Document:

EXHIBIT 10.2
                                                                    ------------

                     MEMBERSHIP INTEREST TRANSFER AGREEMENT

         This Agreement for the transfer and assignment of, in the aggregate, a
5% Class A Membership Interest in Arizona Pacific Materials, LLC (this
"Agreement"), is entered into on September 26, 2007, by and among the
transferor, WESTERN POWER & EQUIPMENT CORP., a Delaware corporation (the
"Transferor"), Arizona Pacific Material, LLC, an Arizona limited liability
company (the "Company") and the transferees signatory hereto (each a
"Transferee" and collectively the "Transferees"), with respect to the following
facts:

                                    RECITALS

         A. WHEREAS, the Transferor owns 90% of the membership interests in the
Company.

         B. WHEREAS, in consideration for the Transferees (or their assignor in
interest) agreeing to waive the existence of certain events of defaults pursuant
to the certain Letter Agreement with the Transferor and Rockmore Investment
Master Fund Ltd., as agent, dated as of September 19, 2007 (the "Letter
Agreement") relating to the Transferor's Series A Variable Rate Secured
Convertible Debentures issued pursuant to that certain Securities Purchase
Agreement, dated June 8, 2005 by and among the Transferor and the purchasers
signatory thereto (the "Purchase Agreement"), the Transferees desire to receive
and the Transferor desires to grant, in the aggregate, a 5% Class A Membership
Interest in the Company, the only class of membership interests issued and
outstanding.

         C. The 5% Class A Membership Interest in the Company is in addition to
the 10% Class A Membership Interest granted to the Transferees pursuant to that
certain Membership Interest Transfer Agreement dated April 17, 2007 giving the
Transferees, in the aggregate and as of the date hereof, a 15% Class A
Membership Interest in the Company.

         D. NOW, THEREFORE, for and in consideration of the mutual agreements
set forth herein, and subject to the terms and conditions set forth below, the
parties agree as follows:

                                    AGREEMENT

         1. Transfer of Membership Interests. The Transferor hereby transfers,
free and clear of all encumbrances (except for any encumbrances created on
behalf of the Transferees hereunder) to the Transferees, and the Transferees
hereby acquire from the Transferor, in the aggregate, 5% the outstanding Class A
Membership Interests of the Company (the "Membership Interest"). Each Transferee
shall receive a portion of the Membership Interest equal to the percentage set
forth on the signature page of such

                                       1
<PAGE>

Transferee attached hereto. The Transferees shall succeed to 5% of the capital
account of the Transferor as of the date hereof.

         2. Consideration for Transfer. The transfer of the Membership Interest
pursuant to this Agreement is being granted hereunder in consideration for the
waiver of certain events of default pursuant to the Letter Agreement.

         3. Closing. The closing of this transaction shall take place
contemporaneously with the execution of this Agreement. Within 5 business days
of the date hereof the Company shall deliver such membership certificates, if
any, evidencing the membership interests and any assignments of such interests
as may be required by law to transfer said interests. The Transferee(s) shall
also execute and deliver counterpart signature pages for the Operating Agreement
(as defined below in Section 5(c)).

         4. The Transferors Representations and Warranties: The Transferor
represents and warrants that as of this date:

                  (a) AUTHORIZATION. The Transferor has the power and authority
         to execute and deliver this Agreement and to perform its obligations
         hereunder, all of which have been duly authorized by all requisite
         action. This Agreement has been duly authorized, executed and delivered
         by it and constitutes its valid and binding obligation, enforceable
         against it in accordance with its terms, subject to bankruptcy,
         insolvency, fraudulent transfer, reorganization, moratorium and similar
         laws of general applicability relating to or affecting creditors'
         rights and to general equity principles.

                  (b) NO CONSENTS. No notice to, filing with, or authorization,
         registration, consent or approval of any governmental authority or
         other individual, partnership, corporation, joint stock company,
         unincorporated organization or association, trust or joint venture, or
         a governmental agency or political subdivision thereof (each, a
         "Person") is necessary for the execution, delivery or performance of
         this Agreement or the consummation of the transactions contemplated
         hereby by it.

                  (c) OWNERSHIP OF THE SECURITIES. The Transferor owns the
         Membership Interest beneficially and of record, free and clear of any
         liens, claims or encumbrances (except for any encumbrances created on
         behalf of the Transferees hereunder) (collectively, "Encumbrances").
         The Transferor has not entered into any agreement, arrangement or other
         understanding (i) granting any option, warrant or right of first
         refusal with respect to the Membership Interest to any Person, (ii)
         restricting its right to sell the Membership Interest to any Person, or
         (iii) restricting any other of its rights with respect to the
         Membership Interest. It has the absolute and unrestricted right, power
         and capacity to assign and transfer the Membership Interest to the
         Transferees free and clear of any Encumbrances (except for any
         encumbrances created on behalf of the Transferees hereunder). Upon
         execution of the Letter Agreement and this Agreement, the Transferees

                                       2
<PAGE>

         shall acquire good, valid and marketable title to the Membership
         Interest, free and clear of any Encumbrances (except for any
         encumbrances created on behalf of the Transferees hereunder).

