HAROLD'S STORES, INC.

STOCK OPTION AGREEMENT

This Agreement is made and entered into effective February 23, 2001 ("Effective
Date") by and between Harold's Stores, Inc., an Oklahoma corporation
("Company"), and Clark Hinkley, an employee of Company ("Employee").

WITNESSETH:

WHEREAS, Company desires to grant Employee an option to purchase shares of its
Common Stock, par value $0.01 per share ("Common Stock"), as hereinafter
provided in order to carry out the purpose of the Harold's Stores, Inc. 1993
Performance and Equity Incentive Plan ("1993 Plan").

NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth,
the parties agree as follows:

1. Grant of Option. Subject to the terms contained herein, Company hereby grants
to Employee as of the date set forth above, the right and option, herein called
the "Option," to purchase all or any part of an aggregate of Five Hundred
Thousand (500,000) shares of the Common Stock. The right to purchase the
underlying shares shall constitute a Non-Qualified Stock Option, as defined in
the 1993 Plan.

2. Purchase Price. The purchase price of the shares of Common Stock covered by
the Option shall be $3.40 per share, subject to adjustment as provided in the
1993 Plan.

3. Term of Option. The Option shall become vested and exercisable immediately
upon grant as to twenty percent (20%) (100,000) of the total number of shares
subject to the Option and shall become vested and exercisable as to additional
increments of sixteen percent (16%) (80,000) of the total number of shares
subject to the Option on the day immediately preceding each of the first,
second, third, fourth and fifth anniversaries of the Effective Date. The option
may be exercised as to the aggregate number of shares then vested and
exercisable, subject to the terms of this Agreement and the 1993 Plan, at any
time and from time to time until ten (10) years after the Effective Date, or for
such other period set forth in Paragraph 5 hereof. Except as provided in
Paragraph 5, the Option may not be exercised at any time unless Employee shall
have been in the continuous employ of Company or any subsidiary of the Company
from the Effective Date through the date of the exercise of the Option.

4. Non-transferability. The Option shall not be assignable or transferable by
Employee, except by will or by the laws of descent and distribution. During the
life of Employee, the Option shall be exercisable only by him or her.

5. Termination of Employment. In the event of termination of employment of
Employee for any reason the portion of the Option that is vested and exercisable
at the time of termination of employment shall be exercisable by Employee or his
or her legal representative within three (3) months after the date of
termination of employment (within twelve (12) months after termination in the
case of termination due to disability, as determined by the Board of Directors
of the Company or the Compensation Committee of the Board of Directors (the
"Committee"), or death). However, if Employee terminates his or her employment
for "Good Reason" or if the Employee's employment is terminated by the Company
(other than for "Cause") after Employee has given notice to the Company of
termination for "Good Reason" (as such terms are defined in Employee's
Employment Agreement dated February 23, 2001 with the Company) then, to the
extent that the Option has not already become fully vested and exercisable, one
third (1/3) of the shares subject to the Option that had not vested prior to
termination of employment shall become fully vested and exercisable and may be
exercisable as provided in the first sentence of this Paragraph 5. In addition,
the Company by action of the Committee may in its sole discretion approve
acceleration of any then unvested installments of the Option. In no event, may
the Option be exercised more than ten (10) years after the Effective Date
hereof.

6. Reorganizations and Recapitalizations of Company. Subject to the other
provisions of this Agreement, the existence of the Option granted hereunder
shall not affect or restrict in any way the right or power of Company or its
shareholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in Company's capital structure of its business
or any merger or consolidation of Company, or any issue of bonds, debentures,
preferred or prior preference stocks ahead of or affecting the Common Stock or
the rights thereof, any issue of shares of Common Stock or shares of any other
class of capital stock or warrants or rights to acquire such shares, or the
dissolution or liquidation of Company, or any sale or transfer of all or any
part of its assets or business, or any corporate act or proceeding, whether of a
similar character or otherwise.

