruments to evidence such forgiveness as the Company may
request.
1.2 CONVERSION PRICE. The Conversion Price (as defined in the
Certificate) of the 2006-B Shares acquired upon any exercise of
the
Option shall be equal to the 20 day average of the closing bid
prices
of the Company's Common Stock as quoted on the Over-the-Counter
Bulletin Board for the twenty (20) trading days ending on the
day
before the date of this Agreement, or $0.4055 per share. The
Conversion
Price shall be subject to adjustment as provided in the
Certificate.
All
other terms of the 2006-B Shares shall be governed by the
Certificate.
1.3 CLOSING. The closing of the purchase and sale of the
2006-B 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
RonHow
certificates representing the 2006-B Shares that RonHow is
purchasing
against payment of the Purchase Price therefore as provided above.
At
the Closing, the Company and RonHow 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, in order to cause the 2006-B Shares to be considered
covered
by such agreement. The obligation of the Company to close the sale
of
the 2006-B Shares shall be subject to the satisfaction or waiver of
any
conditions for such sale under the Subordinated Loan Agreement.
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2.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to RonHow 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