                  (d) BALANCE SHEET: The Company is the owner or lessee, as
         applicable, of the assets listed in the December 31, 2006, Balance
         Sheet attached hereto as Exhibit A.

                  (e) PENDING SUITS: Except as set forth in Schedule 4(e)
         attached hereto, no material suits, actions, or proceedings are
         pending, or to the knowledge of the Transferor are threatened against
         or affecting the Company or its property.

         5. Covenants of the Transferor and the Company.

                  (a) AMENDMENT TO ORGANIC DOCUMENTS. The Company shall not, and
         the Transferor shall not permit the Company to, directly or indirectly
         amend its articles of organization, operating agreement or other
         charter documents so as to materially, adversely and disproportionably
         affect any rights of any Transferee.

                  (c) PARTICIPATION IN FUTURE FINANCINGS.

                           (i) From the date hereof until the date that a
                  Transferee no longer holds any Membership Interest in the
                  Company, upon any grant of any additional membership interests
                  in the Company (a "Subsequent Grant"), each Transferee (or its
                  designated assigns) shall have the right to participate in up
                  to an amount of the Subsequent Grant equal to a percentage of
                  the Subsequent Grant equal to the aggregate Membership
                  Interest then held by the Transferees (15% as of the date
                  hereof) on the same terms, conditions and price provided for
                  in the Subsequent Grant.

                           (ii) At least 10 Trading Days prior to the closing of
                  the Subsequent Grant, the Company shall deliver to each
                  Transferee a written notice of its intention to effect a
                  Subsequent Grant (a "Subsequent Grant Notice"). The Subsequent
                  Grant Notice shall describe in reasonable detail the proposed
                  terms of such Subsequent Grant, the amount of proceeds
                  intended to be raised thereunder and the Person or Persons
                  through or with whom such Subsequent Grant is proposed to be
                  effected and shall include a term sheet or similar document
                  relating thereto as an attachment.

                           (iii) Any Transferee desiring to participate in such
                  Subsequent Grant must provide written notice to the Company by
                  not later than 5:30 p.m. (New York City time) on the 10th
                  Trading Day after all of the Transferees have received the
                  Subsequent Grant Notice that the Transferee is willing to
                  participate in the Subsequent Grant, the amount of the
                  Transferee's participation, and that the Transferee has such
                  funds ready,

                                       3
<PAGE>

                  willing, and available for investment on the terms set forth
                  in the Subsequent Grant Notice. If the Company receives no
                  notice from a Transferee as of such 10th Trading Day, such
                  Transferee shall be deemed to have notified the Company that
                  it does not elect to participate.

                           (iv) If by 5:30 p.m. (New York City time) on the 10th
                  Trading Day after all of the Transferees have received the
                  Subsequent Grant Notice, notifications by the Transferees of
                  their willingness to participate in the Subsequent Grant (or
                  to cause their designees to participate) is, in the aggregate,
                  less than the total amount of the Subsequent Grant, then the
                  Company may effect the remaining portion of such Subsequent
                  Grant on the terms and with the Persons set forth in the
                  Subsequent Grant Notice.

                           (v) If by 5:30 p.m. (New York City time) on the 10th
                  Trading Day after all of the Transferees have received the
                  Subsequent Grant Notice, the Company receives responses to a
                  Subsequent Grant Notice from Transferees seeking to purchase
                  more than the aggregate amount of the Subsequent Grant, each
                  such Transferee shall have the right to purchase its Pro Rata
                  Portion (as defined below) of the Subsequent Grant. "Pro Rata
                  Portion" means the ratio of (x) the Membership Interest
                  percentage held by a Transferee participating under this
                  Section 5(b) and (y) the sum of the aggregate percentage
                  Membership Interests held by all Transferees participating
                  under this Section 5(b).

                           (vi) The Company must provide the Transferees with a
                  second Subsequent Grant Notice, and the Transferees will again
                  have the right of participation set forth above in this
                  Section 5(b), if the Subsequent Grant subject to the initial
                  Subsequent Grant Notice is not consummated for any reason on
                  the terms set forth in such Subsequent Grant Notice within 60
                  days after the date of the initial Subsequent Grant Notice.

                  (c) OPERATING AGREEMENT. The Amended and Restated Operating
         Agreement of the Company, dated June 1, 2000, attached hereto as
         Exhibit B, is the operating agreement of the Company in effect as of
         the date hereof ("Operating Agreement"). Except as expressly provided
         for under this Agreement, the terms and conditions of which shall
         supersede, modify and amend the terms of that Operating Agreement, the
         terms and conditions of Operating Agreement shall remain in effect.

