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,
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
"XXX 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 power and authority to execute and deliver this Agreement, to
sell and issue the 2006-B Shares hereunder, to issue any additional
shares of Series 2006-B Preferred Stock to be issued in satisfaction of
dividends on the 2006-B Shares (the "DIVIDEND STOCK") and to issue the
Common Stock issuable upon conversion of the 2006-B Shares and the
Dividend Stock as set forth in the Certificate (the "UNDERLYING COMMON
STOCK").
2.3 VALID ISSUANCE OF STOCK. The 2006-B 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 XXX Amendment by the Company, the
authorization, sale, issuance (or reservation of issuance) and delivery
of the 2006-B 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 XXX Amendment have been taken prior
to the date hereof. This Agreement constitutes and the XXX 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 RONHOW. RonHow represents
and warrants to the Company as follows:
3.1 INVESTMENT EXPERIENCE. RonHow is capable of evaluating the
merits and risks of its investment in the Company and has the capacity
to protect its own interests. RonHow is an "accredited investor" as
defined in Rule 501 of Regulation D promulgated under the Securities
Act. RonHow is able to bear the economic risk of losing its entire
investment in the Company.
3.2 INVESTMENT. If the Option is exercised, RonHow will
acquire the 2006-B Shares for investment for RonHow's own account, not
as a nominee or agent, and not
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with the view to, or for resale in connection with, any distribution
thereof. RonHow understands that the 2006-B 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. RonHow 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 year 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. RonHow has had an opportunity to
discuss the Company's management, business plan and financial condition
with the Company's management. RonHow understands that any purchase of
the 2006-B 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. RonHow has all requisite legal power and
authority to execute and deliver this Agreement and the XXX Amendment
and to carry out and perform its obligations under the terms of this
Agreement and the XXX Amendment and the transactions contemplated
hereby and thereby. This Agreement and the XXX Amendment, when executed
and delivered by RonHow, will each constitute a valid and legally
binding obligation of RonHow, 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-B 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.
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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-B 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-B 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-B Preferred Stock; and if at any
time the number of authorized but unissued shares of Series 2006-B
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-B Preferred Stock, in addition to such other remedies
as shall be available to the holders of such Series 2006-B 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
and the Subordinated Loan Agreement constitute the entire agreement
between the Company and RonHow relative to the subject matter hereof
and supersede any previous agreement between the Company and RonHow
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 any number
of counterparts (including by means of facsimile or other electronic
media) with the same effect as if all parties hereto had signed the
same document; however, this Agreement shall not become operative until
all parties have signed a counterpart hereof. All counterparts shall be
construed together and shall constitute one Agreement.
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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
Xxxxxx, Xxxxxxxx 00000
Attn: Chief Financial Officer
Telecopy: (000) 000-0000
if to RonHow: RonHow, LLC
0000 Xxxxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx, 00000
Attn: Xxxxxx Xxxxxxxx
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
RonHow.
5.9 FINDERS' FEES. The Company and RonHow 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]
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This Option Agreement is executed and delivered by the undersigned to
be effective as of the date first above written.
"COMPANY" HAROLD'S STORES, INC., an Oklahoma
corporation
By: /s/ Xxxx Xxxxxx
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Xxxx Xxxxxx, Chief Financial Officer
& Secretary
"RONHOW" RonHow, LLC, a Georgia limited liability
company
By: Ronus, Inc., a Georgia corporation,
Managing Member
By: /s/ Xxxxxx X. Xxxxxxxx
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Xxxxxx X. Xxxxxxxx, President
[Signature Page to Option Agreement]
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