7. Change In Control. Anything herein to the contrary notwithstanding, to the
extent not already vested and exercisable, the Option shall become fully vested
and exercisable immediately prior to the occurrence of a Change in Control (as
defined below); provided that if an earlier date is fixed as the record date for
the ownership of stock of the Company eligible to participate in the Change in
Control, the Option shall become fully vested and exercisable in time to enable
Employee to become an eligible stockholder on such record date with respect to
the shares subject to the Option. For purposes of this Agreement, the term
"Change in Control" shall mean (i) the date any entity or person, including a
group as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
shall become the beneficial owner of, or shall have obtained voting control over
more than 50% of the outstanding common stock of the Company; or (ii) the
effective date of (a) any merger, consolidation or other reorganization of the
Company with another corporation in which the Company is not the continuing or
surviving corporation or pursuant to which any common shares of the Company
would be converted into cash, securities or other property of another
corporation, other than a merger, consolidation or reorganization of the Company
in which holders of Company common stock immediately prior to the merger,
consolidation or reorganization have more than 50% of the outstanding common
stock of the surviving corporation immediately after the transaction, or (b) any
sale or other disposition of substantially all of the assets of the Company to
any person other than a person whose outstanding common stock is more than 50%
owned by persons who were holders of outstanding Company common stock
immediately before such sale or disposition. Provided, the closing of the
transactions contemplated by the Series 2001-A Preferred Stock Purchase
Agreement between the Company and the Investors defined on the Schedule of
Investors to the Series 2001-A Preferred Stock Purchase Agreement (the "Investor
Group") and the exercise of rights, including voting rights and rights of first
refusal contemplated therein, shall not constitute a Change in Control for
purposes of this Agreement; Provided, further, the following circumstances shall
not be deemed to constitute a Change in Control: (i) the transfer of up to
thirty percent (30%) of the ownership rights of the Investor Group to Brad
Martin and/or Howard Lester; or (ii) any dilution of the stock ownership or
voting rights of the Investors as long as the Investors own in the aggregate at
least thirty percent (30%) of the common stock and preferred stock on an as
converted basis; or (iii) the transfer by Ronald de Waal of his interest in the
Investor Group to any entity or group of entities in which de Waal, directly or
indirectly, has a controlling interest.

8. Method of Exercising Option. The Option may be exercised, in whole or in
part, by written notification to Company. The written notice of election to
exercise shall be accompanied by cash or a certified or cashier's check for the
aggregate purchase price of the number of shares being purchased, or upon
exercise of the Option, Employee may, with approval of the Committee, pay for
the shares: (i) by tendering Common Stock of Company already owned by Employee
with such Common Stock to be valued based on the shares tendered at the Fair
Market Value (as defined below) determined on the date the Option is exercised;
or (ii)surrendering a portion of the Option with such surrendered Option to be
valued based on the difference between the Fair Market Value of the shares
underlying the surrendered Option on the date of exercise and the aggregate
option purchase price of the shares underlying the surrendered Option
("Surrender Value"); or (iii) with a combination of cash, Common Stock and
surrender of a portion of the Option. The Committee may also permit Employee to
simultaneously exercise the Option and sell the shares of Common Stock thereby
acquired, pursuant to a brokerage or similar arrangement, approved in advanced
by the Committee, and use the proceeds from such sale as payment of the purchase
price of the shares being acquired upon exercise of the Option.

The Company may require as a condition to the issuance of any shares of Common
Stock upon exercise of the Option that Employee remit an amount sufficient, in
the Company's opinion, to satisfy all applicable FICA, federal, state or other
withholding tax requirements related to the exercise of the Option. If approved
by the Committee, Employee may satisfy such obligation in whole or in part by
surrendering a portion of the Option covering shares having a Surrender Value
equal to the amount of such requirement.

9. Rights as a Shareholder. Employee shall have no rights as a shareholder with
respect to any shares covered by the Option until the date of issuance of a
stock certificate to him or her for such shares.

10. Subsidiary. As used herein, the term "subsidiary" shall mean any present or
future corporation in which Company has a proprietary interest (but only if
Company owns, directly or indirectly, stock possessing at least fifty percent
(50%) of the total combined voting power of all classes of stock in such
corporation), as the Board of Directors of Company shall determine from time to
time.

11. Fair Market Value. "Fair Market Value" means, if the shares of Common Stock
are traded on a national securities exchange, the closing price of the shares on
such national securities exchange on the day on which such value is to be
determined or, if no shares were traded on such day, on the next preceding day
on which shares were traded, as reported by National Quotation Bureau, Inc. or
other national quotation service. If the principal market for the shares is the
over-the-counter market, Fair Market Value means the closing "asked" price of
the shares in the over-the-counter market on the date on which such value is to
be determined or, if such asked price is not available, the last sales price on
such day, on the next preceding day on which the shares were traded, as reported
by the NASDAQ or other national quotation service. If at any time shares of
Common Stock are not traded on an exchange or in the over-the-counter market,
Fair Market Value shall be the value determined by the Committee, taking into
consideration those factors affecting or reflecting value which they deem
appropriate.

12. Option Plan. The terms of the Option and the rights and responsibilities of
the parties hereto shall be governed by the 1993 Plan to the extent not
expressly set forth herein.

 

 

IN WITNESS WHEREOF the parties hereto have executed this Stock Option Agreement
effective as of the day and year first above written.

 

COMPANY:

HAROLD'S STORES, INC.

BY: /s/ Jeffrey Morrell

EMPLOYEE:

/s/ Clark Hinkley

Clark Hinkley

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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