                  (d) TRANSFERABILITY OF MEMBERSHIP INTEREST. Subject to
         compliance with any applicable securities laws the Membership Interest
         and all rights thereunder and hereunder are transferable in whole or in
         part. Upon a surrender of any certificate(s) (if any) representing the
         transferred Membership Interest the Company shall execute and deliver a
         new certificate in the name of the assignee or assignees and in the
         denomination or denominations as requested by the transferor, and shall
         issue to transferor a new certificate evidencing the portion of

                                       4
<PAGE>

         the Membership Interest not so assigned and the surrendered certificate
         shall be cancelled. Notwithstanding anything in the Operating Agreement
         to the contrary, the Transferor shall have no option to purchase the
         Membership Interest upon a transfer of all or part of such interest
         hereunder under Section VIII of the Operating Agreement.

                  (e) CONSENT AS MEMBER. The Transferor hereby consents to the
         transfer of the Membership Interest contemplated hereunder and approves
         the admittance of the Transferees as full members of the Company.

                  (f) ADDITIONAL CAPITAL CONTRIBUTIONS. The Transferees shall
         not be subject to any demand for additional capital contributions to
         the Company pursuant to Section 3.2.2 of the Operating Agreement or any
         other provision thereof; provided, however, if a Transferee does not
         participate in any such capital call (or participates for less than its
         share), such Transferee's Membership Interest shall be diluted in
         proportion to the size of the capital call and the fair market value of
         the Company at the time of such capital call; provided, further, in the
         event the Transferee disputes the fair market value of the Company such
         Transferee shall have the right to retain the services of an
         independent third party appraiser at its expense and reasonably
         acceptable to the Company to provide a fair market valuation of the
         Company which shall binding on the parties.

                  (g) TAX LIABILITY DISTRIBUTIONS. Notwithstanding anything in
         the Operating Agreement to the contrary, in the event that a Transferee
         shall incur any tax liability on account of any allocations or
         distributions by the Company, the Company, subject to having the
         available cash, shall promptly (and in any event prior to the date such
         Transferee is required to pay such tax liability) make a cash
         distribution to the Transferees in an amount equal to such tax
         liability based on an assumed combined federal and state tax rate of
         forty percent (40%).

                  (h) MANAGEMENT, FIDUCIARY DUTY AND DUTY OF LOYALTY.

                           (i) NO MANAGEMENT RIGHTS. Notwithstanding anything to
                  the contrary in the Operating Agreement, management of the
                  Company shall not be vested in all of the Class A Members of
                  the Company but shall be vested the holders of a majority of
                  the Class A Members or in a manager appointed by a majority of
                  the Class A Members of the Company.

                           (ii) NO FIDUCIARY DUTY. Notwithstanding anything in
                  the Operating Agreement to the contrary, the Transferees shall
                  have the same status and duty as a limited partner in a
                  partnership and therefore shall not be accountable to the
                  Company or the other members of the Company as a fiduciary.

                                       5
<PAGE>

                           (iii) NO DUTY OF LOYALTY. Notwithstanding anything to
                  the contrary in the Operating Agreement, the Transferees shall
                  owe no duty of loyalty to the Company or the other members of
                  the Company.

         6. Notices. All notices, requests, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand, when delivered by courier, three days after
being deposited in the mail (registered or certified mail, postage prepaid,
return receipt requested), or when received by facsimile transmission upon
receipt of a confirmed transmission report, as follows:

         If to the Transferor:    As set forth in the Purchase Agreement.

         If to the Company:       Same as the Transferor.

         If to the Transferees:   as set forth on the signature page of the
                                  Transferees attached hereto.

         Any party hereto, by notice given to the other parties hereto in
accordance with this Section 6 may change the address or facsimile transmission
number to which such notice or other communications are to be sent to such
party.

         7. Expenses. Each of the parties hereto shall pay its own expenses
incident to this Agreement and the transactions contemplated herein.

         8. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be determined in accordance with the provisions of the
Purchase Agreement.

         9. Assignment; Successors and Assigns; No Third Party Rights. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, successors, permitted assigns and legal
representatives. This Agreement shall be for the sole benefit of the parties to
this Agreement and their respective heirs, successors, permitted assigns and
legal representatives and is not intended, nor shall be construed, to give any
Person, other than the parties hereto and their respective heirs, successors,
assigns and legal representatives, any legal or equitable right, remedy or claim
hereunder.

         10. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original agreement, but all of which together shall
constitute one and the same instrument.

         11. Amendment and Waivers. The terms of this Agreement, along with the
Letter Agreement and the Transaction Documents referenced in the Letter
Agreement

                                       6
<PAGE>

shall not be otherwise changed, altered, waived or amended without the prior
written consent of a majority in interest of the Transferees.

         12. Titles and Headings. The titles and headings in this Agreement are
for reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.

