Letter Agreement and Summary Term Sheet for Subordinated Debt Advance and Preferred Stock Issuance between Harold's Stores, Inc. and RonHow, LLC (March 30, 2007)

Summary

Harold's Stores, Inc. and RonHow, LLC entered into an agreement for a $2 million short-term advance under an existing subordinated loan, with the interest rate set at 18% per year pending lender approval. The agreement also outlines a plan to increase the loan facility, issue new preferred stock, and allow for the exchange or conversion of debt into equity. The arrangement is subject to approval from Harold's senior lender, Wells Fargo, and requires further documentation before becoming legally binding.

EX-10.1 2 exhibit10-1_15055.txt LETTER AGREEMENT DATED MARCH 30, 2007 EXHIBIT 10.1 ------------ RonHow, LLC 3290 Northside Parkway Suite 250 Atlanta, GA 30302 March 30, 2007 Harold's Stores, Inc. 765 Asp Avenue Norman, OK 73069 Attn: Jodi Taylor, Chief Financial Officer Dear Jodi: In conjunction with discussions among Harold's Stores, Inc. and its majority investors regarding continued financial support for Harold's, the parties have developed a short-term financing plan as outlined in the attached summary term sheet. Given Harold's immediate need for cash, RonHow is willing to make an additional $2 million advance under the existing Subordinated Loan Agreement and related note, each dated as of August 31, 2006. As a condition to making this advance, RonHow is requiring that Harold's agree to the following: 1. Subject to the approval of Harold's senior lender, Wells Fargo Retail Finance II, LLC, interest will accrue on this $2 million advance at a rate of 18.0% per annum. Upon such approval, the 18.0% per annum rate will be applied retroactively to the date of the advance, in place of the 13.5% per annum rate otherwise applicable pursuant to the current terms of the subordinated note. 2. Harold's will use commercially reasonable efforts to obtain, as promptly as practicable, the approval of Wells Fargo for the 18.0% per annum interest rate on such advance. 3. Harold's will execute and deliver, and cause the guarantors of the subordinated loan to execute and deliver, any and all documents reasonably requested by RonHow to evidence the 18.0% per annum interest rate accruing on the advance and the continuing effectiveness of the guaranty and security provided by the guarantors with respect to all of the indebtedness outstanding under the subordinated debt facility, including this additional advance. 4. Harold's will use commercially reasonable efforts to obtain, as promptly as practicable, the consent and approval of Wells Fargo to all aspects of the proposed Harold's Stores, Inc. RonHow, LLC Page 2 short-term financing plan as described in the attached summary term sheet that require Wells Fargo's approval. If Harold's is in agreement with the above conditions to the $2 million advance, please execute the enclosed copy of this letter in the place indicated below and return it to me. Sincerely, /s/ Robert L. Anderson ----------------------------- Robert L. Anderson President, Ronus, Inc., Managing Member of RonHow, LLC Accepted and agreed to on behalf of Harold's Stores, Inc. By: /s/ Jodi L. Taylor Title: Chief Financial Officer Date: March 30, 2007 SUMMARY TERM SHEET HAROLD'S STORES, INC. $3,000,000 DRAW-DOWN OF SUBORDINATED DEBT INCREASE OF SUBORDINATED DEBT FACILITY ISSUANCE OF 2007-A SENIOR PREFERRED STOCK AND AUTHORIZATION OF 2007-B SENIOR PREFERRED STOCK March 30, 2007 - -------------------------------------------------------------------------------- This Term Sheet summarizes the principal terms of additional advances under the previously-established $10,000,000 subordinated loan agreement between Harold's Stores, Inc. (the "Company") and RonHow, LLC ("RonHow"), the increase of the maximum principal amount under the subordinated loan agreement to $12,000,000, the creation of new Series 2007-A and Series 2007-B Senior Preferred Stock and the exchange of $2 million of existing subordinated debt for shares of Series 2007-A Senior Preferred Stock by the Company. No legally binding obligations will be created until definitive agreements are executed and delivered by all parties. This Term Sheet is not a commitment to invest, and is conditioned on the completion of due diligence, legal review and documentation that is satisfactory to RonHow and the Company. - -------------------------------------------------------------------------------- IMMEDIATE INITIAL FUNDING: $2,000,000 under the previously-established $10,000,000 subordinated loan agreement between the Company and RonHow (the "Sub-Debt Facility"). ADDITIONAL SUB-DEBT FUNDING: An additional $1,000,000 under the Sub-Debt Facility. The initial $2,000,000 advance plus the additional advance of $1,000,000 are referred to as the "2007 Sub-Debt." INTEREST RATE ON 2007 18.0% per annum, and otherwise on the same terms as SUB-DEBT: under the Sub-Debt Facility. The Company will use commercially reasonable efforts to obtain, as promptly as practicable, the consent and approval of Wells Fargo Retail Finance II, LLC with respect to the 18.0% interest rate applicable to the 2007 Sub-Debt, and until such approval is obtained, the 2007 Sub-Debt shall bear interest at 13.5% per annum and otherwise be treated as an additional advance under the Sub-Debt Facility. INTEREST DEFERRAL: Immediate commencement of the accrual (at the interest rates of 13.5% and 18%, respectively) of all interest payments under the Sub-Debt Facility up to a maximum of $1,000,000 accrued interest, with accrued interest becoming principal under the Sub-Debt Facility as of each applicable payment date. 1 SUB-DEBT FACILITY The Company will use commercially reasonable AMENDMENTS: efforts to obtain, as promptly as practicable, the consent and approval of Wells Fargo Retail Finance II, LLC to increase the Sub-Debt Facility to $12,000,000, excluding any accrued interest converted to principal under any advance. All other terms of the Sub-Debt Facility to remain unchanged. EXCHANGE OF EXISTING Exchange of up to $2,000,000 of existing SUB-DEBT: subordinated debt (paying 13.5% interest rate per annum) into a new Series 2007-A Senior Preferred Stock, as necessary to meet statutory surplus requirements for proposed de-registration by the Company of its common stock under the Securities Act of 1934, as amended (a "going dark" transaction). RonHow may, in its sole discretion, exchange additional 13.5% subordinated debt for shares of Series 2007-A Senior Preferred Stock, in order to enable the Company to meet statutory surplus requirements for a going dark transaction. The Company will be under no obligation to approve a going dark transaction, nor will RonHow be under any obligation to exchange any of the 13.5% subordinated debt for Series 2007-A Senior Preferred Stock if a going dark transaction is not consummated by the Company on or before September 30, 2007. CONVERSION OF 2007 SUB-DEBT: The 2007 Sub-Debt will be convertible on a dollar-for-dollar basis into a new Series 2007-B Senior Preferred Stock. NEW PREFERRED DESIGNATIONS: Series 2007-A Senior Preferred Stock and Series 2007-B Senior Preferred Stock. NUMBER OF SHARES: 10,000 authorized shares, consisting of 5,000 shares of Series 2007-A Senior Preferred Stock and 5,000 shares of Series 2007-B Senior Preferred Stock. PAR VALUE: $0.01 per share. PURCHASE PRICE (stated value): $1,000 per share. DIVIDENDS: For the Series 2007-A, 13.5% of Stated Value and for the Series 2007-B, 18.0% of Stated Value, in each case in same manner as Series 2006-B. RonHow will have the option to elect whether each quarterly dividend is cumulated or paid in cash or additional shares ("PIK"), or a combination of cash and PIK shares. SENIORITY: The Series 2007-A and Series 2007-B Senior Preferred Stock would have equal priority, but would have priority over all other equity securities of the Company as to dividends and proceeds upon liquidation of the Company. 2 VOTING RIGHTS: On as-converted basis in same manner as Series 2006-B. CONVERSION: For the Series 2007-A and Series 2007-B shares, conversion price of 66.667% of the Average Market Price (as defined in the certificates of designation for each Series in a manner the same as the 2006-B Preferred Stock) of the Company's common stock at the time of issuance (e.g. currently average is $0.447 per share resulting in a $0.298 conversion price per share); for PIK shares issued in lieu of cash dividends a conversion price of 66.667% of the Average Market Price at time of payment of such PIK shares. OTHER PROVISIONS: Other terms of the Series 2007-A and Series 2007-B Senior Preferred Stock will be substantially identical to the Series 2006-B Preferred Stock of the Company. TIMING: With respect to the immediate initial funding of $2,000,000 described above, on or before April 4, 2007. With respect to the other matters described in this term sheet, on or before April 30, 2007, subject to any required bank approvals. 3