         13. Entire Agreement. This Agreement constitute the entire agreement
among the parties with respect to the matters covered hereby and thereby and
supersede all previous written, oral or implied understandings among them with
respect to such matters.

         14. Severability. The invalidity of any portion hereof shall not affect
the validity, force or effect of the remaining portions hereof. If it is ever
held that any restriction hereunder is too broad to permit enforcement of such
restriction to its fullest extent, such restriction shall be enforced to the
maximum extent permitted by law.

         15. Interpretation. Unless otherwise indicated to the contrary herein
by the context or use thereof: (i) the words, "herein," "hereto," "hereof" and
words of similar import refer to this Agreement as a whole and not to any
particular Section or paragraph hereof; (ii) words importing the masculine
gender shall also include the feminine and neutral genders, and vice versa; and
(iii) words importing the singular shall also include the plural, and vice
versa.

         16. Consent to Spin-off. Each Transferee, severally and not jointly
with the other Transferees, hereby does consent to (a) the conversion of the
Company into a corporation in connection with any spin-off of the Company's
securities to the public stockholders of the Transferor (the "Spin-Off"), (b)
the Spin-Off and (c) the receipt and acceptance of the Company's securities
distributed in connection with Spin-Off on the same terms and subject to the
same conditions applicable to the Transferor's public stockholders.
Notwithstanding anything herein to the contrary, the consent above to not in any
way waive the fiduciary obligations of the Company and the Transferors to the
Transferees in undertaking such actions.

                              *********************

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<PAGE>

         IN WITNESS WHEREOF, the parties have duly executed this Agreement:

TRANSFEROR:

WESTERN POWER & EQUIPMENT CORP.

By: /s/ Dean McLain
   -----------------------------------
   Name: Dean McLain
   Title: President

COMPANY:

ARIZONA PACIFIC MATERIALS, LLC

By: /s/ Dean McLain
   -----------------------------------
   Name: Dean McLain
   Title: President

                     [SIGNATURE PAGE OF TRANSFEREES FOLLOW]

                                       8
<PAGE>

                         [SIGNATURE PAGE OF TRANSFEREES]

APM ACQUISITION CORPORATION

By: /s/ Michael Clateman
   -------------------------------------
   Name: Michael Clateman
   Title: President
% Membership Interest (as a percentage of whole Company): ____%
Address for Notice:   c/o Rockmore Capital, LLC
                      150 East 58t Street, 28th Floor
                      New York, New York 10155
                      Attn: Michael Clateman
                      e-mail: mc@rockmorecapital.com
                      Tel: (212) 258 2305

PORTSIDE WPEC CORPORATION

By: /s/ Marc Baum
   -------------------------------------
   Name: Marc Baum
   Title: Authored Signatory
% Membership Interest (as a percentage of whole Company): ____%
Address for Notice:   c/o Ramius Capital Group, L.L.C.
                      666 Third Avenue, 26th Floor
                      New York, New York 10017
                      Attn: Jeffrey C. Smith / Owen Littman
                      e-mail: jsmith@ramius.com / olittman@ramius.com
                      Tel: (212) 845-7955 / (212) 201-4841

CORAL LTD.

By: /s/ Adam J. Chill
   -------------------------------------
   Name: Adam J. Chill
   Title: Authorized Signatory
% Membership Interest (as a percentage of whole Company): ____%
Address for Notice:   c/o Highbridge Capital Management, LLC
                      9 West 57th Street, 27th Floor
                      New York, New York 10019
                      Attn: Ari J. Storch/Adam J. Chill
                      e-mail: ari.storch@hcmny.com/adam.chill@hcmny.com
                      Tel: (212) 287-4720
                      Fax: (212 751-0755

                                       9

<PAGE>

                                  Schedule 4(e)

                               Pending Litigation

In April, 2006, Arizona Pacific Materials, L.L.C. ("APM") commenced an action
against Copper Basin Railway, Inc. and others in the Superior Court, Pinal
County, State of Arizona. The First Amended Complaint seeks a declaratory
judgment and injunctive relief. The litigation concerns a dispute over
maintaining access to APM's property via a particular road.

There is a railroad line that runs down the border of APM's property. One of the
roads used to access APM's property runs along the side of the railroad line.
The defendant railroad claims that the road infringes upon its railroad
easement. APM has commenced this action for a declaration that it has an
easement relative to this roadway and to prevent the railroad from taking any
action to disrupt access to APM's property. The railroad has counterclaimed for
a declaration of the railroad's rights, ejectment of APM from use of this road,
and rent for alleged wrongful use of this road by APM.

The case is pending without a trial date. Cross motions for summary judgment
have both been denied. The railroad has filed a motion for reconsideration of
the denial of its motion for summary judgment. A finding for the railroad would
make accessing APM's property more difficult but probably not overly
problematic.

                                       10EXHIBIT 10.1
                                                                    ------------

                                                               EXECUTION VERSION

                                SECOND AMENDMENT
                                       TO
                    SUBORDINATION AND INTERCREDITOR AGREEMENT

         This SECOND AMENDMENT TO SUBORDINATION AND INTERCREDITOR AGREEMENT
(this "Second Amendment") is made as of September 26, 2007, by and among RONHOW,
LLC, a Georgia limited liability company, (the "Subordinated Creditor" or
"Subordinated Lender"), HAROLD'S STORES, INC., an Oklahoma corporation (the
"Parent"), HAROLD'S FINANCIAL CORPORATION, an Oklahoma corporation, HAROLD'S
DIRECT, INC., an Oklahoma corporation, HAROLD'S STORES OF TEXAS, L.P., a Texas
limited partnership, HAROLD'S OF JACKSON, INC., a Mississippi corporation, THE
CORNER PROPERTIES, INC., an Oklahoma corporation, HAROLD'S DBO, INC., a Texas
corporation, HAROLD'S LIMITED PARTNERS, INC., an Oklahoma corporation, and HSTX,
INC., a Texas corporation (each, individually, a "Guarantor" and collectively
the "Guarantors"), and WELLS FARGO RETAIL FINANCE II, LLC, as agent (the
"Agent") and lender (together with any other lenders under the Senior Loan
Agreement as defined below, collectively the "Lender"; the Agent, the Lender,
and their respective successors, transferees, and assigns, being herein
sometimes collectively referred to as the "Senior Creditor").

                                    RECITALS:

         WHEREAS, Parent, certain of the Guarantors, and Wells Fargo Retail
Finance II, LLC, as Agent and Lender, have entered into that certain Loan and
Security Agreement, dated as of February 5, 2003, as amended by Amendment No. 1
to Loan and Security Agreement, dated as of July 10, 2003, Amendment No. 2 to
Loan and Security Agreement, dated as of April 29, 2004, Amendment No. 3 to Loan
and Security Agreement, dated as of January 24, 2006, Amendment No. 4 to Loan
and Security Agreement, dated as of June 1, 2006, Amendment No. 5 to Loan and
Security Agreement, dated as of August 31, 2006, Amendment No. 6 to Loan and
Security Agreement, dated as of April 26, 2007, and Amendment No. 7 to Loan and
Security Agreement, dated as of the date hereof (as further amended, modified,
supplemented, extended or restated from time to time, the "Senior Loan
Agreement"), pursuant to which, among other things, the Lender has agreed,
subject to the terms and conditions set forth in the Senior Loan Agreement, to
make certain loans and financial accommodations to the Parent and certain of the
Guarantors, which loans and financial accommodations are secured by the Senior
Security Documents (as defined in the Subordination Agreement); and

         WHEREAS, the Subordinated Creditor and the Parent have entered into
that certain Subordinated Loan Agreement, dated as of August 31, 2006 (as
amended, restated, supplemented or otherwise modified from time to time,
"Subordinated Loan Agreement"), and the Guarantors have guaranteed the
obligations of the Parent thereunder in favor of the Subordinated Creditor
pursuant to the Subordinated Guaranty (as amended, restated, supplemented or
otherwise modified from time to time, "Subordinated Guaranty"). The Subordinated
Loan Agreement and the Subordinated Guaranty are secured by the Subordinated
Security Documents (as defined in the Subordination Agreement); and

<PAGE>

         WHEREAS, as an inducement to Lender to consent to the execution and
delivery of the Subordinated Loan Agreement, Subordinated Creditor agreed to
subordinate all obligations, liabilities and indebtedness of Parent to
Subordinated Creditor pursuant to that certain Subordination and Intercreditor
Agreement, dated as of August 31, 2006, as amended by that certain First
Amendment to Subordination and Intercreditor Agreement, dated as of April 26,
2007 (the "Subordination Agreement"); and

         WHEREAS, Parent, Guarantors, and Subordinated Creditor desire to amend
certain provisions of the Subordinated Loan Agreement, Subordinated Guaranty and
Subordinated Security Documents and to amend and restate in its entirety the
Subordinated Note (as defined in the Subordination Agreement) and Senior
Creditor gives its prior written consent to the same herein as required by
Section 3.2 of the Subordination Agreement; and

         WHEREAS, Parent, Guarantors, Senior Creditor and Subordinated Creditor
desire to amend certain provisions of the Subordination Agreement in connection
with the modifications to the Subordinated Loan Agreement, Subordinated Note,
Subordinated Guaranty and Subordinated Security Documents;

         NOW, THEREFORE, in consideration of the foregoing and the agreements
set forth in this Second Amendment, Parent, Guarantors, Senior Creditor and
Subordinated Creditor hereby agree as follows:

         SECTION 1. DEFINITIONS. Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to them in the Subordination
Agreement.

         SECTION 2. AMENDMENTS.

                  A. Section 1 of the Subordination Agreement is hereby amended
by adding the following definition, in the appropriate alphabetical order:

                           "LIMITED RECOURSE GUARANTY" means that certain
         Limited Recourse Guaranty and Security Agreement, dated as of September
         26, 2007, by and between Subordinated Creditor and Senior Creditor, as
         the same may be amended, modified, supplemented or restated from time
         to time.

                  B. Section 1 of the Subordination Agreement is hereby amended
by amending and restating the definitions of "Subordinated Debt", "Subordinated
Note", and "Permitted Subordinated Debt Payments" to read in their entirety as
follows:

                           "SUBORDINATED DEBT" shall mean all of the obligations
         of any Obligor to the Subordinated Creditor (a) evidenced by or
         incurred pursuant to the Subordinated Debt Documents (including,
         without limitation, each future advance made pursuant to such
         Subordinated Debt Documents), (b) any and all obligations to pay the
         Deposit Account Fee (as defined in the Subordinated Loan Agreement) and
         (c) all obligations, whether pursuant to the Subordinated Debt
         Documents or otherwise, to refund or reimburse Subordinated Creditor in
         respect of amounts that Senior Creditor may at any time, and

                                        2
<PAGE>

         from time to time, set off or otherwise apply against any obligations
         owed by Subordinated Creditor to Senior Creditor pursuant to the
         Limited Recourse Guaranty.

                           "SUBORDINATED NOTE" shall mean that certain Second
         Amended and Restated Subordinated Secured Promissory Note, dated as of
         September 26, 2007, made by Parent to the order of Subordinated
         Creditor, in the stated principal amount of $15,000,000, as the same
         may be amended, modified, restated and supplemented from time to time.

                           "PERMITTED SUBORDINATED DEBT PAYMENTS" means each of
         the following: (i) scheduled monthly payments of accrued but unpaid
         interest at the rates set forth in the Subordinated Note (including
         interest at the default rate to the extent then applicable) and
         payments on a scheduled monthly payment date of any accrued interest
         that remains unpaid due to application of this Agreement with respect
         to prior periods; provided, however, that on each Interest Payment Date
         (as defined in the Subordinated Loan Agreement) through and including
         the first Interest Payment Date on which the aggregate amount of
         interest accruing from March 1, 2007, through such Interest Payment
         Date under the Subordinated Note equals or exceeds $1,000,000, the
         accrued interest under the Subordinated Note shall be added to the
         principal balance thereof in lieu of cash payment of such accrued
         interest by Parent; (ii) with respect to that portion of the
         Guarantor's Deposit placed with Senior Creditor pursuant to the Limited
         Recourse Guaranty against which Senior Creditor has not exercise its
         right of set-off, or against which a set-off by the Senior Creditor is
         restored through payment or credit to the principal balance of the
         general ledger account in which such deposit is held, an amount payable
         monthly in arrears equal to the excess of (a) the amount of interest
         that would accrue on such amounts in the deposit account if such
         amounts were outstanding principal under the Tranche B Term Loan (as
         defined in the Subordinated Debt Documents) over (b) the amount of
         interest paid by Senior Creditor to the Subordinated Creditor in
         respect of the deposit account, in each case during the period such
         amounts are actually held on deposit in the deposit account; and (iii)
         with respect to that portion of the Guarantor's Deposit placed with
         Senior Creditor pursuant to the Limited Recourse Guaranty against which
         Senior Creditor has exercised its right of set-off, any amount paid by
         Parent or any Guarantor from amounts advanced under the Senior Loan
         Agreement to restore to the principal balance of the general ledger
         account in which the deposit is held any portion of the amount so set
         off. The amounts set forth in subsection (ii) above shall be payable,
         in arrears, on the first day of each month or, if any such date shall
         not be a business day, on the next succeeding business day to occur
         after such date; provided, however, that in lieu of any payment in cash
         of such amount, the amount shall be deemed to be accrued but unpaid
         interest under the Tranche B Revolving Loan, as defined in the
         Subordinated Debt Documents, and subject to the provisions of clause
         (i) above.

                  C. Section 3.2 of the Subordination Agreement is hereby
amended by amending and restating such section in its entirety as follows:

                           "Until the Senior Debt has been indefeasibly paid in
         full in cash and all lending commitments under the Senior Debt
         Documents have terminated, and notwithstanding anything to the contrary
         contained in the Subordinated Debt Documents,

                                        3
<PAGE>

         the Subordinated Creditor shall not, without the prior written consent
         of Agent, agree to any amendment, modification or supplement to the
         Subordinated Debt Documents the effect of which is to (a) increase the
         maximum principal amount of the Subordinated Debt or rate of interest
         on any of the Subordinated Debt, (b) change the dates upon which
         payments of principal or interest on the Subordinated Debt are due, (c)
         change or add any event of default or any covenant with respect to the
         Subordinated Debt, (d) change any redemption or prepayment provisions
         of the Subordinated Debt, (e) alter the subordination provisions with
         respect to the Subordinated Debt, including, without limitation,
         subordinating the Subordinated Debt to any other indebtedness, (f) take
         any liens or security interests in any assets of an Obligor, other than
         pursuant to the Subordinated Security Documents, or (g) change or amend
         any other term of the Subordinated Debt Documents if such change or
         amendment would result in a Senior Default, increase the obligations of
         any Obligor or confer additional material rights on the Subordinated
         Creditor in a manner adverse to any Obligor or the Senior Creditor;
         provided, however, the Subordinated Creditor may make additional
         advances in an amount equal to the payment of Subordinated Debt deemed
         to have been made upon conversion of all, or a portion of, the
         Subordinated Debt into common stock (as defined in the Senior Loan
         Agreement) of Parent, the Series 2006-B Preferred Stock of Parent, the
         Series 2007-A Senior Preferred Stock of Parent, the Series 2007-B
         Senior Preferred Stock of Parent or any other preferred stock of
         Parent. Subordinated Creditor will, or will cause Parent to, notify
         Senior Creditor of additional advances pursuant to the Subordinated
         Debt Documents as required pursuant to the Senior Loan Agreement
         (provided however prior notice shall not be required in the event an
         advance of Subordinated Debt is made to pay interest then due and
         payable in respect of the Subordinated Debt as permitted pursuant to
         Section 2.3(d) above), and Subordinated Creditor covenants and agrees
         to limit the principal amount of the Subordinated Debt to not more than
         $15,000,000 plus the amount of any accrued but unpaid interest that is
         added to the principal balance outstanding under the Subordinated Note
         in accordance with the terms thereof (but any increase above such
         amount shall continue to be subordinated under the terms hereof.)"

         SECTION 3. REFERENCES TO SUBORDINATION AGREEMENT. All references to the
Subordination Agreement therein or in any of the Senior Loan Documents or
Subordinated Loan Documents shall be deemed a reference to the Subordination
Agreement as amended by the First Amendment to Subordination and Intercreditor
Agreement, dated as of April 26, 2007, and as further amended by this Second
Amendment. Except as expressly provided in this Second Amendment, the execution
and delivery of this Second Amendment does not and will not amend, modify or
supplement any provision of, or constitute a consent to or a waiver of any
noncompliance with the provisions of, the Subordination Agreement or any of the
Senior Loan Documents or Subordinated Loan Documents executed in connection
therewith. To the extent not inconsistent herewith, the Subordination Agreement
and all of the Senior Loan Documents and Subordinated Loan Documents executed by
Senior Creditor, Subordinated Creditor, Parent, and Guarantors in connection
therewith shall remain in full force and effect and are hereby ratified and
confirmed by the parties thereto.

         SECTION 4. EFFECTIVE DATE. This Second Amendment shall become effective
as of its date and shall bind all parties only upon the execution and delivery
to the Senior Creditor and

                                        4
<PAGE>

Subordinated Creditor by the Senior Creditor, Subordinated Creditor, Parent and
Guarantors, as applicable.

         SECTION 5. REPRESENTATIONS AND WARRANTIES OF PARENT AND GUARANTORS.
Each of the Parent and Guarantors hereby represents and warrants to the Senior
Creditor and the Subordinated Creditor as follows:

                  A. Such party has the right and power, and has taken all
necessary action to authorize it, to execute, deliver and perform this Second
Amendment in accordance with its terms. This Second Amendment has been duly
executed and delivered by such party and is a legal, valid and binding
obligation of it, enforceable against it in accordance with its terms.

                  B. The execution, delivery and performance of this Second
Amendment in accordance with its terms do not and will not, by the passage of
time, the giving of notice or otherwise,

                  (i) require any governmental approval or violate any
         applicable law relating to such party;

                  (ii) conflict with, result in a breach of or constitute a
         default under the organizational documents of such party, any material
         provision of any indenture, agreement or other instrument to which it
         is a party or by which it or any of its properties may be bound or any
         governmental approval relating to it; or

                  (iii) result in or require the creation or imposition of any
         lien (except as permitted by the Senior Loan Documents and Subordinated
         Loan Documents) upon or with respect to any property now owned or
         hereafter acquired by such party.

                  C. That, after giving affect to the amendments set forth in
this Second Amendment, the representations and warranties of such party set
forth in the Subordination Agreement, the Senior Loan Documents, and the
Subordinated Loan Documents and in any other document, instrument or agreement
executed or delivered in connection therewith are true and correct as of the
date hereof as if made on the date hereof.

                  D. No Event of Default under the Senior Loan Documents or
Subordinated Loan Documents, other than as specifically waived herein, has
occurred and is continuing as of this date.

         SECTION 6. REPRESENTATIONS AND WARRANTIES OF SENIOR AND SUBORDINATED
CREDITORS. Each of the Senior Creditor and the Subordinated Creditor hereby
represents and warrants to the other as follows:

                  A. Such party has the right and power, and has taken all
necessary action to authorize it, to execute, deliver and perform this Second
Amendment in accordance with its terms. This Second Amendment has been duly
executed and delivered by such party and is a legal, valid and binding
obligation of it, enforceable against it in accordance with its terms.

                                        5
<PAGE>

                  B. The execution, delivery and performance of this Second
Amendment in accordance with its terms do not and will not, by the passage of
time, the giving of notice or otherwise,

                  (i) require any governmental approval or violate any
         applicable law relating to such party; or

                  (ii) conflict with, result in a breach of or constitute a
         default under the organizational documents of such party, any material
         provision of any indenture, agreement or other instrument to which it
         is a party or by which it or any of its properties may be bound or any
         governmental approval relating to it.

                  C. That, after giving affect to the amendments set forth in
this Second Amendment, the representations and warranties of such party set
forth in the Subordination Agreement are true and correct as of the date hereof
as if made on the date hereof.

         SECTION 7. NO NOVATION. It is the intention of the parties hereto that
this Second Amendment shall not constitute a novation of the Subordination
Agreement and shall in no way adversely affect or impair the validity of the
Senior Loan Documents or the Subordinated Loan Documents, it being the intention
of the parties hereto merely to amend the Subordination Agreement as expressly
set forth herein.

         SECTION 8. WRITTEN CONSENT OF SENIOR CREDITOR. Senior Creditor hereby
gives its prior written consent to the amendments, modifications, and
supplements to the Subordinated Debt Documents set forth in that certain Second
Amended and Restated Subordinated Secured Promissory Note described in Section
2(B) above and the Second Global Amendment and Reaffirmation of Subordinated
Debt Documents, dated as of the date hereof.

         SECTION 9. COUNTERPARTS. This Second Amendment may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

         SECTION 10. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAW PRINCIPLES THEREOF) OF THE STATE OF NEW YORK.

         SECTION 11. THIS SECOND AMENDMENT. This Second Amendment is executed
pursuant to the Subordination Agreement and shall be construed, administered and
applied in accordance with all of the terms and provisions of the Subordination
Agreement.

                            [SIGNATURE PAGES FOLLOW]

                                        6
<PAGE>

         IN WITNESS WHEREOF, the undersigned Subordinated Lender has executed
this Second Amendment as of the date first above written.

                           SUBORDINATED LENDER:
                           --------------------

                           RONHOW, LLC, a Georgia limited liability company

                           By: Ronus, Inc., a Georgia corporation,
                               Managing Member

                               By: /s/ Robert Anderson
                                   -------------------------
                               Name: Robert Anderson
                               Title: President

                                        7
<PAGE>

         IN WITNESS WHEREOF, the undersigned Senior Creditor has executed this
Second Amendment as of the date first above written.

                           SENIOR CREDITOR:
                           ----------------

                           WELLS FARGO RETAIL FINANCE II, LLC, a Delaware
                           limited liability company

                           By: /s/ Lynn S. Whitmore
                               ---------------------------
                           Name: Lynn S. Whitmore
                           Title: Senior Vice President

                                        8
<PAGE>

         IN WITNESS WHEREOF, the undersigned Parent and Guarantors have executed
this Second Amendment as of the date first above written.

                           PARENT:
                           -------

                           HAROLD'S STORES, INC.

                           By: /s/ Ron Staffieri
                               ------------------------
                           Name: Ron Staffieri
                           Title: CEO

                           GUARANTORS:
                           -----------

                           HAROLD'S FINANCIAL CORPORATION

                           By: /s/ Ron Staffieri
                               ------------------------
                           Name: Ron Staffieri
                           Title: CEO

                           HAROLD'S DIRECT, INC.

                           By: /s/ Ron Staffieri
                               ------------------------
                           Name: Ron Staffieri
                           Title: CEO

                           HAROLD'S STORES OF TEXAS, L.P.

                           By: HSTX, Inc., General Partner

                           By: /s/ Ron Staffieri
                               ------------------------
                           Name: Ron Staffieri
                           Title: CEO

                           HAROLD'S OF JACKSON, INC.

                           By: /s/ Ron Staffieri
                               ------------------------
                           Name: Ron Staffieri
                           Title: CEO

                           THE CORNER PROPERTIES, INC.

                           By: /s/ Ron Staffieri
                               ------------------------
                           Name: Ron Staffieri
                           Title: CEO

                                        9
<PAGE>

                           HAROLD'S DBO, INC.

                           By: /s/ Ron Staffieri
                               ------------------------
                           Name: Ron Staffieri
                           Title: CEO

                           HAROLD'S LIMITED PARTNERS, INC.

                           By: /s/ Ron Staffieri
                               ------------------------
                           Name: Ron Staffieri
                           Title: CEO

                           HSTX, INC.

                           By: /s/ Ron Staffieri
                               ------------------------
                           Name: Ron Staffieri
                           Title: CEO

                                       10

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